It is always a leap of faith to do something for the first time, and first time home buyers who are in the market to buy a home now need to take a bigger leap than normal. These are scary times in the real estate market. Home prices are down sharply from where they were last year, or even over the last several years. The credit crunch has morphed into a financial crisis and it looks like we are in a recession, and the recession may get worse before it gets better. Financing is tighter than it was before and you will need to have a down payment in order to get a mortgage. Being a first time home buyer is always scary but with fear in the air the safe thing to do is to sit on the sidelines. Or is it?

There is no way to know when you reach the bottom of a market, and if you buy your first home now you may be buying early. (But buying real estate should never be looked at as a short term decision. If you are buying a home you need to plan on being there for a minimum of 5 years.) But a few years back when everyone said real estate was the thing to get into, this was the same time when prices were the highest. When home prices were at their peak they looked like they would continue to go up. Now when home prices are much lower, most people are convinced that they will continue to go down. In the stock market, one school of thought is called contrarian investing – the idea that crowds are usually wrong, too optimistic when things are good and too pessimistic when the market is bad. The idea here is that the best time to buy is when the mood is bleakest and conventional wisdom says it is the worst time to buy. I’ve talked before about how greed and fear move the markets. It works the same in the real estate markets.

Here are some reasons this could be the right time for a first time home buyer to buy their home now or over the coming months:

1. With the credit crisis reaching a head, boatloads of money have been pumped into the economy. It was necessary to pump this money in to restore confidence, but we won’t see the results of this pump priming for months. There is always a lag in the system, but this added liquidity will be felt, probably starting next spring.
2. The banks will start lending again now that the government is investing in the biggest banks and guaranteeing so many loans. This takes some of the risk away and makes it easy for lenders to lend. This won’t mean we are going back to the easy credit period we were in, but we won’t be strangled by lack of credit.
3. The real estate market has been going down over the last few years, before most people really realized it, and prices are already down a by lot. Looking backwards, the risky time to buy was when the market was the hottest.
4. Real estate is negotiable. The properties that are selling now break down into 2 main categories, sellers who are motivated to sell, and bank owned properties or short sales.
5. Mortgage money is available, there are first time home buyer programs where you can buy with a low down payment, and mortgage interest rates are low. When the economy and the home market pick up, rates may be much higher, so your monthly payment would be higher, too.

I’m not saying that the economy is going to improve right away, it is likely to get worse. I don’t see home prices jumping higher any time soon, either. There are too many homes on the market now, and inventory is likely to grow as the economy worsens. At the same time there is a huge pent up demand of first time home buyers who want or need to buy a home, but have been sitting on the sidelines waiting for the right time to get in. At some point the buyers will jump in, and we will shift from a strong buyer’s market back to a sellers market.

First time home buyers may have a great opportunity now and in the coming months. You need to look at your situation and see what is right for you, both now and over the long term. As scary as it looks now, buying in a down market may be the best thing you can do.

If you are a first time home buyer or want to know exactly it takes to buy a home and get a mortgage in today’s market, click here for a Free, Home Buyer’s Guide.

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