That is an unprecedented decline in home values, at least in recent times. In some areas, the change in prices has been far more dramatic, due in large part to a rapid rise in home foreclosures.
So does that mean now is the time to jump into the market? Clearly, it is a better time to do so today than was the case a year or two ago. Housing has generally become more affordable, and in certain cases, a bargain. Yet in terms of prices alone, it is impossible to say if the market has reached its lowest point in the current cycle. Normally, pinpointing the bottom of the market cycle is challenging until an upturn has already occurred. No matter what the immediate future might hold for prices, the timing is right to be a little more serious about shopping for a home.

Interest rates are another key factor to consider when buying a home. Mortgage rates remain relatively low on an historic basis, which translates into lower monthly payments. But, the direction of interest rates can be notoriously difficult to predict. However, components that can affect rates are trends in the cost of living – as interest rates tend to move somewhat in sync with the inflation rate. With factors like rising gasoline and food prices becoming bigger concerns, inflation might be a bigger threat today than it has been in recent years.

It isn’t just about the market
Trends in home prices and mortgage rates are only part of the equation in determining whether to buy now. Your own financial circumstances and your ability to find the “right” house are just as important. A few years ago, when housing prices were rising rapidly, it often proved costly to wait to purchase a home. After all, prices just kept going up. In contrast, the environment today makes it easier for buyers to be more deliberate before making decisions. Take your time in finding the right home, the best mortgage deal and the right price. Being able to reflect on your decision is a benefit to dealing with a buyer’s market, where there are more sellers than potential purchasers in the marketplace.

Now that Americans have learned that there is no guarantee that home prices will always rise year-after-year, it is even more important for you to pay the right price for both the home, and for the money you will borrow to purchase the house. A major lesson of the recent meltdown in the housing market is not to become overextended, and risk finding yourself in a situation where you owe more than your house is worth.

Part of that strategy is to avoid buying too much house for your needs. Keep in mind more expensive homes may take longer to sell. So as you consider your future, think not just about how the home fits your needs, but how easy it will be for you to find a buyer at some point down the road.

The “perfect” house
Those who are in the market for a home (or upgrading your existing home) will be well served to consider all of their options before making a purchase. Be cautious about making a commitment to buy a house based on your first reactions to it. Find out all you can about the home, and look at a number of comparably priced options to see if the home fully lives up to your expectations. When you are close to making a buying decision, it often pays to have an inspector check out the house to let you know about its true condition and detail any possible repairs that may be required in your first months and years there.

Buying the right sized home means not just considering where you are today, but where you will be a few years from now. Some couples with kids in their pre-teen or teenage years may buy a relatively large home to give everybody more elbow room. Then, in a few years, assuming the children have grown and left, the couple suddenly finds their dream home far exceeds their space needs, or what they desire to keep up on a daily basis. This is another factor to consider before making a purchase.

The great lesson of the troubled housing market of recent months is that a cautious approach should apply when buying a home and finding a mortgage with fair terms. A little common sense can go a long way as you consider your options in what has recently become, for many, a much more accessible market for a house.

Talk to a financial advisor to discuss your financial options for purchasing a home. Determine how to best save for your future goals, including a home.

This communication is published in the United States and this advisor is licensed only in the states of MI, OH, MD, FL, NC, CA and VA. This column is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation. Consult with qualified tax and legal advisors concerning your own situation.

Neither Ameriprise Financial nor its representatives or affiliates provide tax or legal advice. Consult with your tax advisor or attorney regarding specific issues.

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