I found an article in the Wall Street Journal this weekend that supports what I have been saying for a few months: Now is the time to buy homes. This article supports its claims with two main points: 1.) The ratio of home prices to yearly rents has almost returned to pre-bubble levels. 2.) Homes are the most affordable they have been in decades.
The price/rents ratio is similar to the price/earnings ratio of a stock. In other words, how much do you have to pay to get $1 of income? Lower ratios are better. You can figure the price-to-rent ratio by dividing the price of a house by the amount of rent you expect to receive in a year. The national average of home prices to yearly rents is 11.3. This is down from 18.5 at the peak of the market. Hotpads currently has the average price/rent ratio for Bend at 14 (the legend is in the lower right hand corner). Generally speaking a price-to-rent ratio of less than 15 indicates that it is less expensive to own a home than to rent. One thing to keep in mind is that these ratios are based on averages and it is possible to find better or worse deals in any market. The price to rent ratio is a valuable metric whether you plan to live in the home or rent it to someone else. Here are links to two posts that I wrote this summer (June, July). They both have two examples of homes that sold for a great price and were able to retrieve a good amount of rent.
Falling prices and interest rates have made homes very affordable. Let’s use a $150,000 home as an example. Assuming a 20% down payment of $30,000 the principal and interest payment would be $588/month. That is at 4.25% interest on a 30 year fixed mortgage. The good news is, even if you don’t have 20% for a down payment that there are still loan programs available that only require 3% down payment even with less than perfect credit. Using the example above with only 3% down ($4500) and an interest rate of 4.75% (interest rates go up if you don’t have 20% down) the P&I monthly payment would be $756. I could run numbers all day and if you want to give me a call or send me an email, I will. The point I want to make is that you can get a nice house for $150,000 with a total monthly payment (principal, interest, taxes and insurance) between $838 and $1056. If you haven’t looked at homes for sale recently you might be surprised at what $150,000 will buy and how much it will rent for.
Should you buy now? If the only variables to consider are price and interest rates then the answer is yes. However, those are never the only two variables involved. How long do you plan to own the home? Is your employment situation secure? Will it be a rental or your residence? How much house do you need? On top of that I’m sure some of you don’t think you will qualify for a mortgage or there aren’t any homes that you can afford. To that I say, you won’t know unless you ask and you might be surprised at the answer. If you have been thinking about buying a home, call your lender. Let them tell you how much you qualify for then call your realtor. She would be happy to show you what homes are available in your price range.
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