Unfortunately not!
Prices are still dangerously high compared to incomes and rents. Banks say a safe mortgage is a maximum of 3 times the buyer's annual income with 20% downpayment. Landlords say a safe price is a maximum of 15 times the house's annual rent. Yet on the coasts, both those safety rules a
re still being violated. Buyers are still borrowing 6 times their income and putting only 3% down, and sellers are still asking 30 times annual rent, even after recent price declines.Salaries and rents prove that prices will keep falling for a long time. Anyone who bought a "bargain" this time last year is already sitting on a very painful loss.
It's still much cheaper to rent than to own the same size and quality house, in the same school district. On the coasts, annual rents are 3% of purchase price while mortgage rates are 6%, so it costs twice as much to borrow the money than it does to borrow the house.Renters win and owners lose! Worse, total owner costs including taxes, maintenance, and insurance come to about 9% of purchase price, which is three times the cost of renting and wipes out any income tax benefit.
The bottom will be here when buying a house to rent out clearly makes money. Then you'll know it's safe to buy for yourself because then rent could cover the mortgage and all expenses if necessary, eliminating most of your risk.So for example, it's borderline to pay $200,000 for a house that would cost you $1,000 per month to rent. That's $12,000 per year in rent. If you buy it with a 6% mortgage, that's $12,000 per year in interest instead, so it works out about the same. Owners can pay interest with pre-tax money, but that benefit gets wiped out by maintenance costs and property tax, equalizing things. It is foolish to pay $400,000 for that same house, because renting it would cost only half as much per year, and renters are completely safe from falling house prices.
It's a terrible time to buy when interest rates are low, like now.House prices fall as interest rates rise, because a fixed monthly payment covers a smaller mortgage at a higher interest rate. Since interest rates have nowhere to go but up, prices have nowhere to go but down.
It is far better to pay a low price with a high interest rate than a high price with a low interest rate, even if the mortgage payment is the same either way.
- Your property taxes will be lower with a low purchase price.
- A low price gives you the ability to pay it all off instead of being a debt-slave for the rest of your life.
- Paying a high price now may trap you "under water", meaning you'll have a mortgage larger than the value of the house. Then you will not be able to refinance because there you'll have no equity, and will not be able to sell without a loss. Even if you get a long-term fixed rate mortgage, when rates inevitably go up the value of your property will go down. Paying a low price minimizes your damage.
There is a massive and growing backlog of latent foreclosures. Millions of owners have simply stopped paying their mortgages, and the banks are doing nothing about it, letting the owner live in the house for free. If a bank forecloses and takes possession of a house, that means the bank is responsible for property taxes and maintenance. Banks don't like those costs. If a bank then sells the foreclosure at current prices, the bank has to admit a loss on the loan. Banks like that cost even less. So there is a tsunami of foreclosures on the way that the banks are ignoring, for now. To prevent a justified foreclosure is also to prevent a deserving family from buying that house at a low price. One day, those foreclosures will wash over the landscape, decimating prices, and benefiting millions of families which will be able to buy a house without a suicidal level of debt, and maybe without any debt at all!
These are just few think why I think prices will still falling but if you have a different point of view I want to hear your voice so please write a comment!
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