Originally Posted by Matthew
I am planning to buy a house of my own and have not been able to decide as to whether to go in for Fixed rate or Variable rate Mortgage. I have also heard of Adjustable Rate Mortgage Loans and would like to study about its suitability considering the other trends of the market. Would someone give me an idea? Thanks!
Welcome to the Forum, Matthew. It's good to see that someone in their early twenties is thinking ahead and planning for the future. That should serve you well.
Others have given good advice on factors to consider in choosing which mortgage product best fits your situation. But, given the present real estate realities, I suggest that there are three aspects of one fundamental question you must answer before you buy anything - which way are prices heading presently, where will they be when I expect to buy, and where will they be when I expect to sell?
There is an old adage on Wall Street: Don't try to catch a falling knife. It means that if something you might want is falling, it's generally safer to wait until it's hit bottom. You can then pick it up safely.
The same analogy applies to the real estate market. While prices have stopped going up almost everywhere, and are actually going down in many, if not most, markets, most experts in the field agree that the real estate downturn is closer to the beginning than the end.
A lead article in today's LA Times - Homeowners' big question: How low will prices go? - Los Angeles Times
- asks "How low will prices go?" That might be something you would want to factor into your analysis of the real estate market. The last I read, there was a 10 to 11 month inventory of actively listed houses overhanging the market. A not-unrelated statistic is, IIRC, that there are seventeen-million owned-but-not-occupied houses in the US.
Many (most?) of the latter are second or third or (?) spec houses that greedy people bought as the market was exploding way back one to five years ago. Arizona and Nevada are full of them, and if prices are declining now, with less than three million houses actively listed, what will happen when those greedy souls throw their "portfolio" into the For Sale
inventory (or they lose their properties to foreclosure, and their lenders put them up for sale)
The law of supply and demand in a free market dictates that prices can only go one way to clear that huge overhanging inventory, and re-balance fear and greed.
The inferrence is that real estate prices will continue to decline for the foreseeable future, so whether you choose a mortgage that is fixed or adjustable, or whether you try to sell your new house in two or five or ten years, may not be the most important fundamentals when it comes to entering the real estate market at this time.
Once you have a grasp of the price trend in the area where you intend to buy your home, then
try to determine how long you will stay there, then
choose the best loan product for you at that time.
As you make the effort to determine when/where/how you will begin your real estate investing, try to educate yourself on the historical cycles in the US real estate market. It would be a mistake to assume that the period from about 1999 through 2005 or 2006 is representative of what real estate can be expected to do all of the time - or even most of the time. That period (from the time you were about 15 to 21 or 22) was an anomaly, and only representative of a bubble created by loose lending standards and reckless creation of excessive credit and money supply.
You may very well know someone, or even several people, who made (nominal) fortunes in real estate during that period. One or more of them may be encouraging you to take the plunge with lame aphorisms like "Real estate always goes up!" or "Buy land - they aren't making any more of it!" or - well, you get the idea.
I hope the foregoing doesn't strike you as depressingly negative - that certainly isn't my intent. I'm only trying to encourage you to carefully analyze American real estate investing in the current
era in detail before you sign anything.
Good luck to you in your quest.