Home Buying in Pittsburgh>Question Details

Scott, Home Buyer in Pennsylvania

First time home buyer and worried about market!

Asked by Scott, Pennsylvania Sun Mar 1, 2009

My wife and I want to quit renting and buy our first home; however, we are worried about negative equity shortly after we buy. We have about 40K available for a down payment but we don’t want to go upside-down in the mortgage…is this something we should worry about when all we see are housing prices dropping and nothing is selling? There are homes in our neighborhood that have been on the market for over a year and a half…

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Just keep renting for now. You will have plenty of time to buy when the market gets better. Prices could easily drop 20-30% in the next year.
1 vote Thank Flag Link Sun Mar 1, 2009
Whether to buy is of course a personal question that depends on many economic and personal factors. However, in many respects there has never been a better time to buy -- especially for first time buyers.

If you can comfortably put 20% down on a home, your mortgage would be 80% of the value. That's 20% equity reserve. In order to go upside down, the value would have to drop 20%. It is difficult to "time" the market precisely (as many broke stock investors can attest), but it is unlikely home prices still have that far to fall. Pittsburgh has held up well compared to most other places in the country. Prices are remarkably stable here, and do not fluctuate wildly (as in Florida or parts of New England, where they rose and dropped 50%).

Houses are selling in Pittsburgh if they're priced correctly for 2009. Unfortunately for many sellers, "correctly" doesn't mean height-of-the-bubble 2005 prices + 10%. This is good news for you as buyers, though.

You have a convergence of three factors that may not recur again in our lifetimes: depressed home prices, historic low interest rates, and an $8,000 tax credit -- which now is truly a credit that you don't have to pay back.

If you are in a good position to buy now and do not, you may regret it later, particularly if inflation starts rapidly pushing up rents, and interest rates again begin to rise. (They really have nowhere to go but up.)

As always, be prudent! Don't buy more house than you can comfortably afford (e.g., on one income). This will likely be less than you can get pre-approved for. Make sure you have a 3-month cash reserve, beyond what is necessary for closing costs, so that you have a cushion for unforeseen expenses. And make sure you don't have any consumer / credit card debt.

For responsible first time buyers, this is definitely the time to become a home owner! Good luck.
1 vote Thank Flag Link Sun Mar 1, 2009
Hey Scott. The other real estate pros have made some good points so I will keep this short. Many people have similar concerns and I have heard several people say they want to wait until the market hits rock bottom to buy. My perspective on the situation is that we will only know that we have hit rock bottom when it starts to go back up and by that point you have missed it. I would advise getting with a Realtor that knows the areas and can assist you in finding a great deal. There are tons of incentives for the first time buyer out there right now so it is a great time. As long as you aren't going to try to flip the house for a profit, I would say this is a great time to buy. Values might dip slightly more after you purchase something but it doesn't matter what the value is now or in a year, it only matters what it is when you sell the home. Like Tony said no one has a Crystal ball but one thing we do know is that prices are great right now. Worst case scenario would be you buy something, and maybe it dips a little more but if you plan on living there for a time you should be just fine. Good luck!
0 votes Thank Flag Link Thu Mar 5, 2009

Thanks for the question. There has never been a better time to purchase and probably will not be for quite some time with the low interest rates, high inventory and non-refundable tax credit. As far as going upside down, that is tough to do because home values in Western Pa are down only around 1% according to Trulia. There is a saying that the Pittsburgh RE market never "goes to the party and gets drunk so we never have the hang over" and it is true, our homes hold their value. That is a nice size down payment depending on the size home you want of course.

Regarding homes being on the market for long periods of time, there is a plethora of reasons why that can be from priced too high to unreasonable sellers and things I can not see from the computer so please do not use that as a barometer of the Pittsburgh Market. I am having a record year so far.

Bottom line is, if you choose a great Realtor, you will be in good hands. Hope this helps.
0 votes Thank Flag Link Sun Mar 1, 2009
Hi Scott,
Just like any other investment, a house can go up or down in value in the short term, but over the long term the prospects for appreciation are pretty good. There is no way to know when things have hit rock bottom. No one has that crystal ball and hindsight is 20/20 as they say. What anyone CAN tell you is that home prices are selling for a lot lower than they have been in the last 5-10 years in a lot of areas and there are some good tax incentives out there for first time homebuyers right now. If you are speculating short term then yes your down payment may be at risk, but as long as you dont put yourself in a positions where you NEED and you can wait things out your investment should be safe
0 votes Thank Flag Link Sun Mar 1, 2009
Scott, your concerns are very reasonable. There's been such a dearth of bad news about the RE market reported in the media lately that can make even the most level-headed person feel anxious. Keep in mind that real estate is regional, and that national trends and forecasts are irrelevant for individuals. Market conditions in your immediate area are the only ones that matter. Even within the Pittsburgh area, present market conditions can vary significantly depending on the area that you're considering.

What area(s) are you looking in? I specialize in the East End (Squirrel Hill, Shadyside, Greenfield, Regent Square), and in these areas homes that are priced to reflect their condition are selling within a reasonable timeframe. That's not to say that there aren't homes in this area that are sitting on the market: definitely, there are those, and almost without exception it's because they are priced too high given their condition.

In the last few weeks, there's been a significant uptick in activity among first-time homebuyers, and there has been an increase in homes in the first-time homebuyer price range that are going under contract.

So, in areas with reasonable demand, as long as you get your home for a fair price AND you're planning on staying in your home for at least 2-4 years, it is extremely unlikely that you'd have negative equity. Even in areas with weaker demand, if you buy for a good price and stay in your home for a reasonable period of time, your equity should stay steady and likely begin to grow.

There are 2 additional factors working in your favor: firstly, you have a nice downpayment, and secondly, if you qualify for the $8000 first time home buyer tax credit you could use that to pay down your mortgage to further increase your equity position.

Make sure that the agent you choose to work with is knowledgeable about your area, and that s/he takes the time to review comparable sales in your area so that you are educated about home values in your area. The more homework you do and the more knowledge you have, the better position you'll be in to identify and take advantage of the opportunity that is right for you and your wife.
Web Reference: http://www.hannahkrause.com
0 votes Thank Flag Link Sun Mar 1, 2009
You should consider the market you live in, not the markets they talk about on TV when they say things like "negative equity" and "upside down mortgage." Read some articles about your LOCAL market. For example, the Pittsburgh area has had periods of home prices rising not falling. Also, if you put 40K down on your house it would be extrememly difficult to not have equity. The people you hear about with negative equity, etc. borrowed 103% of the sale price, put $0 down, etc.
Houses are selling when they are priced right and in good condition. FInd a real estate professional in your area and they can show you the trends in your neighborhood.
With rates under 5%, there are plenty of people out there buying, taking advantage of affordable houses at low rates. Talk to a real estate professional and a mortgage professional and see if it's the right time for you.


0 votes Thank Flag Link Sun Mar 1, 2009

If you buy the way people used to buy a home........more for a long term residence and less for short term investment purposes, you will be able to see things in a completely different light.

The key will be not over paying and staying within your means. History has shown real estate in the long term to be a stable venture.

Good luck
0 votes Thank Flag Link Sun Mar 1, 2009
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