Here’s the money question of the moment: Are we ready to get back into the investing game?
It is a game that can be brutally punishing. Portfolios have been halved. Plans altered. Are we ready to take the risk and bet that the recovery, as fitful as it has been, is really under way?
We’ll leave it to you to consult your astrologer and predict the future, but if you are ready to push your chips to the middle of the table, you might take a deep breath and buy a second home.
The housing market has been at the core of the recession, with foreclosures and falling prices making headlines. And the rise from the low point hasn’t been steady. In January, for instance, sales of previously occupied homes dipped 7.2 percent. Economists were caught off guard. Again.
THE ADVANTAGES ARE ALIGNING
If you believe the housing market has just about bottomed out, this could be the time to buy that vacation dwelling you’ve wanted. Or you could take care of your college kid’s housing by purchasing a condo or a house with an eye to taking on boarders and selling it in three or four years. And don’t forget to investigate the possibility of federal tax credits. The housing market is addicted to them. Congress sets time limits on the credits but keeps pushing the limits back. If the pattern continues, you may be able to save thousands on your tax bill.
Joe Willis, vice president and principal broker for Spotts & Carneal Inc., says the reasons to consider buying now are obvious.
“Mortgage rates are low,” he says. “Not historically low, like they were, but very good. And housing prices are low. If you have enough disposable income ... this is a very favorable time to buy.”
Willis points out that you’ll need a 20 percent down payment and good credit. Banks are playing it closer to the vest.
BANKS ARE STILL STINGY BUT …
Tom Arnold, associate professor of finance and the F. Carlyle Tiller Chair in Business at the University of Richmond’s Robins School of Business, puts it this way: “Banks are just being stingy about issuing mortgages.” He says that if your first house is paid for, your odds of getting a mortgage are much better because “you have one big piece of collateral.”
Arnold notes that many savings instruments are “earning just about no interest,” an incentive to invest that money somewhere else.
So, say you’re going to take the plunge and buy the Outer Banks villa you’ve longed for during years of summer rentals on that narrow strip of sand off North Carolina’s mainland. When it comes to housing sales and prices, you might say it’s low tide. Here’s what happened to the OBX market in four years, according to the Outer Banks Association of Realtors:
- 2005: median price $425,000; total units sold 2,104.
- 2009: median price $295,000; total units sold 1,124.
Is the idea of getting into the vacation-house market beginning to make sense?
SELLERS CAN’T HOLD OUT MUCH LONGER
We asked Genelle Carter, president of the Outer Banks Association of Realtors, to give us the scoop. She says this may be the optimum time to buy, with some of the nicer units coming onto the market.
“Some people who could manage it have held onto their property during the down market,” she says, “but after four or five years, they’re ready to sell. There are some very nice homes out there.”
Carter says Outer Banks realtors deal with elements that differ from those of the typical housing market, notably the ability of the property to produce income. “You factor in the rental income and the expense involved to figure the actual cost versus the mortgage payment.”
She says mortgages are not that hard to come by. “We haven’t had trouble getting loans for qualified buyers,” she says. “If you have good credit and a verifiable income, there are plenty of lenders.”
The operative word, of course, is “qualified.” If you are, the game is on.
Randy Hallman is a Richmond-based freelance writer.
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