Smart Time to Buy a New Home?, Yes or No –

Smart Time to Buy a New Home?, Yes or No –
The good news about today’s housing market

Dallas, Texas / July 1, 2007 – Journalist Laurie Ivy, of Ivy/Seamans Communications, explores the myths surrounding today’s housing market with help from public homebuilder chairman and CEO Steven J. Hilton.

L.I.: Mr. Hilton, we hear a lot of publicity these days about the housing market, and there doesn’t seem to be much good news. Would this be a good time for prospective buyers to sit on the sidelines and see how the situation plays out?

S.H.: Not at all. With the current market conditions, this could be one of the very best times for many buyers to either buy their first home or move up to the home they’ve always wanted. This is truly a buyer’s market. Buyers have more choices, both in the sheer number of homes as well as the features within those homes. Interest rates are still hovering around 40-year lows, and builders are offering unprecedented incentives to reduce their inventories.

L.I.: I keep hearing about a housing bubble. How does that affect me as a prospective homebuyer?

S.H.: Some areas of the country have had phenomenal appreciation over the past few years, and they’re now going through a housing correction. But you have to remember that real estate is very localized. The old adage “location, location, location” is a fact. Even within a city, there will be some homes in very high demand, while others are appreciating at a much slower pace.

And most real estate is purchased for long-term use. Historically, over the long term, housing has always appreciated.

L.I.: From what I read and hear on the news, it sounds as if this is a terrible time to buy a home.

S.H.: This is a fantastic time to buy a home. Depending on your location and the state of your home, it can be a challenging time to sell a home. But even if the real estate values in your community are not as strong as they were a year or two ago, you may still be better off buying your new home now. Most people move up to a more expensive home. Even empty nesters, who want to reduce their square footage, typically will move to a smaller home that is more expensive because it has the latest in designer features.

The critical number isn’t the selling price of your existing home. The number that counts is the difference between the sales price of your existing home and the purchase price of your new home.

For example, let’s say you live in a $200,000 home, but you want to move up to a $300,000 home. That’s a difference of $100,000. Now, let’s assume that home prices in your community have declined by 10%. That puts your existing home at $180,000, and your dream home at $270,000, a difference of $90,000, and a savings of $10,000. So you are better off buying now, before the market picks back up, because your dream home is more attainable under the current market conditions. Plus, when the market picks up, you may also benefit from being in a bigger home bought at a lower price.

L.I.: An average appreciation rate of 5% doesn’t sound that impressive. Wouldn’t it be easier to build wealth through the stock market?

S.H.: Buying a home gives you the ability to build equity and benefit from potential appreciation by leveraging a minimal investment. For example, if you purchased a $250,000 home with a $10,000 down payment and the home appreciates 5 percent during the first year, the home would be worth $262,500. That’s a $12,500 gain on a $10,000 investment. How many investments do you know that could offer a return like that? And give your family the enjoyment of living in a new home at the same time?

L.I.: What about interest rates? Are they on the rise?

S.H.: Interest rates fluctuate greatly, but it does appear as if they are increasing. However, interest rates today are still hovering around the lowest rates of the past 40 years and are a full two percentage points below the average interest rates paid by mortgage borrowers during the past three decades. Because the rates are so low, there is a likelihood that they will increase. Even if interest rates are a little higher than they were a year ago, you are better off buying now while home prices are low. You can always refinance if rates decline in the future. The combination of low rates and low prices results in lower monthly payments, and presents a unique opportunity for today’s buyers.

The other advantage of buying from a national new home builder like Meritage is that we have a stable of preferred lenders, which gives us the flexibility to offer our buyers special financing incentives and customized programs tailored to your specific needs.

L.I.: With the current market conditions, is renting a better option than buying?

S.H.: Homeownership continues to be the American dream, and for good reason. The homeownership rate has generally been rising through history and is currently close to its all-time high, with almost 69 percent of all US households owning their home. The number of US households is expected to increase 15 percent during the next decade, creating a continued high demand for housing.

Owning a home is the number one way that most US households build wealth. On a national level, home appreciation has historically risen 5 to 6 % per year, which means the value of home doubles every 13 years or so. The national median price of homes bought ten years ago has increased 88 percent.

Not only does owning a home provide immense personal satisfaction, but it also locks in the cost of shelter. Rental rates continue to increase. If you rented a home or apartment, your rent could increase 5 to 10 percent per year, or as much as 30 percent in three years. Renters don’t receive tax benefits, nor do they benefit from appreciation.

If you’re trying to buy your first home, it’s not wise to delay your purchase. Construction materials may continue to increase in price, which means home prices will continue to increase. You’re better off buying a new home now with fewer bells and whistles from a quality builder so you can benefit from today’s low prices, favorable interest rates and future appreciation potential.

L.I.: I keep reading about foreclosures. Would I be better off buying a used home that’s going through foreclosure or even a used home from a really motivated seller?

S.H.: A new home from an established national builder offers both financial and aesthetic advantages. A new home is covered by a warranty, and everything in it is brand new, such as appliances, heating and cooling system, wiring, plumbing, etc. Part of the cost of owning a home is the purchase price, but equally important is the operating cost. A new home is built with the latest in energy-saving features, such as lowE double-paned windows, state-of-the-art insulation, and high-efficiency environmentally friendly climate control systems. These features can dramatically lower your monthly utility and maintenance expenses. And, as I mentioned earlier, national new homebuilders, like Meritage, can often provide their buyers with favorable financing plans that result in lower monthly mortgage payments.

From an aesthetic standpoint, a new home includes the latest in design trends, such as gourmet kitchens with granite countertops, master baths with spas and palatial closets, game rooms, media rooms, studies and more. In many cases, you can choose the amenities most important to you. Because of the economies of scale, national builders can provide these amenities at a much lower cost than if you tried to retrofit and remodel an older home, even one that was bargain-priced. Chances are, your remodeling costs will be greater than you imagine.

L.I.: But how do I know that I’m buying at the very best possible time?

S.H.: You can’t ever know that. It’s impossible even for the experts to predict the very lowest prices or interest rates. If you try to time the market, you could end up on the sidelines for years, watching your dream home get further and further out of reach. And home prices don’t necessarily move in unison with interest rates. Buyers who purchased homes in the early 1990s during the last big economic and housing downturn enjoyed some of the strongest gains in the past decades.

All signs indicate that this is a buyer’s market. Homes are competitively priced, interest rates are favorable, mortgage financing is readily available, and there is a greater selection of homes in desirable areas than most of us have seen in our lifetimes. Job growth is predicted to continue, but at a level that is not expected to trigger high inflation rates or interest rates. Moderate economic growth, job creation and low inflation, combined with a true buyer’s market and an abundant choice of homes, makes this an ideal time to purchase a new home.

XXX