It’s the perfect time to buy that dream home

September 8, 2010

The unstable market has put some buyers on hold, but one housing expert says it actually makes sense to buy now.

Posted by Mai Ling at MSN Real Estate on Tuesday, September 7, 2010 11:18 AM

With the homeownership rate at a decade low and home sales at a record low in July, it’s obvious that potential homebuyers are going to need more than rock-bottom mortgage interest rates and more affordable home prices to lure them into the market.

How about some words of wisdom from one of the housing industry’s gurus that now is the time to buy?

Karl Case, who co-created Standard & Poor’s/Case-Shiller home prices indexes, writes in a New York Times op-ed that although the current housing slump means economic recovery will likely take years, it has also created a market in which “buying a house now can make a lot of sense.”

Of course, that’s easier said than done. With the unemployment rate at 9.6%, not to mention today’s tighter lending standards, buying a home is simply unattainable for many people.

But for those who are wavering on the sidelines, Case explains that even if home prices don’t skyrocket like they did in the first part of the past decade, buying a home still is not only an investment in your future, but also one that you’ll benefit from every day you live there. Case writes:

Consider it this way: When Enron went belly-up, shareholders ended up with nothing, but when the housing market drops, homeowners still have a house.

Let’s not forget that homeowners can deduct the interest paid on the mortgage, which opens the door to other deductions that many renters don’t get the opportunity to take advantage of.

But the real savings are going to come from today’s low interest rates, and homes prices that have fallen nearly 30% from their peak in summer 2006. Case does the math for you:

Four years ago, the monthly payment on a $300,000 house with 20 percent down and a mortgage rate of about 6.6 percent was $1,533. Today that $300,000 house would sell for $213,000 and a 30-year fixed-rate mortgage with 20 percent down would carry a rate of about 4.2 percent and a monthly payment of $833. In addition, the down payment would be $42,600 instead of $60,000.

And keep in mind, rent prices may have fallen in the past few months, but rents are about to go up, so you might even save money by buying rather than renting.

But then again, there’s always the possibility that home prices could fall by another 30%. Case seems unconvinced, but what do you think? How much further do you think home prices have to fall?