The current housing slump began when first time homebuyers stopped moving into the market. I had a real gut feeling that this was going to start happening back in mid-2005 when we started seeing more and more homes and condos being offered for rent in the DC Metropolitan area. This started to occur because the number of homes for sale exceeded demand. My personal feeling was that speculators had increased the demand for new homes starts with the idea in mind that they could then sell for a 20-30 percent profit once the home was completed. This was the ultimate pyramid scheme that was doomed to collapse. Once it did, more and more homes became available for rent at increasingly lower rent prices.

We now have a situation where home prices (in some areas) are significantly below 2004 prices. This is particularly the case in Loudoun, Prince William and Prince Georges counties. Mortgage payments, particularly after taxes, are now lower than rents. As a result, buyers have begun to recognize the unprecedented opportunities they are being offered and are beginning to come back into the market at a rapidly increasing rate. The following information is from a Weichert report:

A recent study released by the National Association of Realtors (NAR) at the 2008 Realtors Conference & Expo provides important information about first-time homebuyers. Specifically, the research showed that first-time buyers are responding to favorable market conditions, purchasing homes in greater numbers and helping to reduce the inventory of homes for sale.

The number of first-time buyers rose to 41 percent from 39 percent of all transactions in 2007, and NAR Chief Economist Lawrence Yun expects this figure to continue increasing due to the first-time buyer tax credit of up to $7,500 (see my earlier posting form more info on the tax credit) and better access to financing through the FHA loan program.

In addition, these facts about first-time buyers were released:

• The median age was 30, down from 31 in 2007.
• The median income was $60,600.
• The typical home purchased cost $165,000.
• 92% chose a fixed rate mortgage

Anyone who is still renting and has a decent credit score should seriously consider purchasing a home before the market starts heading back up. The days of 25 percent increases each year won’t be back, but I am firmly convinced that we will begin to see 4-5 percent appreciation beginning next year. With a ten percent downpayment, this translates into a 100 percent appreciation on your investment.

To better understand how this works, give me a call or send an e-mail.