Current mortgage rates could mean now's the time to buy a second home

The Wall Street Journal ran a story December 2, 2010, that reported the view of Frank Nothaft, who is the chief economist at Freddie Mac. He points to current mortgage rates, which remain close to historical lows in spite of recent rises--and his belief that house prices could soon bottom out to justify his conclusion that the real estate market will begin to recover in 2011.

Of course, not everyone agrees, and the Journal referred to other analysts who think that house prices could fall by a further five or 10 percent during 2011. But Mr. Nothaft could just turn out to be right.

Best mortgage rates and housing affordability

The National Association of Realtors® recently published its "Housing Affordability Index" for October 2010, and it showed that home ownership was more affordable in that month than it has been for decades. Basing its calculations on the median price for a single-family home, the average mortgage rate, and the median family income, it found that monthly mortgage payments ate up 21.7 percent of a family's income in 2007, and 18.1 percent in 2009. However, by October 2010--and presumably driven by some of the best mortgage rates ever--that was down to 13.6 percent.

That makes home ownership 37 percent less expensive now than it was in 2007. And, as soon as confidence in the economy fully returns, that cheapness is likely to tempt first-time buyers into the market, and encourage other homeowners to trade up.

Investing in second homes

The richest investors tend to be those who best anticipate trends: selling at the top of the market and buying at the bottom. And, if Mr. Nothaft turns out to be correct, this is the bottom of the real estate market, and now is the best time to buy property for investment purposes. That applies whether you're thinking of buying real estate for rental or as a vacation home that you want to perform as an investment asset.

Of course, you'll have spotted the weasel phrase in that argument: "if Mr. Nothaft turns out to be correct". All investments contain some level of risk, and there's a real chance that Mr. Nothaft could turn out to be wrong. However, the level of exposure may be limited. The other analysts that the Journal referred to are expecting a further fall in prices of only five or ten percent, and many expect the overall trend in prices to be an upward curve, though admittedly with some quarters showing declines.

Mortgage Loans and second homes

In its Housing Forecast: November 2010, Fannie Mae says that the median price for homes was expected to be $168,000 in the last quarter of 2010, but $180,000 in the third quarter of 2012. That's not a great return--although it's better than many so-called high yield savings accounts, and certificates of deposit--but the investment could see you with a second home at close to the best mortgage rates for 50 years at a time when some expect the property market to take off again.

Back in November 2008, The New York Times included a feature that detailed the difficulties of getting a mortgage for a second home. The banks were being much stricter about their lending criteria, and there's little reason to think that things have gotten much easier.

Mortgage quotes

However, if your finances are in great shape and you have faith in Mr. Nothaft's predictions, you may well think that now is the perfect time to buy that second home you've been promising yourself. If you do, you can start off by finding some competitive mortgage quotes.