Is this really the time to buy?

So many people have been asking me this question lately: Is this REALLY the time to buy real estate?

The answer is, overwhelmingly, YES! At least that's the case in the Chicago area, but I believe there hasn't been a universally better time to buy in a very long time.

There area a number of reasons for this and I think they can be broken down to a variety of key components:

1) Interest rates: Let's face it kids, you can't argue with the fact that the cost of borrowing money continues to get lower. For those of you who are planning on hanging tough in your current home, then this is the time to refinance into a fixed loan program and get out of any ARM or Option ARM product you might have. These recent rate cuts by the Federal Reserve are a gimme to you ARM holders out there so do yourselves a favor and refinance. For buyers there is a double decker goodness in the rate cuts because it dovetails directly into...

2) Moderating and receding home prices: OK so the rates are about what they were when they were at their best, BUT, the houses are actually going DOWN in value. This is a rare situation historically and the combination of low race and moderating home values is about the best opportunity many of you have had, particularly among first time buyers. Even if it takes another full year or more for us to pull out of the housing slump, buying now is not going to hurt you. As the market recovers, the FED is likely to raise rates and while prices slide up and rates slide up the opportunity to really get in low is not going to be there the way it is right now.

3) There are a lot of homes on the market for a variety of reasons: It isn't JUST because of foreclosures and bad mortgages that there are a lot of homes to choose from out there. It is, after all, the Spring market and that said, people are had planned to sell or move anyway are going to be putting their homes up for sale. It's part of a normal market environment. BECAUSE of the foreclosed properties, they may be forced to accept a lower price on their home. In this environment, no matter what your price point, you can afford to be picky and look for the home that has the MOST of what you are looking for. That's an added bonus to this current market.

4) The law of incremental percentage savings: What? What is he talking about? I'm glad you asked! I know there are many of you out there who are concerned about selling your homes and the fact that you might have to take a loss, but you recognize that you can now afford to move up to that larger home. We call people like yourselves, "move ups." As a move up, you are facing having to take a lower price for your current home but take heart, that's where the law of incremental percentage savings applies, (and yes, I made up this law). Here's an example of how it works:

Let's say your current home is 250k

Now let's say the home you want to upgrade to is 500k

In the previous "hot market" you would have been able to get your asking price, but so would the other party in the home you wanted to buy.

NOW, let's say both sides are going to have to back off their prices by 10%.

This means that your 250k home will now sell for 225k.

This ALSO means your "move up" home priced at 500k can now be purchased for 450k!

So although your "loss" on your home is 25k, your net gain on the purchase of your move up home is 25k even after your loss. This is the law of incremental percentage savings! The basic concept is the higher the price of the home, the higher incremental loss even if the relative percentage is the same!!!!!

Smart money has already figured this out and based on information I have from a variety of real estate attorneys, there are a large number of contracts on higher priced homes, or move ups, that also happen to have home sale contingencies, (meaning the people who are looking to do the move up often can only do so if they sell their current home).

You know what that means? First time buyers get your butts out there and start buying. The next 6 months will be full of opportunities to get homes cheaper than you've been able to for several years, at interest rates that are some of the most favorable in history.

5) Stock market investment: Again, you're probably saying, "what is he talking about?" but it isn't as crazy as it sounds. Here's why: I have a number of friends in the industry who, now that the banks and REITs, (real estate investment trusts), have taken a beating in the stock market, have been quietly buying stock in banks and REITs. Why? Their answers have been simple bits of genius. They have said that because of public perception and all of the negative media attention, these stocks have lost significant amounts of value but the value lost has been beyond realistic proportions. Sure there have been losses in banking and real estate, but my experts do not feel the actual losses justify the devaluation of these stocks.

Translation: There's still gas in the real estate tank and the current slump cannot and will not last forever. In fact, the statistics are firmly stacked against it.

My best advice:

If you have been thinking of buying, do it and do it now. Now is when there are more options, you can be choosy and hold out for a property that has as much of what you want and need in a home for your budget and when you find a place that matches your criteria, don't hesitate; go for it!

If you have been thinking of upgrading but have been concerned about the loss on your current home: Consider the law of incremental percentage savings and take the plunge.

If you are struggling: try to stay calm and stick it out. The market will improve and even if it doesn't improve quickly enough to keep you in your home, don't panic. Stay in contact with your bank, they may be able to help you before the federal government steps in, (which there is no guarantee of).

The market is certainly bumpy, but it isn't as scary as you think.

Rick