Why buy a home in 2009?

Wednesday, 21 January 2009 18:58

While all eyes are focused on our economy, it is no surprise that the current recession is causing serious concern for our country, our state and our town. Although there are many opinions about our economic health this year, we look forward to the future because the talent in our nation is unsurpassable and our determination for improvement, growth and change is immense. Our ability to overcome obstacles is what made our country the great and our eternal optimism and innovation will ensure that we prosper and grow intelligently. In fact, on the front page of The New York Times' Real Estate section on January 19, 2008, the lead article titled “For the Brave, The Moment is Now”, talks about buyers cracking open their piggy banks earlier than planned. Therefore, the concept of buying a home in New Canaan this year, after careful consideration and due diligence, is an opportunity worth considering.

The federal government has pledged to do whatever is necessary to end the longest recession in a quarter century. On December 16, The Federal Reserve has slashed its benchmark interest rate to between 0 and 0.25 percent and committed nearly $2 trillion to new lending programs, bailouts, and additional measures designed to bolster the financial markets. They are also working on a two year stimulus package worth as much as $850 billion in increased government spending and lowering taxes. With mortgage rates at multi-year lows, this now presents a welcome incentive for qualified buyers to step up to the plate.

Home prices are lower. Selling prices in New Canaan have already fallen 10-20 percent from their 2005 peaks and lower prices do help stimulate buyer demand, which is badly needed to reduce the excess housing inventory. Values of certain homes are already at levels low enough to be able to tempt bargain hunters. However, New Canaan is stable and the quality of life here is important and will remain to be. Also, the fact is that some people in New Canaan can afford not to sell their homes because they can just wait.

At the current time, there is an abundance of so many really good homes on the market. I never have remembered a time when such selections of quality homes were available for purchase. In seller’s markets of the past, any home in fair or even poor condition would sell quickly at high prices, sometimes with multiple bids because buyers were jumping at anything. Now buyers have a real opportunity to purchase a really great house at a lower price and a lower interest rate than they could have afforded in the past. If a buyer chooses to wait until prices come down more, they are also gambling on interest rates. A 10 percent drop in home prices is immediately nullified by a mere 1 percentage point increase in interest rates on a 30 year mortgage loan.

The National Association of Realtors has met with the U.S. Treasury to discuss the NAR proposal that the federal government establish an interest rate buy down program to lower mortgage costs and encourage home sales. A one percent drop in mortgage rates can increase home sales. For example, a one percent buy down in interest rates would result in a half million additional home sales over a one year period. This deserves special attention because it promises to have the largest immediate impact on increasing sales and stabilizing prices.

Also, Congress and the banking industry have been lobbying for inclusion in the economic stimulus package a provision that would again raise the limits on “conforming loans”. Last year, the limit was raised temporarily to $708,750 in Fairfield County to help bolster demand for higher priced houses .Interest rates on nonconforming or jumbo mortgages are typically higher than rates on conforming loans because they are considered riskier without a guarantee that Fannie Mae and Freddie Mac will buy them. By changing the jumbo conforming terms to include a hypothetical $700,000 mortgage, a borrower with good credit would qualify for a 5.25 percent interest rate rather than a 6 percent rate for jumbo mortgages. Borrowers who wait for the government to change the conforming loan limit could derive significant savings, however there is always the element of risk that rates could increase or that guidelines could change.

A Buyer’s Market is a trading up market.
The opportunity of trading up in a down market will offset any loss on the sale of your current home.
Falling home prices are a great opportunity for move up buyers. Even though your home sale price may be lower, the smaller loss at sale can be compensated by greater savings at purchase.
Some examples of well prices homes in various price ranges listed on The New Canaan MLS with various real estate companies are included in my “Best Buy List”

Under $1 Million
111 Glen Drive 3,000 sf Colonial on 1.29 acres- Short Sale $899,000 Coldwell Banker
$1-2 Million
30 Mariomi Road 4700 sf Colonial on 1.15 acres on Silvermine River. Relo Owned $1,250,000 Wm Pitt
$2-3 Million
139 Hoyt Farm Road 8,000 sf Brick Georgian on 2 acres in Hoyt Farms. Just reduced by $1,000,000. $2,495,000 Wm Raveis
$3-4 Million
165 Weeburn Drive. 11,000 sf new construction. 4 finished floors on 2 level acres $3,890,000.
Brotherhood and Higley
Over $4 Million
1227 Ponus Ridge Road
10,000 sf new construction. 2 prime acres with swimming pool. Gorgeous. $4,995,000 Wm Pitt


Some credit advice to buyers:
After reading this article, if any of this makes sense, remember bad credit can ruin a deal, translating into financing rejections, prohibitively high loan rates and failed contracts. If necessary, do not underestimate the value of repairing your credit in order to qualify for a mortgage. 23 percent of consumers had mistakes on their credit reports serious enough to result in the denial of credit. The Fair Credit Reporting Act gives consumers the ability to correct, update, amend and take action regarding the contents of a credit report.
Before applying for a mortgage there are some steps that you should look into.
Find out what is in your file. Every U.S. consumer is entitled to one free credit report annually from each of the three credit bureaus: Experian, Equifax, and TransUnion. Go to the government mandated web site www.annualcreditreport.com Dispute inaccurate information. You can dispute errors online or write a letter to each of all three credit bureaus detailing the dispute. Banks typically use the middle of the three credit scores when assessing a loan application.
Dispute inaccurate items at the source. You will also want to contact the credit card company of the inaccurate information.
Excise outdated information. By law, credit bureaus are supposed to remove information pertaining to the credit score, such as a late payment or collection that is more than seven years old.
Ensuring that your credit is intact before beginning the home buying process, will make it easier to obtain the best financing.

While much is said about buying at the bottom of the market, it is impossible to sell high and buy low at the same time. I believe that we will see prices bottoming out this year. If we are not at the bottom yet, we are close to it. Once the market settles or shows any sign of improvement, opportunities start slipping away. The very moment sellers no longer have to make concessions, they won’t, and buyers may be faced with mounting competition for the best homes available. When prices start to rise, it is like trying to catch a moving train. If you look at buying a home for the reason of improving the quality of life and plan to stay in that home for years to come, you will reap the rewards of a well made investment. While you cannot live in the stock market, you certainly can live in and enjoy a value priced New Canaan home.

Denise Gannalo is a sales vice president at William Raveis Real Estate, located at 4 Elm Street. She has more than 26 years experience in the New Canaan real estate market. For more information, call Denise at 966-3555 or visit denisegannalo.raveis.com.

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