Good News for People Who Want to Buy Real Estate

By Rob Morel on November 1, 2008

Even though much of the news about the national and global economic markets has been negative, the truth is that there are some amazing opportunities right now for people interested in buying real estate.  One of the wealthiest men in the country Warren Buffet said recently “Bad news is an investor’s best friend; it lets you buy a slice of America’s future at a marked-down price.”  Right now there are many incentives to buy real estate including tax credits, low interest rates, special loan programs, large selection of for sale inventory and low home prices.  I would strongly encourage people to take advantage of the downturn market and make it work in their favor. 

Here are my top reasons for buying real estate right now:

1.  Prices – most areas in Los Angeles County have dropped anywhere from 20% to 45% from the peak in 2006.  What was once considered unaffordable all of a sudden looks viable for most buyers, especially entry-level first time home buyers. 

2.  Deals - I’m seeing single family homes in Redondo Beach a mile from the ocean going for under $500K now.  These homes were going for more than $700K just a couple years ago.  There are some unbelievable deals on condos too.  True, most of these are fixer upper homes, and are probably bank-owned, but if you qualify there are mortgages where you can finance some of the repairs with upfront money that can be amortized over time in your loan.  Or you can always just buy the location you always wanted to live in and make improvements over time. 

3.  Interest rates – Still at a historical low:
•1983, the 30-year fixed loan rate was 13.95 percent
•In 1987, the rate was 11.36 percent
•In 1992, rates dipped below double digits to 9 percent
•In 1997, the rate was 8.27 percent
•In 2002, the rate was 7.16 percent
•As of October 31st, the average 30 year fixed mortgage was 6.46 percent
Why is the interest rate important?  For people who are going to get a loan, it’s almost more important to watch than the declining prices on properties because for every percentage increase, buying power goes down 9%.  That means if the interest rate goes up just 2%, the same property has to now go down in price another 18% just to be even. 

4. FHA loans – With the Housing and Economic Recovery bill that passed in July, FHA requirements changed for the better.  Credit requirements are more lenient than conventional financing and credit scores are not important.  Only 3.5% is required for a down payment and the loan can be up to $729,750 until Dec 31st, 2008 and then $625,000 as of Jan 1st, 2009.  Furthermore, there is something called an Energy Efficient Mortgage (EEM) that will give you upfront money to make energy efficient improvements that will lower your monthly utility bills and add value to your property.  This type of loan hardly even existed a year ago!

5.  $7,500 tax break – This was made available to first time home buyers in the Housing and Economic Recovery bill and will only last until July 1, 2009.  True, this money has to eventually be paid back, but it is yet another incentive for people who would like to buy a home now and are planning on living there for at least a few years.

6.  Still better than renting! – While rent is going up in most places, you could be investing in capital now that will become profitable in the future.  Real estate is still considered the best long term investment one can make, not to mention that you could be saving money now by deducting from your tax payments the interest from your mortgage and property taxes.