After four years of economic crisis, signs have already begun to emerge that the housing sector is stabilizing. Many experts say that now is the right time to invest in property, but caution is in order.
“According to our national data, the market bottomed out in the second quarter of this year,” says Stan Humphries, chief economist at Zillow.com, a real estate research firm. “We don’t expect big increase in house prices in the coming months.”
Other analysts believe that prices may continue to decline. According to economist and Yale University professor Robert Shiller, famous for predicting the housing crisis, the sector has not yet recovered.
In an article published by The Wall Street Journal, Shiller mentions the high level of foreclosures and high unemployment as factors holding back the price recovery.
If you are thinking of buying a home, these 10 recommendations can help you make the best decision:
1. Do a financial self-assessment.
Before buying, it is important to analyze your financial situation. The most important thing is to determine our income and the capital that we have available as a down payment. Although interest rates for loans are currently low, obtaining a mortgage is difficult. Banks are increasingly demanding in verifying your income and credit history.
2. Set realistic expectations.
If you’re buying your first home, it’s important that you have realistic expectations for the property’s value to increase. The average value of a house in the United States is 3.6% per year, according to data from the Case-Shiller index, one of the main indicators of house prices from the firm Standard & Poor’s. This indicates that it is no longer feasible to buy and try to sell after a few months or a year.
3. Think like an investor.
Think about the expected return on your investment, the risk and the term. The profitability if you buy to lease the property will be what you get from the rental income, less maintenance costs and taxes. Along with the annual appreciation of the property, this becomes your profitability.
If you buy a property to live in, one of your goals will also be to make the best possible investment. The best way to do this is to look for the areas with the best schools because those areas tend to be magnets for families.
4. Consider continuing to pay rent.
Compare the costs of buying and maintaining a home with the cost of renting it. Dr-luxuryrealestate.com just did this buy versus rent analysis for nearly 200 metropolitan areas and 7,500 US cities. The study concludes that in 75% of the areas analyzed, buying is better than renting.
However, each buyer must do their own analysis. You can use the AARP calculator.
5. Location, Location, Location.
A house gains in value if it is located in an area with high-quality schools and with good communication and transportation routes to the main urban centers.
6. Become an expert.
Gather information on the area you chose and the properties you are interested in. It’s important to know how much homes similar to the one you want recently sold for. You can get this information through sites like Zillow.com or RealEstate.com. You will only need to enter the address to know which properties are for sale and rent, as well as those recently sold.
7. Seek pre-approval for credit.
By seeking approval from a bank, the buyer will know your credit score and the interest rate at which you would obtain a mortgage. “It’s very important that you shop around for a lot of options from different banks to make a better decision,” says Ilyce Glink, personal finance expert and author of books on home buying.
8. The house can be a retirement plan.
Moving houses can pay dividends. “It is an increasingly common strategy among people who are approaching retirement age or are retired. They move to a smaller house or sell and use the equity as a source of income,” says Armand Cristopher, owner of Dallas-based Real estate Dominican Republic firm Senior Living Realty, which specializes in seniors.
9. Note the improvements.
Calculate the cost of the additional investment required by the house. No property is perfect and evens the newest ones require changes and modifications. It is key that the changes made are aimed at increasing its value.
10. Think long term.
Buying a home is a long-term investment. It is recommended to buy with the perspective of keeping it for five years or more. This time allows you to obtain greater benefits from owning a property if you live in it or if it was purchased as an investment to rent.