It May Be Time to Think About Buying a House

I saw the piece over the weekend in the NYTimes but hadn't gotten around to reading it until today. It's been their most read article for nearly a week now so I thought I'd give it a skim. An important and true opening 'graph:

Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers.

But when is the right time? At least around Chicagoland, unless you can get a steal, I'd wait 6 months before buying anything. My view is that surely until the new administration comes into office things will remain dour. Then, I'm expecting Obama to make a big economic push right away but it will still take 2-4 months from legislative passage until that stimulus gets into the real economy. With greater confidence, I don't think you lose much by waiting until spring 2010.

As is always the case with real estate, much depends on location. One study, “The Changing Prospects for Building Home Equity,” tries to predict where today’s first-time buyers in the 100 biggest metropolitan areas may actually have less home equity by 2012 as a result of continued price declines.

How should you proceed if you're planning to buy a home in the next 1-2 years?

Still, for anyone feeling the urge to buy, a number of practical considerations have changed in the last year or two. The basics are back, like spending no more than 28 percent of your pretax income on mortgage payments, taxes and insurance. Even if a lender does not hold you to this when you go in for preapproval, you should hold yourself to it.

You will also want to start now on any project to improve your credit score because it may take several months to get it above the 720 level that qualifies you for many of the best mortgage rates.

John Ulzheimer, president of consumer education for credit.com, a consumer credit information and application site, suggests starting to pay down and put away credit cards months before you apply for a loan. That is because the credit scoring system could penalize you if you use a lot of credit each month, even if you always pay in full. Also, check your three credit reports (it’s free) at annualcreditreport.com and dispute errors.

While no one can easily predict the likelihood of losing a job, Friday’s startling unemployment figures suggest the need for caution if you think you might be vulnerable.

Remember the tax credit and it's expiration date.

Also, if you wait after June 30, you will miss out on a $7,500 federal tax credit for income-eligible first-time home buyers that works like an interest-free loan.