Applying For a Mortgage: Is This a Good Time?
It’s a question everyone always asks, or at least wonders, whenever they are in the process of house hunting or thinking about getting started.
So in this tumultuous climate, is it worth it?
Last year, the market began to slow, causing potential home loan seekers to postpone buying hoping that prices would drop. In fact, in some areas and in some segments of the market, prices have declined.
However, in some higher-demand markets such as San Francisco, Austin and Seattle, prices increased compared to a year ago, particularly for upper-end properties. Amazing.
When California mortgage rates fell below 6.5 percent at the beginning of 2007, San Francisco Bay Area buyers were back competing against one another in a low-inventory market.
Was it wise for these buyers to postpone buying a home until 2007? Waiting resulted in lower mortgage rates, yes, but in many cases, it was a wash due to a higher purchase price.
Psychology influences home-buying patterns.
For example, if buyers decide it is not a good time to buy due to fear of falling prices or rising interest rates, this notion tends to become self-fulfilling.
When the volumes of home sales drop, buyers tend to hold back. And when sales heat up, buyers perceive this as a good sign. They feel they must buy now before home loan rates go up and home prices rise further.
Buyers tend to follow the herd, which is counterintuitive.
It would seem that the best time to take out a home mortgage would be when there isn’t competition from other buyers - that it, in a slow market. Yet most buyers feel more comfortable buying when all their friends are buying. The comfort of a crowd validates that their decision is a good one.
Home sale markets are also cyclical.
There are up markets, down markets, and stable or balanced markets. In an ideal world, you would buy at the end of a down cycle, just before housing markets pick up again. But, it’s impossible to time it just that way.
Bottom Line: Given the cyclical nature of America’s housing markets, home buying is risky unless you have a long-term perspective in mind.
Continue reading in the Boston Globe …