Why Build Now?Now is a Great Time to Build

Investment opinions, everyone has one. Go long on gold go short on silver? Buy cattle, sell sheep? Buy stocks, sell bonds? I think we hear something in the media or through various communications daily.

One fact that is hard to argue against, is that buying or building a house now is an excellent idea. Rates are still historically low and the market is showing signs of appreciation.

Buying a house does take more effort and consideration than buying a stock or bond. First you need to visit properties, both existing and potential new builds. Deciding which one best needs your needs is an important step. However, one of the most critical steps is figuring out what you can afford and if your financial picture meets current lending guidelines. Obtaining a mortgage will require providing your financial information and allowing a lender to check your credit. They will look at your income, assets and liabilities to determine how much house you can buy. As a consumer you will also need to check lenders fees and charges as there are many options to choose from and the landscape for your business is competitive.

Once you have made your home investment, you may need to wait to get your gains, monetarily speaking, but you have a new home to enjoy in the meantime.

So how long is a housing cycle? Sometimes, depending on the market it can be pretty long. A pretty modest housing bubble, by current standards, occurred in Boston in the late 1980s. Average house prices when adjusted for inflation, reached $310,000 in October 1987. House prices didn’t reach that high point again until May 2000. If you bought at the high you had a long wait to get even, but that was longer by far than the average. In the above example, Home prices bottomed, however, in March 1993, roughly six years after the top. History usually doesn’t repeat itself perfectly, but it is notable that the top of the last bubble was six years ago, in 2006, so 6 year later historically we should be at the bottom.

There are no guarantees in life, but here are more reasons to buy. Nationally by many measures, home prices are cheap. The median single-family home price - half higher, half lower - hit its nadir in January, dropping to $154,600, the lowest since October 2001, according to National Association of Realtors. That’s down from a high of $230,900 in July 2006.

Existing-home prices rose in June to median $190,100, up 8% from June 2011. Those are still 2003 levels.

Supply of homes on the market is getting smaller. It takes time for supply to go down, partly because there are folks who have wanted to sell their homes for many years, but haven’t been able to get the price they want. As prices go up, more and more homes come on the market.

However, Ned Davis Research, a respected institution research firm, believes that excess supply of houses on the market should be eliminated by the end of 2013. So as supply decreases home prices will go up. That is another reason to buy now. When excess supply dries up, people start building more new houses, which has the virtuous impact of decreasing the unemployment rate and increasing the economy growth in general. So buying a home also helps the economy.

Mortgage rates are at record lows, the average 30-year fixed-rate mortgage rate is around 3.95% according to Freddie Mac. That is above the all-time low of 3.49% the week July 26, but pretty near. It’s possible that at some time in the next 30 years, your home's interest rate would be lower than the inflation rate. Even so interest rates are super low and should only increase as time goes on so that is another reason to buy now.

So home payments are at record low levels because of interest rates and then of course with home ownership you can take the tax deductions that come with ownership

The current economic downturn has been the worst since the great depression. So typically when something drastically crashes as it has this time, or the valley is very low, then the peak that comes afterward is typically very high. So relatively speaking when we come out of this downturn homes will likely start climbing in value again.

Bottom line, if you’re planning to live in your home for a long time, you have the money, and you can get financing, it’s a great time to build.

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