Most of the news coming out of the housing market is bad. Home values continue to tumble. The first quarter reports show a fourteen percent value loss over the past year. The national median home value is now the same as in 2005.
There’s no doubt about it, it’s a buyer’s market. But, even though homeowners may be singing the busted bubble blues, it’s not quite time for homebuyers to lace up their dancing shoes. If you’re thinking about buying a house, you’d be better off waiting another six to 12 months.
Already more than half of the people who bought houses in 2006 have negative equity -- a gentle way of saying they owe more on their houses than their houses are worth. (In some markets, as many as 90 percent of those buyers put down two percent or less, so there wasn’t much equity to begin with.)
Adding to the gloom is the anticipation of millions of adjustable-rate mortgages scheduled to reset for the first time in 2009. It’s a sure bet that a lot of those homeowners will be anxious to sell prior to their reset dates.
In just a few more months, there are going to be a lot of bargains for those who were squeezed out the market during the real estate bubble. Each additional house on the market pushes the values lower; more houses up for sale mean more choices and lower prices for buyers,
But that doesn’t mean the forecast for buyers is all sunshine, either. In response to the sub-prime mortgage crisis, lenders have tightened up considerably.
It used to be that homebuyers could get into the house they wanted by having good incomes and good credit, even if they didn’t have much of a down payment. For a few years during the real estate bubble, they didn’t even need to have very good credit, much of an income, or a down payment.
The pendulum has swung in the other direction now, and lenders are insisting that buyers have excellent credit, solidly documented income, and a 10 percent down payment.
So spend the next few months getting ready. Use this time to polish your credit rating just a little more. Pay off your credit cards, or at least make sure they’re below 30 percent of their limits. Save for your down payment.