The McPherson Group

Prime Time to Buy; Start Investing for you Future!

The CNNMoney.com article “Home Prices: Don’t Expect Quick Rebound”, March 9, 2007 predicts what will happen to the value of homes in the next few years. David Lereah, the chief economist for the National Association of Realtors, says that “we'll have to go into 2008, maybe even 2009 before we get even close to the peaks we saw in late 2005 or early 2006.” Celia Chen, the director of housing economics for Moody’s Economy.com is less optimistic and believes that it will take until 2009 for prices to reach the peaks that were hit in 2005.

A couple things that contribute to this real estate slump are the glut of homes on the market, there are a record 2.1 million empty homes for sale, and the fact that home prices appreciated so greatly in the first half of the decade. The law of supply and demand explains why home prices are dropping. As the supply of houses increases, the demand declines because consumers have more choices. Sellers therefore have to use incentives and lower prices to attract buyers to their property. The problem with the appreciation over the last 10 years is that it was so great that it will even take longer for the market to balance itself and reach equilibrium.

These new predictions are not the greatest for anyone who is trying to sell their home. They are however, an unbelievable opportunity for our generation, as we try to settle and purchase our own homes after gradation. Home prices have fallen drastically and we should all have a better chance of buying a property and building equity. As the market continues to level it can start to rebuild and our investments will appreciate. We have the very unique chance of buying low and being able to sell high in the next 3 to 5 years.

Another good sign for the market, according to David Stiff, the chief economist for Fisery Lending Solutions, is that all previous real estate slumps have been accompanied by a recession or downturn in the job market. This decline hasn’t been correlated with either of these issues, it solely due to overbuilding.

Buying is a great opportunity right now but one of the hardships for new buyers will be the difficulty in getting loans. Because banks were so willing to loan money during the housing boom, many people over-borrowed and are defaulting on their mortgages. Also, people who purchased houses using ARMs have started to suffer as the terms on those loans start to change, which lessens lenders willingness to loan money.

Even though it may be a little more difficult for new buyers to get loans, this is the perfect time to find a way to buy. If you can’t afford to purchase on your own, consider investing with a family member or friend. This opportunity to build equity so early in our lives is something that may never come again. Start saving your money and thinking about your future before the market turns around and regains momentum.