We keep hearing the news about home values expecting to fall again. The alerts tell you not to buy until prices hit bottom. Buy low sell high. Well, I don't entirely agree with this as there are incredible opportunities in the Twin Cities market place.
I've been in the lending industry for 17 years and the past 3-4 years have certainly been new ground for all members of the lending club. 10 years ago clients were frustrated with the continued rising costs of home ownership and as new listings hit the market multiple offers came pouring in. The affordability index continued to rise as homes appreciated and payroll income couldn't keep up. The affordability index measures the cost of housing against household income. As home prices go up and incomes don't keep up with the rising making, it becomes harder for new buyers to enter the market.
Fast forward a few years as lenders developed new loan programs initiated to increase home ownership. Our government felt that we could move the % of ownership up to 75% from the 65 percentile. "You too can own a home for as little as no money down and payments as low as XXX" was the buzz in the market." First time investors purchase non owner occupied properties with "no money down". They were sold the appreciation model which says, in another year your property will be worth another 10-15%. Imagine the wealth you can create with multiple properties working for you. The problem is, with higher purchase prices and no money down the monthly cash flow numbers didn't work, rent wasn't high enough to cover the monthly mortgage costs. At that same time, renters were being told they could own with "no money down even bad credit." The new landlords were then competing with great rates and aggressive lending so finding tenants was a challenge. But they could bank on appreciation.
Our house of cards finally came tumbling down and the market is correcting itself. I like this market as a buyer because it's a buyers market and prices have corrected in some cases more than 25%. The affordability index is now coming back into a reasonable range for affordable home ownership and the buyers have the advantage. The media continues to bang the drum that if your credit score isn't 750 and you don't have a 20% down payment you can't buy a home or qualify for a mortgage. That couldn't be farther from the truth. I have first time home buying programs that allow as little as $750 of the borrower's money into the transaction. Keep in mind, the only way for a buyer to purchase for as little as $750 is to fit within a specific income range, buy in a specific location and have the sellers pay the closing costs. You may ask how often do sellers pay for closing costs? I see it in about 90% of my purchase transactions. The programs are available and many home buyers don't know about them.
I believe now is the time to take advantage of historic low interest rates starting as low as 4.45%. If you know someone interested in buying their first or their fifth home, have them give me a call.
