First Time Home Buyer

With the current real estate disaster, also known as the subprime mortgage crisis, many firsttime home buyers are wondering if it might be time to scoop up a bargain. Patience here, is necessary for first time home buyers to get a true bargain. Real estate prices have not yet fallen to their lowest point. There are still months and months ahead for falling real estate values.

In mid 2007, Moody’s predicted that the subprime adjustable rate mortgages created during the last three months of 2006 would reach a maximum projected foreclosure rate of almost 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, it will likely increase by another 100% by next year. The peak for subprime interest rate resets doesn’t come until later this year. Since most homeowners can afford to meet their payments on their home loans that have the low initial teaser rate, it is not until after the interest rate resets to a more realistic level that they can’t fulfill their obligations. Look for the wave of foreclosures to continue to build throughout 2008 and 2009. As homes are foreclosed upon, which can take at least 6 months, it will continue to raise the inventory of properties available for sale. This will continue to drive 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 currently will be viewed as high six to twelve months from now. It also requires time for the population to realize that the real estate market has changed. Sellers still would like to sell their properties for the peak prices that were seen 2 years ago. It is simply human nature to cling to the belief that the “value” of one’s property has not fallen. However, value is merely what a buyer will pay for it.

If no buyers are willing to pay the bubble prices of two years ago, then the value of two years ago is not what the home is valued at today. Sellers will still start their asking prices at bubble prices. It is only after months of sitting idle on the market without offers that motivated sellers will reduce their listing price to a more realistic level. It takes time for sellers to realize the over-inflated home prices are a distant memory. Homeowners still cling to hope that we’ve found the bottom and prices will rapidly rise to where they were back in the boom. However, boom values were created by artificially low interest rates which were prevalent with teaser offers, mortgages with 100% loan-to-value, very, very easy approval requirements, and the widespread availability of no-doc, no-income-verification loans. This allowed millions of first time home buyers to rush into the market who would not have been able to buy a home any other way. This wave of buyers caused prices to go up. But that wave of buyers is now absent.

Just as the wave of first time home buyers jumping into the market caused a very large rise in price, the wave of foreclosed homes being dumped onto the market will result in a very large price reduction. The worst has not yet hit. First time home buyers should sit tight, save up for their down payment, pay down their debts, and work to improve their credit rating. Proper planning now will provide the first time home buyer to get the bargain of a lifetime in about 1 to 2 years.