“Now is a great time to buy”
Yeah, we’ve heard that so many times over the last few months, and no doubt so have you. We wouldn’t be surprised if you were actually sick of hearing it, it’s been repeated so much over the last few months.
But, according to Zillow at least, now really is a great time to buy. If only you can afford it.
It’s not only the values of homes that are so low – interest rates have also slumped to historic lows, which means that if you buy a home now, your monthly repayments will be much smaller than they have ever been for years.
Today, according to Zillow, you can expect to pay around 17% of your salary on your mortgage, whereas the average since 1975 has been more like 25%.
It’s a far cry from the 1980's mortgage rates, when they shot through the roof, approaching close to 20%. At that time, you would’ve been spending almost 45% of your monthly wages on your home. Today’s rates, in comparison, are a huge bargain.
Of course, the trouble right now is that it’s not nearly as easy as it was to obtain credit. Almost a third of homes purchased this year have been paid for in cash, a statistic that demonstrates that a lot of people simply can’t get financing to take advantage of the ‘great time’ to buy.
Lending standards have been tightened up considerably in the last couple of years in an effort to make sure nothing like the 2006 subprime crisis happens again.
Back in 2006, almost 25% of US mortgages were of the subprime variety – typically given to mortgage borrowers who were unable to pay a 20% down payment on their mortgage.
Things are different nowadays. A credit score in the 700s is pretty much a minimum requirement to obtain a mortgage, says Zillow. Anyone who has less than that doesn’t stand a chance.
“Mortgage applicants whose credit rating was under 620 were pretty much excluded from receiving a loan, no matter what the rate – effectively cutting them out of the real estate market,” said Zillow of the last 12 months.
“Currently, about a third of the population has credit scores below 620.”
Another big obstacle to getting credit is the return of 20% down payments. Doing so is hugely advantageous, as you can save big money on closing costs. However, Zillow points out that the difference between putting down 10% and 20% is almost $17,220, and this needs to be saved up before buyers can act.
So, for sure it’s a great time to buy – if you have the cash. But for a large number of interested buyers right now, it’s simply just not possible. No wonder they are so sick of people saying what a great time it is.