The real estate market here in the Chicago area is heating up. Traditionally the Spring market is the most active time of the year for home sales, and as the weather starts warming up here, the market is getting warmer, too. Most of the activity is still in the lower priced category, and first time home buyers are the biggest part of the market now. There are some big reasons why first time home buyers are the focus now. Most importantly, they don’t have a home to sell. I’ve talked to a lot of home owners who would love to move and find a home with more room for their growing family, or a place which meets their needs better than their current home does. But in order to do that, they would have to sell their current home first, and right now that is a hard pill to swallow. Home prices are down, and even if move up home buyers can afford it and can get a great bargain on the larger move up home, psychologically it is tough to admit that the home they have now is worth much less than it was just a few years ago. There is pent up demand, but my guess is that the real estate market won’t really take off again until after the economy is humming again, when interest rates are higher and inflation is in the air. So for all intents and purposes, this is a first time home buyer’s market.

There are some big reasons why first time home buyers are in the market now:

• Home values are down and affordability is up. Much of the activity is focused on short sale and foreclosed properties, and these are coming in at prices we haven’t seen in years. This is a buyer’s market, and buyers have the leverage to get real bargains now.

• Interest rates are low. Mortgage interest rates are bouncing around record lows. This ties into affordability, and if you are able to buy a home at a low price with a low fixed rate mortgage, your cost of home ownership is way down.

• The government is paying first time home buyers to buy homes now. The $8,000 tax credit means that first time home buyers will be able to write off 10% of the value of their new home, up to a maximum of $8,000 if they buy a home before November 31^st of this year. This means that the government is offering a discount for first time home buyers.

• Low down payment mortgage financing is available. FHA is the go to financing for first time home buyers here in the Chicago area. The down payment is 3.5% and if that money is hard to come up with, it can all come from a gift. FHA also allows for a seller credit of up to 6% (you don’t need that much) so the contract can be structured so that the seller is paying for your closing costs. FHA has also increased the maximum loan size it will take on up to $410,000 in Chicago and the surrounding suburbs, so it works for more situations now than it ever has before.

No one knows what will happen with the economy or how quickly the real estate market will recover. Unemployment is still growing, and there is a lot of fear in the air. Some experts that have been right since early on are saying that home prices could fall further. But if you are planning on being in the home for at least five years (and you shouldn’t be buying if you aren’t planning on being there for a while) it is hard to see how this isn’t a great time to buy. As the economy gets back on track, and it will eventually, more home buyers will gain confidence and the real estate market will return to a new type of normal. Over time home prices will increase, and mortgage rates will pop higher. My guess is that a whole lot of people will be kicking themselves for not buying when they had a chance. If you are a first time home buyer, or thinking about becoming one, you have control of the market now.

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