First Time Home Buyer

With the real estate mess that is currently happening, also described as the subprime mortgage crisis, many first time home buyers are wondering if now might be a good time to buy. Patience here, is the key for firsttime home buyers to get a true bargain. Real estate prices have not yet reached bottom. There are still months and months ahead for falling real estate prices.

In mid 2007, Moody’s forecast that the subprime adjustable rate mortgages issued during the last three months of 2006 would reach a maximum projected foreclosure rate of just under 20 percent during the fall of 2011. Yes, that’s three years from now.

While the rate of foreclosures has increased by more than 100% since last year at this time, that rate will likely increase by another 100% by next year. Interest rate resets for subprime borrowers do not even reach their peak until September, 2008. Since most people who own a home can afford to make the payments on their mortgages that have the artificially low introductory teaser rate, it is not until after the interest rate resets higher that they can’t meet their obligations.

Look for foreclosures to continue to increase throughout 2008 and 2009. As homes are foreclosed upon, which can take at least six months, it will continue to swell the inventory of homes available for sale. This will continue to push home prices down.

First time homebuyers do not need to rush to purchase a home now in order to lock in today’s “low” prices. The values available now will be viewed as high six to twelve months from now.

It also takes a while for the public to figure out and accept that the real estate market has changed. Sellers still desire to sell their properties for the peak prices that were seen 24 months ago. It is only human nature to want to believe that the “value” of one’s home has not plunged. However, value is merely what a buyer will pay for the home.

If there aren’t any buyers willing to pay the inflated prices of 24 months ago, then the value of 24 months ago is not what the home is valued at now. Sellers will still start their asking prices at inflated prices. It is only after many weeks of languishing on the market without offers that serious sellers will lower their asking price to a more realistic level.

It takes time for property owners to come to grips with the gact that over-inflated real estate prices are a distant memory. Homeowners still cling to hope that we’ve found the bottom and prices will rapidly go back up to where they were back in the boom.

However, the boom was created by extremely loose lending standards, artificially low teaser interest rates, 100% loan-to-value mortgages, and no-doc, no-income-verification loan approvals. This allowed millions of first time home buyers to enter the market who would not have been able to buy a home any other way. This surge of buyers caused prices to rise. But that surge of buyers is now absent.

Just as the surge of first time home buyers jumping into the market caused a very large rise in price, the surge of foreclosed homes being dumped onto the market will cause a very large price decrease. The worst is yet to come. First time home buyers should sit tight, save up for their down payment, reduce their bills, and work to improve their credit scores. Proper planning now will provide the first time home buyer to get the deal of a lifetime in about 12 to 24 months.

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