Housing Most Affordable

Realty Times of April 10, 2009

Housing Most Affordable: May be Time to Move from Renting to Owning
by Phoebe Chongchua


Falling housing prices, historically low interest rates, and tax credits are creating an enticing environment for renters to convert to homeowners.

"We are still going to have a tremendous amount of foreclosures, price declines, and best opportunities to buy properties at amazing prices," says Bruce Norris of The Norris Group.

If that sounds like a mixed bag of bad and good, indeed it is. Consumers have been inundated with news about a troubled real estate market. "If you look at the closings for California, 55 percent or more closings every month are lender-owned properties; that ratio has never existed before. So, the lenders are really dictating the prices at this point and there are so many lender-owned properties that the appraiser almost has no choice but to give that comp a lot of credence," says Norris. But the good news, especially for those who have been wanting to take the plunge into homeownership is that markets across the country are ripe for choosing the most suitable home.

"The affordability has never been this high. So, in relationship to income, California is the cheapest it's ever been. The fact that prices will still go down kind of means nothing to the person who is going to live in a house for quite a long time -- partly because the interest rates are also historically low," says Norris.

He points to his own daughter as an example. She is getting married this year and buying her own house for the first time.

"I think it's a very bright decision. Do I think her neighborhood might go down for another year-and-a-half, yeah—and to that I say, who cares! She's tying up an interest rate that's probably under 5 percent for 30 years and that may be the real bargain," says Norris.

Her fiancé owns a home but Norris and the couple agreed that her buying a home now is a good opportunity. So after the couple marries they will live in the home in order to receive maximum financial benefits. His daughter is using an FHA loan and putting $4,000 down on a $110,000 California home that was, at the height of the real estate boom worth, $330,000. She will then get a federal tax credit for $8,000 and she can receive that money (in as few as 10 days) now rather than waiting until she files her 2009 tax return. Best of all, the mortgage payment is less than it would cost to rent.

This is a trend that is playing out in many areas across the country. "Fortunately, the interest rates are national so you have that incredible interest rate that is forcing the mortgage payment below rent in many locations, including California. So the area that my daughter is buying in, her rent would be $1,100 and her mortgage payment is going to be about $825," says Norris.

Norris says that, coupled with the federal tax credit for first-time homebuyers, is making renters weigh their options, "It really is an inducement for people to go from being a renter to an owner."

"There are lots of areas that didn't go up as much as California. Let's pick an area, Texas, for instance, you have houses selling for $110,000 to $120,000 range and the rents there are also pretty high--$1,100 - $1,200 or so—so payments there are also a lot less if they own it," says Norris.

"It's most affordable right now, so you would think that everybody would want in, but real estate right now has a lot of fear attached to it and a lot of uncertainty about jobs," says Norris.

Some markets such as California are working to help alleviate barriers to home ownership. The California Association of Realtors in April introduced the Housing Affordability Fund's Mortgage Protection Program. There are specific eligibility requirements; talk to your Realtor for details.

"People who buy property in 2009 have a safety blanket now of six months of up to $1,500 payments per month that the California Association of Realtors, out of some fund that it has, will pay the people's payments," says Norris. He adds, "I've never heard anything like it."

Norris says while these programs to entice renters to become buyers are attractive, he says make sure you're ready to buy. He says there are specific habits that you should have in place before buying a home.

"You should already have developed a savings habit and you're ready to buy a home because you have a little bit of money left over in case something goes wrong," says Norris.

Another affirming reason to move from renting to buying comes from statistics from John Burns Real Estate Consulting in Irvine, California.

The company reports that 50 percent of the 76 metropolitan area markets across the U.S. that are tracked show that people can buy a house (after tax cost of homeownership considered) for less than they could rent one.
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