Tuesday, May 24, 2011

How do I know when is the best time to invest?

Very often I hear potential homebuyers ask the following questions:

• Is this the best time to buy a home or should I wait?

• I hear home prices are still declining and rates are going to be even lower, should I wait?

• What if I buy a home and prices go down, am I going to lose my home?

When we decide to invest, the first thing that we must accept is the fact that no one really knows when the absolute bottom of the market will be, or exactly when the market trends will change, until after it happens; still not sure? Let’s analyze what happened a few years ago:

1. The largest investment bankers of the country lost hundreds of billions of dollars funding risky loans based on the belief that homes would continue to appreciate in value and they didn’t

2. When the financial crisis started, most “experts” predicted that this was going to be the smallest Real Estate bubble in history and that prices would start appreciating soon, we all know what really happened.

Some of us like to wait until we hear in the News that it is a good time to invest, however we seem to forget that Newscasts only report things that have already happened, they never predict, they only report; still in doubt? Then ask yourself, do you remember hearing any news channel reporting about the financial crisis before it happened? Of course not, we only heard of it until after it was already happening.

A second important aspect about investing is to always remember the golden rule:”buy when prices are low and sell when prices are high”, unfortunately most of us will wait to purchase until we see prices are on the way up instead of when they are down.

Now that we know the basics, let’s review the other costs associated with owning a home, to make sure that we are being responsible; you will pay hazard insurance, property taxes, mortgage insurance (if you are investing less than 20% down payment) and last but not least, the interest that you pay on your mortgage; if we take in consideration the interest, the average homeowner will have paid 3 times the price of their home after the 30 years term, financial costs (interest) is therefore the highest cost of homeownership.

In conclusion, we can safely say that a good time to invest would be the combination of low home values and low interest rates, if we acknowledge that rates are at the lowest they have been in the last 50 years and home values are 40% of the peak of the market, would you agree that we are experiencing one of the best times to invest in a home?

Ruben Romero
Camino Real Mortgage Bankers

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