I should keep waiting to buy a house … right?

By Lesley Mitchell
The Salt Lake Tribune

Mortgage rates are oh so low. Sellers are motivated. Home prices are down. And by the way, the federal government is giving $8,000 in free money to first-time buyers and others who haven't owned a home for at least three years.

So how can it not be a good time to buy a home?

Well, aside from consumers' fears about the economy, there's another major complicating factor -- the threat that Utah's home prices will continue to decline over the next year.

No one wants to buy a home that's going to drop in value. Unlike cars, which we know will depreciate the moment we drive them off the lot, we count on our homes' worth to increase -- or at the very least hold their value -- over time. As a result, many Utahns who want to buy and have the means are holding off.

Moody's Economy.com is predicting that values in the Salt Lake metro area will fall another 10 percent between now and mid-2010. The economic forecasting company said that decline is in addition to a 10 percent drop that already has occurred since the market's peak in the first quarter of 2008.

Another 10 percent correction would mean that someone buying today and making20a $20,000 down payment on a $200,000 house could see their upfront cash effectively disappear by next year. Someone making a smaller down payment, say one of 3 percent to 5 percent, could be "underwater" -- owing more than their home is worth -- by mid-2010.

The bottom line? "If you buy a home [in the Salt Lake area] now, you're going to lose equity pretty quickly," said economist Gus Faucher, of Economy.com.

Ouch. So that means it's better to wait to buy until next year, right?

Not necessarily.

Faucher said although prices are expected to fall more in the next year, interest rates are so super low -- and they may fall even a bit more in the next few months -- that there's a strong argument for buying now. However, low rates might not last long and, in fact, Faucher is predicting rates will start to creep up in the second half of the year.

That means someone who buys within the next few months, drives a hard bargain and snags a great interest rate may actually have the same monthly mortgage payment -- or even a lower one -- than someone who waits to buy until next year, when prices probably will be even lower but mortgage rates higher.

The scales tilt even further in favor of not waiting for those who are able to take advantage of the new tax credit of as much as $8,000 for those who buy before Dec. 1. That's free money, essentially, and is generally available to anyone who hasn't owned a home in the past three years.

There are other factors, though, that muddy the buy-now-or-wait decision.

If you have to sell a home first, that certainly complicates matters.

Additionally, all real estate is local, which means it's difficult to ascertain if prices in a specific neighborhood have already bottomed out or still have a way to fall. Individual sellers play a role, too. Some are far more motivated to unload their properties -- and throw in a bunch of perks -- than others.

For those who decide to buy a new house, home builder incentives don't get much better than they are right now. Clark Ivory, of Ivory Homes, Utah's largest builder, said his company is buying down mortgage rates to 4.5 percent. "And this isn't an adjustable-rate loan, this is a 30-year fixed rate loan." The company also is offering other discounts starting at $8,000.

Based on all these factors, Faucher of Economy.com said the Salt Lake area is getting to a point of "peak affordability," meaning that with the combination of low interest rates and reduced housing prices, buyers may not get much more buying power than they will have over the next few months.

Which leads us back to the whole question -- buy now or wait?

It's clear that the decision depends on your personal circumstances. But one thing is for sure. Waiting to buy is no guarantee that you'll get the best deal.