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The axiom of Realtors is "location, location, location". All real estate is local, so while you read in the media headlines that all real estate was a horrible deal right, it pays to remember this axiom. Every real estate market is different and with mortgage rates at or near their lowest ... ever ... I thought it might be a good time to buy. But, how did I do the analysis?
The first step in my due diligence was to narrow down the neighborhoods I am most interested in living. Since real estate is local, school districts matter, as do other amenities. I talked to friends and family members, as well as co-workers to get an idea of how happy they are with their neighborhoods. Realtors would also be a good resource.
Next, I did research using the weekend and local newspapers. In my community, the Saturday and Sunday papers carry real estate transactions, as well as listings. In the Sunday paper, in particular, are "sales of the week" with details on asking and selling prices for four different, actual home sales across the city. The feature also gives the days the house was on the market. Local papers gave me listings of homes in the neighborhoods interesting me. Sizing the home I am interested in and the neighborhood, I did several weeks of research looking at prices. I determined that most of the listings were there over and over and over, week after week after week. This was telling me that there still was not a lot of demand. Second, the "sales of the week" told me that homes were selling below asking prices and after several months on the market. All of this information tells me that it is a "buyers' market". I should be able to negotiate my purchase price.
Finally, I did a rent versus purchase analysis to decide that it was actually a good time to buy a house in my community. Simply put, I took the upper price I am willing to pay for a new home, deducted the 20% down-payment, and applied the going mortgage rate in my area for a 30-year fixed rate mortgage. Most of the local banks and credit unions advertise their mortgage rates, so I was able to find the rate information easily. I could also have contacted a local bank, credit union or mortgage broker. The total amount I am going to borrow, including interest, is then divided by 360 to get a monthly mortgage payment. The monthly payment then needs to be inflated for taxes and insurance, something friends who own homes or local realtors helped me to obtain. Then, I compared this typical monthly mortgage payment to local rents. The rents in the same area where I want to buy a house can be obtained from the same newspapers. I made sure I was looking at similar floorplans and definitely the same size units. Where possible, I compared my purchase cost to privately-listed single family homes for rent.
I found that the rents were generally a bit higher. Given that, at least for now, owning a home gives me the added benefit from the mortgage interest deduction, it was pretty easy to conclude that it is a good time to buy a house in my community.
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