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March, 2006 Newsletter

+++++++++++ March 1, 2006 +++++++++++++++++++

Introduction: Conflicting Messages
Mortgage Rate Update: Rates Up in February
This Month's Tip: Buy or Rent: 2006 Style

Introduction: Conflicting Messages

If you are looking at the latest releases of housing activity for a direction
of where the housing market may be heading in the future, you may want
to look elsewhere. For the last couple of months, we have seen conflicting
messages. For several months, existing home sales were declining
while new home sales continued to rise. Then, we saw new home sales
begin to weaken, followed by the news in January that showed that
new home starts jumped to a new record, eclipsing one held since

What does this mean? For starters, some of these sales and
construction numbers need to be taken with at least a grain of salt,
since, for example, the new sales numbers released by the U.S.
government show large margins for error (sometimes as much as
plus or minus 12%--a huge swing). In addition, these numbers are
frequently revised in following months, either upwards or downwards,
so you may not necessarily be getting a clear picture when the
numbers are released.

Overall, thought, the housing market remains reasonably strong,
although we are seeing inventories of unsold homes risng steadily
in some markets. If this is the case in your area, it is important
to keep an eye on the situation, since the next step after increasing
inventories (and increasing competition) is often decreases in
selling prices.


Mortgage Rate Update: Rates Up in February

Although there was a very moderate decline for the period ending February
23rd, in general mortgage rates rose fairly consistently throughout the month
of February. According to mortgage company Freddie Mac, the average rate
for 30-year fixed-rate mortgages stood at 6.26% rising from an average of 6.12%
at the end of January. Similarly, 15-year fixed-rate mortgages averaged 5.89%,
up from an average of 5.70% a month earlier.

Like the sales data detailed in the introduction above, the mortgage market
is also sending mixed signals. This is in large degree a result of economic
indicators in the United States showing conflicting messages also. Is inflation
up or stable? Is the federal debt increases slowing or accelerating. All of
these factors (and many more) are what influences the mortgage market, and
there is no clear picture thus far in 2006. Stay tuned!

For current average mortgage rates, see the
rates page.

For more information on mortgages, visit the
Mortgage Section

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This Month's Tip: Buy or Rent: 2006 Style

One of the most visited areas of the Home Buyer's Information Center
site is the "
Buy or Rent?" section.
Here we make some comparisons between buying a home and renting
one that a prospective buyer can use to make an informed decision. The
basic components of this decision making process are the same as
they have always been, although, as we will see, the computations
necessary to make a good financial decision have changed a bit.

In general, much has to do with your mindset. Looking for little or
no maintenance? Renting is probably for you. Planning to stay in
your home for a long time? You will want to carefully consider
purchasing a home. Know that your housing situation will be
changing in the near future? Look closely at renting.

It is when you look at the financial aspects of buying vs. renting
that the picture is much cloudier in 2006 than it has been in
almost any time in the past. The Real Estate market has drastically
changed in the last 5 or 6 years, and these changes need to be
considered when making an analysis between renting or buying a home.
The biggest factors that are influencing these changes are:

1) Huge increases, in many areas of North America, in the selling
prices of homes.
2) Little or no increases, in many of the same areas, in the rental
prices for similar homes.
3) New mortgage "products" that make equity buildup much more
difficult than in the past.

The comparisons between buying and renting thus takes on a whole new
dimension. Since there are big variances, though, by locality, it is
important to take into account the market situation in your specific area,
not the country as a whole. While the economic picture might tilt
completely toward renting in one area, it may go in the exact opposite
direction in another area, making a purchase the smartest decision.

The first excercise you will need to do is to see, without most of the
financial variables in play, whether your personality is better suited to
renting or buying. Take a look at some of these advantages and
disadvantages relating to both:

Renting: You have flexibility. You can move when your lease is up.
Buying: Less flexibility. You most likely need to sell to move.

Renting: Maintenance, in general, is handled by the landlord.
Buying: Maintenance is handled by the homeowner.

Renting: Little you can do in the way of remodeling, decorating, etc.
Buying: You can personalize the home to your tastes.

See the entire list on the
Buy or Rent page.

It is only after you feel comfortable with the concept of either buying
or renting that you should proceed to the other financial considerations.
If you are not going to be happy with one or the other, it is
doubtful that the financial considerations of buying or renting will turn you
totally around. You do, however, need to consider all aspects of the decision,
since the financial side of the equation will have a real impact on your life
going forward, whether as a home owner or as a renter.

To make an adequate comparison, you will need a minimum of the
following tools:

+ Actual sales prices (not listing prices) for properties in the areas in which
you have an interest.
+ Rental prices, per month, in the same areas (or another area that may be
acceptable to you).
+ Your estimated monthly payment, from a mortgage source, based on the
estimated selling price less your down payment, and including principal,
interest, property taxes, insurance and mortgage insurance premiums.
+ Your estimated monthly repair and maintenance costs for a purchased
home. This can vary widely, so you may need assistance with this step
from current home owners that you know. You will need to take into consideration
the age(s) of prospective homes as well as condition and the costs of materials
and labor in your local area.
+ Your potential income tax savings, if any, due to the deductibility of mortgage
interest. You should consult a tax advisor here, and keep in mind that there has
been some talk of eliminating some or all of the deductibility of mortgage interest.
Although such talk is not taken very seriously, it could occur sometime in the

When you do make your comparisons, of course you will want to consider more
than just these financial aspects of your decision. For example in most cases,
you will probably not have the emotional attachment to a home that you rent
as you would with a home you would own. These types of issues will need to
be considered when you "run the numbers." If, after your comparison of
the costs of renting versus buying, it shows that you will be in a $10,000 better
position if you rent, would it sway you one way or the other. What if the
difference was $25,000, $50,000 or $100,000? Remember, also, that any
advantage one way or the other must factor in the additional money that would
be available from investing the monetary difference between buying and renting.
For example, $400 per month savings invested at a minimum 4% annual
interest means that in 20 years your total "nest egg" from the monthly
savings would total nearly $150,000. Even if you do not invest all of the savings,
this still can add up to a tidy sum after 20 years.

Summing Up

The last 5 years have brought big changes in Real Estate values in a number
of areas in North America. Since there have been huge jumps in the selling
prices in many localities, not accompanied by an equal jump in rents, some
of the "established" conceptions of buying versus renting may no longer ring
as true. It is important, then, to make a clear headed comparison between
renting and buying if you are looking to purchase in one of those areas that
has seen the biggest price increases. The traditional "it is better to buy than
rent" still applies in many areas, but not in all. Make sure that you run your
own personal numbers before you make a commitment one way or the other.

Next Month's Topic: Negotiations in a Changing Market


The Home Buying Checklist

Many of our visitors have said that one of the most valuable
aspects of the Home Buyer's Information Center is the
Buying Checklist, where they can make sure that all
the bases have been touched.
You can find the checklist

As always, if you have suggestions for improving the
site, or topics you would like to see addressed in
this newsletter (or, if you have used the Home Buyer's
Information Center to successfully purchase a home),
drop us a quick line

A special thanks to all those who have written to let us know
that they have found the Home Buyer's Information Center a
helpful resource in their buying process.

Have a great month and good luck in all your endeavors!

The Team at the Home Buyer's Information Center

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