WHY BUY NOW
11-12-07 - Posted by our good friend at Lawson & Associates, Gabe Bodner - Mortgage Planner
Many people ask the question, “Is now a good time to buy or should I wait?” The market in Northern California’s Bay Area is a market of opportunity. If you know what you are looking for and you have a good Realtor and Mortgage Planner working for you, there are many wonderful opportunities to buy a new home in today’s real estate market.
So you may ask why now? First, the geographic restrictions of Northern California proves there is a very limited amount of open space to build new homes. Developers simply cannot buy vacant land and continue to build new homes just anywhere. If someone wants to build a new home, they need to buy an existing home, tear it down and build a new house on the existing lot. There is a large premium associated with this process because the costs to buy an existing home, demolishing the house, and the costs to build new. In the end, the new house that is built then increases the value of the other homes in the neighborhood and adds a premium to the land value. It is this cycle that continues to push house prices higher in the bay area.
Second, there are more homes on the market than normal for this time of year. This is causing a softening in home prices. Sellers are motivated to sell and there are fewer buyers in the market. Since the media has sent so many mixed signals people have been more scared to buy. This has created a buyer’s market and a buyer’s market creates a competitive situation for sellers. In some cases, sellers are willing to reduce the sales price or give a credit to the buyer for closing costs just to attract buyers to their property.
Third, the job market. Companies are hiring and growing at a super accelerated pace. Companies like Google, HP, Apple, Adobe, and Oracle are growing and hiring locally. As they continue to hire, this creates job opportunities and a need for more people to buy houses. As employees continue to build wealth, they are investing in real estate.
Fourth, is household growth. What does this really mean? Due to the life cycle of families having babies and growing their families, we have an annual population growth between 220,000 to 250,000 people in California per year. However, we are building less than 150,000 (on average) new homes in California each year. Therefore, we have a net shortage upwards of 150,000 homes in California, every single year. This creates a continued demand for homes both for people who will own and people who will rent.
Fifth, interest rates. Mortgage rates are still very low. Rates are still between 6% and 7% on most home loans. These rates are historically very, very low. People typically do not buy homes solely on mortgage rates because they can refinance if rates drop. However, we are already at very low rates which makes the affordability of buying much easier.
The last reason why now is because in the spring there are always more buyers and less homes on the market. This in turn creates a sellers market and buyers are then competing with other buyers forcing home prices to go up because of the limited supply and the increased demand by buyers.
Today is a wonderful time to invest especially if you plan to hold onto the house for at least five years. If you have any questions regarding the above information, you can contact me directly at Gabe@BayAreaHomeFinancing.com or 650-492-4071.
