Real Estate Blog

The housing market is looking healthier. Here are more than 7 reasons why now is the time to jump into the market.

1. Uncle Sam is willing to help. First-time buyers (defined as anyone who hasn’t owned a home in the last three years) are entitled to a maximum $8,000 tax credit; interest rates are at record lows; and the Federal Reserve is doing its best to make mortgage loans available. (Sign up for a Webinar to learn more about the home buyer tax credit)

2. People have to live somewhere. About 800,000 new households are formed each year in this country, ensuring that the housing market will tighten, even if the economy doesn’t soar.

3. Borrowers leverage their investment. If you put $10,000 into the stock market and it earns 10 percent, you’ve earned $1,000. If you put $10,000 down on a home and its values increases 10 percent, you’ve made $10,000.

4. When prices come back up, you’ll have instant equity. In parts of the country where foreclosures have driven down prices, better times will mean the price of the home you buy will rise rapidly.

5. Mortgage costs stay the same. If you get a fixed-rate mortgage, the monthly payment stays the same – while everything else, including rent, goes upward.

6. You own it. There is something comforting in the notion that your home is your own. You can paint it any color you want, let the dog run in the back yard and hang a swing for the kids in the front.

Additional Reasons to Buy:

Home Builders See Hope for Improving Market
Home builders are beginning to be cautiously optimistic that the worst may finally be over.

Orders for new KB Homes increased 26 percent in the first quarter, the company reported. It was the firm’s first year-over-year increase in more than three years.

First-time home buyers purchased 70 percent of the homes. They represent ''the most attractive segment of the market as they do not have to sell a home before purchasing,'' says CEO Jeffrey T. Mezger.

Banks Move Back Into Jumbo Lending
Major banks are spotting opportunities and getting back into the business of making jumbo loans.

Bank of America, the country’s largest mortgage lender since it acquired Countrywide, has renamed its lending arm Banking of America Home Loans and is rolling out a program to finance loans between $730,000 and $1.5 million.

“There’s a real need for loans of this size," says Barbara Desire, who heads consumer real estate operations.

Other lenders moving into this space include ING Group, Amsterdam-based banking and insurance conglomerate, which will offer jumbos as large as $2 million through ING Direct.

Fed Plans Spark Drop in 30-Year Rates
The average interest on a 30-year mortgage fell to a 38-year low of 4.85 percent during the week ending March 27 from 4.98 percent the prior week, Freddie Mac reported.

The decrease came on the heels of the Federal Reserve's announcement that it plans to purchase another $750 billion in mortgage-backed securities and up to $300 million in Treasuries. President Obama says refinancing is now possible for 40 percent of mortgages and encourages home owners to reap the benefits of the record-low rates.

NAR: Outlook Favorable for Second-Home Market
Despite weakening second home purchases in 2008, the long-term demand looks favorable for the second-home market because there are large numbers of people in the prime years for buying a second home.

Currently, 39.2 million people in the United States are ages 50 to 59—a group that dominated sales in the first part of this decade. An additional 44.8 million people are between 40 and 49, and another 40.7 million are 30 to 39.

“While economic factors can affect sales from one year to the next, the fundamental demand from these large population groups will remain,” says Lawrence Yun, NAR chief economist. “Given that most people become interested in buying a second home in their 40s, the bulge of population approaching middle age should drive the second-home market over the next decade.”

The median price of a vacation home was $150,000 in 2008, down 23.1 percent from $195,000 in 2007. The typical investment property cost $108,000 last year, which is 28 percent below the 2007 median of $150,000.

“As in the market for primary residences, it appears that many sales of deeply discounted distressed homes are pulling down the median price in the second-home market as well,” Yun says.

Yun says lifestyle considerations are the single most important factor in the vacation home market.

“People are buying weekend homes or recreational property to use themselves or for a family retreat—investment considerations are secondary for most vacation-home buyers with relatively modest interest in renting,” he says.

2008 Second-Home Market Declines

The combination of vacation- and investment-home sales slipped to 30 percent of all existing- and new-home transactions in 2008, according to the NATIONAL ASSOCIATION OF REALTORS ^®' latest report.

However, more than four out of 10 investment buyers and more than three in 10 vacation-home buyers paid cash for their properties, with large percentages indicating that portfolio diversification was a factor in their purchase decision.

The market share of homes purchased for investment was 21 percent last year, unchanged from 2007, while another 9 percent were vacation homes, compared with a 12 percent market share in 2007. The total share of second homes declined from 33 percent of all transactions in 2007. In 2005, the peak year for home speculation, 40 percent of sales were second homes.

NAR’s 2008 Investment and Vacation Home Buyers Survey shows vacation-home sales dropped 30.8 percent to 512,000 last year from 740,000 in 2007. Meanwhile, investment-home sales fell 17.2 percent to 1.12 million in 2008 from 1.35 million in 2007. Primary residence sales declined 13.2 percent to 3.77 million in 2008 from 4.34 million in 2007.

Yun says the findings are understandable given the economic backdrop.

“We expected vacation-home sales to fall given the impact of a declining economy on discretionary purchases,” he says. “A steady share of investment-home sales results from buyers taking advantage of deeply discounted prices in many areas, with a smaller portion of new homes in the sales mix.”

Vacation Home Market Snapshot

The typical vacation-home buyer in 2008 was 46 years old, had a median household income of $97,200, and purchased a property that was a median of 316 miles from their primary residence; 35 percent were within 100 miles and 36 percent were 500 miles or more.

When asked about their reasons for purchasing a vacation home, 89 percent of buyers wanted to use the home for vacation or as a family retreat; 27 percent to diversify investments; 27 percent to rent to others; 26 percent to use as a primary residence in the future; and 17 percent for use by a family member, friend or relative.

Some other findings on this market:

• In terms of location, 26 percent of vacation homes were purchased in small towns, 23 percent in a rural area, 23 percent in resorts, 20 percent in a suburb, and 8 percent in an urban area or central city.
• Seventy percent of vacation homes purchased in 2008 were detached single-family homes, 18 percent condos, 5 percent townhouses or rowhouses, and 7 percent other.
• Sixty-nine percent of vacation home buyers and 84 percent of investment home buyers purchased existing homes; the rest purchased new homes.
• Investment-home buyers in 2008 had a median age of 47, earned $85,000, and bought a home that was fairly close to their primary residence – a median distance of 19 miles.
• When asked about the most important reasons for purchasing an investment home, 58 percent said to provide rental income; 38 percent to diversify investments; 19 percent for use by a family member, friend or relative; and 15 percent to use for vacations or as a family retreat.
• Twenty-eight percent of investment homes were purchased in a suburb and another 20 percent in an urban or central city area, 23 percent in a rural area, 22 percent in a small town, and 6 percent in a resort area.
• Sixty-four percent of investment homes purchased in 2008 were detached single-family homes, 22 percent condos, 8 percent townhouses or rowhouses, and 6 percent other.
• Vacation-home buyers plan to keep their property for a median of 12 years; 58 percent plan to keep their vacation home for 11 years or more. Investment buyers plan to hold their property for a median of five years.
• Eight in 10 second-home buyers consider it a good time to invest in real estate, compared with 71 percent of primary residence buyers.

The size of the second-home market is significant. NAR’s analysis of U.S. Census Bureau data shows there are 8.1 million vacation homes and 40.5 million investment units in the United States, compared with 75.5 million owner-occupied homes.

NAR’s 2008 Investment and Vacation Home Buyers Survey, conducted in March 2009, is based on 1,924 responses. The survey controlled for age and income, based on information from the larger 2008 NAR Profile of Home Buyers and Sellers, to limit any biases in the characteristics of respondents.

The 2008 Investment and Vacation Home Buyers Survey can be ordered online at www.realtor.org/newresearch. The report is free for NAR members, but the cost is $125 for non-members.

Source: NAR