Since 2006, house prices have decreased by almost a third and homeownership rates are falling almost as fast as they did during the Great Depression. While this give some prospective buyers cause to hold off, experts imply that its actually a great time to purchase a home for either residence or simply an investment property. Americas ratio of house prices to yearly rental costs has almost returned to its average before the real estate bubble. Also, if you consider current mortgage rates, homes are the "most affordable they have been in decades." The price/rent ratio can be compared to a stocks price/earnings ratio it compares an assets cost to its potential profit. For potential buyers, a lower ratio simply means owning a home is better than renting; for investors, the lower the ratio means the higher the income.
Although the average rate on a 30-year-mortgage rose to 4.12 percent this week, rates are still low enough that homes in all types of housing markets appear to be terrific bargains. Consequently, mortgage payments are even more affordable than theyve been in decades. The National Association of Realtors Housing Affordability Index rose to 183.7 in August 2011 near its peak in the 1970s. An index reading of 100 means that a median-income family could make a 20 percent down payment and be able to keep up with payments on a median-price home. What does this mean for todays homebuyers? They could purchase nice houses, but the prudent buyer may choose to buy a more moderate home with smaller mortgage payments. However, this all assumes that buyers are able to obtain a new mortgage something made more difficult with new tougher standards for borrowers. Zillows chief economist, Stan Humphries, argues that if a buyer has good credit, a steady job, and a down payment, that buyer should be able to acquire a new loan. Humphries maintains that although lenders require more of a potential buyer now, "things are pretty much like they were in the 80s and '90s."
Some warnings are definitely worth heeding, however. Remember that not all sales are "average." Homebuyers should always shop carefully, even in low-priced housing markets. Also, keep in mind that its quite possible that prices will continue to drop. Lastly, flipping properties can be a precarious project, particularly because, "absent a real-estate boom, house price gains simply arent that exciting." Yale economist Robert Shiller says that houses "more or less track the rate of inflation over long time periods."
