Janis Peterson, GRI, ABR, CSP Realtor®
If you’ve been waiting on the sidelines thinking that you’re not sure it’s the best time to buy a home, Arthur B. Herling, Regional Vice President of Long & Foster’s PA/NJ Region thinks it’s important to set the record straight. Now is probably the best time to buy. Of course, you’d expect to hear that from a real estate professional. But, in fact, Herling says the market is in a very unique time and says waiting could end up being a very costly missed opportunity.
According to Herling, one smart reason to invest in a new home sooner rather than later is to take advantage of value appreciation leverage. In other words, while you might make a down payment of only five to 10 percent of a homes sale price, your annual rate of return will be based on the full value of the house. As reported by Frank Nothaft, chief economist at Freddie Mac, the average annual appreciation of residential real estate from second quarter 1981 through 2006 was 5.4 percent nationwide. Thus, a $400,000 home over a five-year period would be worth $564,240.
“Even if we choose not to use this 25 year historical average, a lower appreciation rate still yields huge returns. For example, if we only assume a four percent average annual appreciation rate, which would be 40 percent lower than the 25 year historical average, a $400,000 home would be worth $488,398 in just five years,” Herling said. “Take this one step further and understand the leveraged investment return. If you put down 10 percent on this home, or $40,000, then you actually earned an additional $88,398 on top of the down payment over those five years. That equates to a 37.7 percent return on investment.”
According to Herling, this leveraged investment is powerful for prospective homebuyers to understand, as they have the potential to make returns significantly higher than other investment choices even when the real estate market returns at lower appreciation levels than the 25-year history proves.
“Interest rates are still near historic lows, failure to act soon could wind up hurting a buyer in the long run,” Herling added. “With continued pressure on the dollar coming from higher energy costs as well as the increased national debt, there is a strong argument to lock in your long term mortgage rate now. It is also important to consider the sheer impact to qualifying power and the monthly debt load of needlessly carrying that additional expense.”
According to Herling, tax sheltering is another important factor to consider when deciding on whether to wait or buy a home now, “Remember that 37.7 percent return on investment in five years? That value did not include the tax benefit of homeownership,” Herling said.
Finally, now is a great time to take advantage of something not seen in some time: increased inventory. It is indeed a buyer’s market and for the first time in years there is a great selection of homes on the market with many sellers eager to find a way to help make prospective homebuyers new homeowners.
“With inventory readily available, interest rates close to record lows, and the opportunity to have a leveraged investment strategy and gain the additional tax benefits that come with home ownership, it is arguable that this year is the best period seen in almost a decade to buy a home. And the most important consideration is that waiting could be the most costly error of all, Herling said.
"Real Service in Real Estate." For a personal consultation on buying or selling real estate, Janis Peterson, GRI, ABR, CSP Realtor® can be reached at (610) 642-3744, e-mail: email@example.com
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