Beating Broke

Personal Finance from the Broke Perspective

Is the Housing Market Making a Comeback?

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The housing market has been in a slump, since it crashed in 2008.  Here we are, three plus years later, and it just might be showing signs of making a bit of a comeback.

I’ve got to admit that, here in North Dakota, we never really directly felt the housing market crash.  With all the oil flowing in the western half of the state, and the resulting high demand for housing, our market has remained pretty close to level.  In the western part of the state, there’s such a demand for housing that the home builders can’t keep up, and prices have gone up by quite a bit.  Here in the eastern half, our market has kept steady, with only some minimal gains, but the number of homes available has stayed low.

Other parts of the country weren’t as lucky to have an oil boom going on at the same time as a major market correction, however, and certainly felt the crash a whole lot more than we did.  Recently, I’ve read several articles on the increase in inventory churn in some key areas.

Housing Market Key Factors

I’m no expert in the housing market, but I think that there are several key factors that might be contributing to a market comeback.  Interest rates remain low around the country, with many qualified buyers getting home loans with loans that are below 4%.  As a comparison, the home loan rates in Australia are near 6%.  As a further comparison, when my wife and I bought our house in 2004, the rate we got on the house was almost 7%.  Another key factor, in my opinion, has been the rising of new home construction.  As the market crashed, the rates dropped, but the number of people who still qualified under new, stricter lending policies dropped too.  The lower number of qualified buyers meant that there were less houses being bought, and built.  Rates are still low, but the number of new homes constructed has gone up several months in a row.  The people who survived the crash without bankruptcy are building homes.  That also means that they are likely selling their old homes, if they have them, and putting more lower cost houses into the market.  Those lower cost houses in the market could lead to more people buying houses and becoming first time homeowners.  The final factor that I think is contributing to a resurgent housing market is the leveling off of the job market.  With several months of gains in the job market, the employment situation appears to have leveled off some which should make people feel more secure in their employment situation and decide to make the jump into home-ownership.

Should you Buy a House?

Anytime we start talking about the housing market, the inevitable question comes up of whether a person should buy a house now or not.  I’m not trying to avoid the question, but it really comes down to your personal situation.  Your primary home still isn’t an investment.  Your local market should also be taken into account.  What are the rental rates in your area?  What would the mortgage payment on a house be?  Is the rent for a similar house more or less?  Is your financial situation stable?  Do you have savings for a down payment?  With enough left over to pay closing costs?  Do you have an emergency fund in place to pay for any unforeseen emergencies that might occur after you move in?  Spending thousands of dollars isn’t something that anyone should rush into.  Run the numbers on your financial situation, then run them again.  Sleep on it for a while, and then decide if now is a good time for you to consider buying a house.

What’s the housing market like in your area?  Did your market feel the crash?

Saving on Home Loans

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One of the biggest purchases you will make over your lifetime is the purchase of a house.  Some will argue that purchasing a house is an investment.  But, if it’s your primary house that you intend to live in, it’s not an investment.  Sorry, it just isn’t.  If you intend to rent the house out, that’s another story, but your primary residence is just a purchase.  Even so, it’s a very large purchase.  It makes sense, then, that we will want to find as many ways as we can to save money on the purchase of our home.

Saving before a home purchase

I’ll discuss how to save on your home once you’ve already purchased it a bit further down, but you’ll find yourself a good bit ahead of the game if you start thinking about how you can save money on your home purchase before you make the purchase.

  1. Improve your credit, improve your rate – The rate at which you borrow the money to buy your home is a big deal.  A half a point on the rate can translate to thousands of dollars more in interest over the life of the loan.  The best way to guarantee that you get the best rate available is to have excellent credit.  Depending on how far you improve your credit, you could shave as much as two or three points off the interest rate of the loan.  Not only will that reduce the payment you’ll make, but it will reduce the amortized amount of the loan by tens of thousands.  Want to know what makes an impact on your credit score?  Read the Beating Broke Guide to Your Credit.
  2. Compare home loans – I mentioned how this will likely be one of the biggest purchases of your life, right?  Well, why on Earth wouldn’t you compare the loans available to make sure you were getting the best deal?  You’ve got to compare those loans!  Different lenders will have different policies, rates, and even lengths of loans.  Not only will failing to compare the home loans available cost you money, but it could cause you a lot of stress over the life of the loan.
  3. 20% down or more – If you’ve got the savings for it, put at least 20% down on the home.  Why?  Well, it reduces the amount of the loan, for one.  The less you have to borrow the better, right?  More importantly, 80% is the normal cutoff for when a lender will require you to add Private Mortgage Insurance to the loan.  It can add a hefty bit to the monthly payment, and it doesn’t go anywhere but into the insurer’s pocket.

Saving after a home purchase

  1. Refinance – This may not be for all of you looking to save, but with the current rates, it bears looking into for some of you.  Refinancing a higher interest rate mortgage into a lower interest rate loan can save you thousands over the life of the loan.  Refinancing into a shorter term mortgage can also save you thousands, but beware that the mortgage payment is likely to be higher due to the shorter amortization period.
  2. Make extra payments – If refinancing isn’t in the cards for you, make sure that your lender will accept extra payments to principle and then start making them.  Reducing the principle will reduce the interest, and by simply making an extra payment a year, you can shave years off of your mortgage.

Whether you’re looking at buying a home, or already have, saving money on the biggest purchase of your life is always worth looking into.  A few minutes on the phone with your lender can sometimes save you more than you would cutting lattes every day.  With the higher number of defaulting mortgages recently, many banks are much more willing to help you save money on your payments and pay the loan off early.  They like getting their money back too!

What other ways have you used to save money on your mortgage?  What’s the most extreme example that you’ve heard of?

New Home Sales Drop Even Further

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It wasn’t that long ago that we were talking about how far home sales had dropped (a new record low at the time) and the causes behind it.  It was just announced (yesterday or today) that new home sales have “unexpectedly” dropped another 12.4% to a new all time record low.

To be completely honest, I’m not sure why it was so unexpected that the sales would continue to drop.  The economy is still just as bad as it was.  It hasn’t necessarily gotten any worse, but it certainly hasn’t made any great rebounds either.  I still maintain that anyone who was in a financial situation to buy a new house likely did already to take advantage of the tax credits that were in play until the end of April.  On top of that, there’s still talk of more “stimulus” to the housing industry.  So it’s likely that there are some who are holding out for a new tax credit to show up.  Will that happen?  I hope not, but you just never know.  Another factor may be the still falling value of homes.  The further the prices fall, the more likely it is that you’ll end up underwater on it.  If you can’t get out from under that, it’s unlikely that you’ll be able to sell without a large amount to cover the difference.

I will continue to not be surprised by these “unexpected” drops in sales.  How about you?  Are there factors that I’m not taking into account that might rescue the sales figures?  (Wizards and warlocks don’t count.)