Best Time to Rent, Buy, or Pay Mortgage Down Early?
Often those who choose to rent or pay down their mortgage are presumed to do so out of necessity rather than choice. Such an assumption is often incorrect, particularly in today’s housing market. Simply said, many Americans now find that median income household cannot buy median priced homes.
Historically there has been a notable cycle in the market that housing trends closely followed.
Generally speaking, whenever prices rise faster than incomes, income levels eventually rise as well, or home prices decline.
That said; this previous housing bubble has been larger than anything history has ever seen. For some reason incomes do not seem to be rising anywhere near fast enough to keep up with the gains made in housing in previous years.
While median housing prices have declined somewhat in the past year, they are still heavily inflated relative to median income levels.
This leads one to conclude that perhaps now is the best time in US history to be a renter if you do not already own a home. One is much better off paying somewhat high rents for the next few years than buying a home and then watching equity disappear should the market take a freefall.
Those already owning a home have benefited from recent gains made in housing prices. Such gains can sometimes be difficult to realize however as the demand to buy property has fallen. One’s home is worth more than when it was initially purchased, but selling it to realize such a gain is an entirely different matter.
This can be particularly difficult for flippers, or home owners who mistakenly purchased homes with adjustable rate mortgages expecting to easily sell their home in the future. Now that the market has slowed it can be terrifying holding a home with monthly rates about to skyrocket.
Adjustable rate mortgages often skyrocket after a few years, sometimes doubling one’s monthly housing payment. Such an increase in payments can be nearly impossible to afford.
According to many experts, housing prices that one sees today are artificially high and therefore not sustainable. Such a view is backed by events of the past; historically homes have been valued relative to income levels. In the latest housing bubble median home prices shot up by close to 50 percent. The median income, on the other hand, has gone up roughly 10 percent in the previous decade–a very meager increase compared to the drastic change in home prices.
Today’s incomes simply cannot support the bubble-inflated prices, a fact which many homeowners with adjustable rate loans are quickly learning. In places such as California, Americans earning the median income simply have no chance of affording a median priced home with a conventional loan. Often such expensive homes lead to homeowners purchasing a home they cannot afford using an adjustable payment mortgage. This makes such a loan affordable for a few years but unless incomes jump drastically (which they don’t seem to be doing), the home remains too expensive after the payment adjusts.
Sadly enough, most borrowers didn’t take out conventional financing during the previous housing boom in order to purchase their home. Instead, caught up in the housing craze many borrowers took out risky and illogical subprime loans in order to be able to afford a home. This led housing prices to a never before seen height. For a few brief years anyone who wanted was able to purchase an expensive home, often with little income or few assets to use as collateral. Obviously those with no job and poor credit find it difficult to continue to afford a home when payments jump. This has resulted in record numbers of foreclosures and a full meltdown in the mortgage loan industry.
Those with adjustable loans rarely realize that through the use of a second mortgage loan they can actually pay down a mortgage loan early. This can work miracles for those trying to manage a budget with a difficult loan.
With more than 150 major lenders having closed up shop in recent years, it has become incredibly difficult to qualify for a loan. Many homeowners who have already purchased a property cannot now refinance the same home. The only real option to avoid foreclosure can be using a 2nd mortgage (which is often easier to qualify for) in order to float and manage monthly payments.
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