Buying in a Bad Economy

When historians one day reflect on 2009, comparisons to the Great Depression and the market crash in late October 1929 will no doubt be made. Though politicians and pundits have remained wary of the "D" word, many have admitted the country is in its greatest recession in decades, if not its worst downturn since the worldwide economic downturn of the 1930s.

While financial struggles have moved to the forefront for many families, others have noticed that 2009 is actually proving a good time to buy, particularly for those hoping to enter the housing market. For example, according to the Warren Group, a real estate and financial information service serving the New England area, single-family home prices in Connecticut fell 17 percent in February of 2009 compared to the same month of a year ago. Whereas the median selling price for such homes in Connecticut was $263,000 in February of 2008, that figure fell to $218,000 in February 2009, a sharp decline that's bad for sellers but a boon to buyers.

Still, as beneficial as the current market can be for buyers, there are things to consider before buying a home in the coming months.

* Can you stay? It's no secret the country is experiencing record unemployment rates. By the end of March 2009, seven states posted unemployment rates above 10 percent, with Ohio quickly approaching the double digits. Those statistics, courtesy of the United States Bureau of Labor Statistics, indicate that very few people are secure.

Anyone considering buying a home needs to be certain they can stay in the home, at least for a few years, once they've signed on the dotted line. If not, and they're forced to move too soon, the transaction costs of buying and selling a home could ensure that they actually lose money. Even if they buy low now and sell higher in the immediate future, these extra costs could negate any gains in sale price, and even leave them in the red.

* Are you living above your means? While each individual case is different, since the onset of the housing crisis many people realized they were living well above their means. Whether this was a great revelation or they knowingly chose to use debt as a tool to finance a lifestyle they simply couldn't afford, the consequences were the same regardless -- many found themselves the victims of foreclosure.

Those who ignore the past are doomed to repeat it. So while a 5-bedroom home today might be the same price of a 3-bedroom home this time last year, that doesn't mean you should buy the 5-bedroom. Rather, remain within your means and reap the rewards of responsible borrowing as opposed to suffering the inevitable consequences of living above your means.

* Do you want to qualify just because you can qualify? Because of the market, many prospective home buyers are finding out that they are still eligible for a home loan even if they can't pay the traditional 20 percent down payment. This, however, is not as much of a no-brainer as it seems. Obviously, if you're not able to pay the 20 percent, you're automatically going to be borrowing more. In addition, a lower down payment might result in a higher interest rate. So a decision must be made as to whether you want to qualify just because you can, or wait a little longer and qualify for a loan because you're as worthy and as financially equipped as you would be under more normal circumstances.

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