First Time Home Buyer

Can the financial news get any more depressing? We are being reminded constantly by the media of who bad the economy is and you may be feeling that now would be a bad time to consider buying that first home. Gas prices are near record highs and inflation continues to increase faster than our incomes and the jobs are going by the wayside every day not to mention that real estate is being pounded by adjustable rate mortgages that are beginning to reset and result in higher payments and an increase in foreclosures. With all of these things is it really a good time to buy a house? The answer is absolutely!

It is true, many will tell you that the outlook to buy a new home is grim at best and reports say that existing home sales will decrease nearly 7% this year. Additionally new home sales are decreasing about 3 times that and it is getting so desperate that some developers are offering unique and extravagant deals on homes including two for one deals. Still, if you have available funds to secure the financing this is a great time to take advantage of all the incentives and buy that first home. The housing crisis is more of a problem for the individual who needs to sell an existing home before being able to buy a new home; for the first time home buyer they avoid that and can just buy.

No funds right this minute? That is probably OK because the housing problems is expected to continue for the next 2 - 3 years and therefore you have time to prepare. There is currently and is expected to continue to be a significantly higher number of available homes than qualifying buyers. This means that the first time home buyer who has good credit and a down payment can benefit with a large choice of homes that are selling for great prices; a market view that is called the buyers market.

Buyer’s Market

A large number of homes for sale, fewer people buying homes, home prices dropping continuously and interest rates not out of control yet; these are just a few incentives to buy now. Throw into the mix the deals and incentives the developers, builders and real estate agents are adding to the mix to try to move the homes and move new owners in and the tax credit from the government and how can you not buy now? Still not sure if you are ready? Ask yourself a few questions: Is your credit score in good shape or can you easily raise your score? Do you have assets that you can liquidate to get a down payment? Do you qualify for the incentives? If you answered yes to these questions you could be moving into your dream house this year. Additionally, with the buyer’s market you are almost guaranteed to be able to buy more house than in years past. So stop holding out…buy now!

For the first time since the subprime mortgage crisis began last summer, the Federal Reserve left their key interest rate unchanged at a low 2%. Unclear whether a slowing economy or growing inflation was a greater threat to the financial well-being of the nation, policymakers decided to wait for the effects of 10 months of lowering interest rates to be felt. They also issued a statement saying they’d be on guard against both economic decline and an inflationary price surge.

While today’s mortgage rates will not be affected, in the coming months if Fed Chairman Ben S. Bernanke and his colleagues are forced to tackle inflation, they may have to crank up rates much higher than they would if the problems were entirely domestic. Rising food and energy costs are not just limited to the United States. Those price increases are being felt across the globe.

However, rising inflation expectations are a special worry for central bankers because they signal that people have begun to assume that prices are on the way up and therefore that they should charge more for their labor or products. That is a recipe for setting off a vicious cycle of higher prices feeding still higher ones. Once inflationary expectations set in, it is a difficult process to stop.

The Federal Reserve routinely speaks of managing inflationary expectations. If the public believes that higher prices are here to stay, people will begin charging more for their labor or products. Thus the Fed tends to lean towards issuing statements that are slanted towards not only moderating inflation, but also that high prices will be coming back down.

Real world events of the past few years are completely opposite of the Fed’s forecast for moderating inflation. The price of oil has risen nearly seven fold from a low of about $20 per barrel in 2002, to a high near $140 per barrel today.

Federal Reserve policymakers are hoping that as long as the public believes the Fed will act to control inflation, today’s price increases are unlikely to feed tomorrow’s wage claims, and a wage-price spiral can be averted.

However, prices have risen significantly, even if inflation expectations haven’t. The problem is that consumers need higher wages just to match the price rises of the past few years. Until consumers’ income can catch up with rising prices, economic recovery will be elusive.

But for now, first time home buyers can enjoy low rates. Our mortgage rates predictions are for rising interest rates because of rising inflation - a forecast that is directly at odds with the most powerful central bank on Earth.

Which forecast will prove to be more accurate? Only time will tell.