Though real estate prices are barely budging, experts say this may be a good time to buy a house. But only for those willing to stay put.

On the face of it, the latest news doesn’t bode well for potential house buyers. House prices will steadily rise in 2012 but economists don’t see prices outpacing inflation over the next three years, according to a new survey. Typically, home prices bounce back after a prolonged recession and even help fuel a broader economic recovery. Not this time, according to that survey. The growth in house prices won’t even keep pace with that of a loaf of bread.

As real estate prices begin their slow crawl north, interest rates have only one way to go – up. “Whether you’re a 35-year-old looking to get on the property ladder or a retiree wanting to downsize, it’s still a good time to buy,” says Jay Tyner, president and founder of Semmax Financial Group in Greensboro, NC.

Current conditions are a win-win for both potential homeowners and long-term investors, others say. “For households, the priority should be on meeting their shelter needs at the best price — which may not entail ownership at all. – and appreciation, if any, should be viewed as a bonus,” says Patrick O’Keefe, director of economic research at J.H. Cohn LLP in Roseland, N.J. “For investors with longer-term staying power and property management capability, conditions are attractive — but property specific.”

What’s more, rents are also on the rise. Consumers are being hit by the rise in rents and the decrease in concessions being offered, according to a new survey by online apartment-lister Rent.com. Property managers predict that rents will rise between now and the third quarter of 2012 by 3%, above the 2.5% inflation rate between now and 2014 expected by most economists in a Wall Street Journal survey. Plus, the nation’s ratio of house prices to yearly rents is nearly back to its pre-bubble average.

If you’ve been on the fence about homeownership, now is the time to take a leap! Don’t let the negative press deter you from one of life’s greatest joys.

Take a look at five short and sweet reasons that homeownership is great!

1. Equity. When you pay rent, you never see that money again. It is lining the landlord’s pocket. Yes, buying a home may come with some hefty initial costs (downpayment, closing costs, inspections), but you will make that money back over time in equity built in the home. Historically, homes appreciate by about 4 to 6 percent a year. Some areas are still experiencing normal appreciation rates. For the areas that have seen harder times since the recession, experts feel that the housing market will recover. Homeownership is about building long-term wealth. A home bought for $10,000 in 1960 is most likely worth 10 times that in today’s market.

2. Relationships: Renters tend to see their neighbors come and go quickly. Some people sign year leases while others are in the community for much shorter terms. Apartment complexes also tend to have less common shared space for people to meet, greet, and socialize. Homeowners, however, have yards, walking trails, or community pools and clubhouses where they can get to know each other. Neighbors stay put much longer (at least three to five years if they hope to recoup their closing costs). This means more time to develop relationships. Research has shown that people with healthy relationships have more happiness and less stress.

3. Predictability: Well, as long as you have a fixed-rate term on your mortgage it’s predictable. Most people buying homes today know that a fixed-rate is the way to go. This means your payment amount is fixed for the life of the term. If your mortgage payment is $500 today, then it will still be $500 a month in 10 years. This allows for people to budget and make solid financial plans. The sub-prime crisis meant many homeowners with adjustable rate mortgages saw their monthly payments rise and then rise some more. Homeownership, though, generally comes with a predictable table of expenditures. Even the big purchases are predictable. You know most roofs last just 20 years (or so). You know that each year you’ll need to pay for the gutters to be cleaned, and so on.

4. Ownership: Okay, this is a given. Homeownership means you “own” your home. That comes with some incredible perks, though! You can renovate, update, paint, and decorate to your heart’s desire. You can plant trees, install a pool, expand the patio, or do holiday decorating that would rival the Kranks (if the HOA allows!). The bottom line is this is your home and you can personalize it to your taste. Most renters are stuck with the same beige walls and beige carpet that has been standard apartment decor for 20 years. Now is your chance to let your home speak!

5. Great Deals: It’s a great time to buy. Interest rates are at historic lows. We’re talking 4% percent instead of 6% or higher. This means big savings for today’s buyers. Home prices have also taken a dip since the recession, which means homes are more affordable than ever. If you have steady income and cash for a downpayment, then be sure to talk to your local real estate agent about what homes in your area could be a fit for you.

Homeownership can be a real joy. It’s time to get off the fence and into a home that is right for you!

Wall Street Journal – October 15, 2011

U.S. house prices have plunged by nearly a third since 2006, and homeownership rates are falling at the fastest pace since the Great Depression.

The good news? Two key measures now suggest it’s an excellent time to buy a house, either to live in for the long term or for investment income (but not for a quick flip). First, the nation’s ratio of house prices to yearly rents is nearly restored to its prebubble average. Second, when mortgage rates are taken into consideration, houses are the most affordable they have been in decades.

Two of the silliest mantras during the real-estate bubble were that a house is the best investment you will ever make and that a renter “throws money down the drain.” Whether buying is a better deal than renting isn’t a stagnant fact but a changing condition that depends on the relationship between prices and rents, the cost of financing and other factors.

But the math is turning in buyers’ favor. Stock-oriented folks can think of a house’s price/rent ratio as akin to a stock’s price/earnings ratio, in that it compares the cost of an asset with the money the asset is capable of generating. For investors, a lower ratio suggests more income for the price. For prospective homeowners, a lower ratio makes owning more attractive than renting, all else equal.

Nationwide, the ratio of home prices to yearly rents is 11.3, down from 18.5 at the peak of the bubble, according to Moody’s Analytics. The average from 1989 to 2003 was about 10, so valuations aren’t quite back to normal.

But for most home buyers, mortgage rates are a key determinant of their total costs. Rates are so low now that houses in many markets look like bargains, even if price/rent ratios aren’t hitting new lows. The 30-year mortgage rate rose to 4.12% this week from a record low of 3.94% last week, Freddie Mac said Thursday. (The rates assume 0.8% in prepaid interest, or “points.”) The latest rate is still less than half the average since 1971.

As a result, house payments are more affordable than they have been in decades. The National Association of Realtors Housing Affordability Index hit 183.7 in August, near its record high in data going back to 1970. The index’s historic average is roughly 120. A reading of 100 would mean that a median-income family with a 20% down payment can afford a mortgage on a median-price home. So today’s buyers can afford handsome houses—but prudent ones might opt for moderate houses with skimpy payments.

For example, the median home in the greater Phoenix market, including houses, condos and co-ops, costs $121,700, according to Zillow.com. With a 20% down payment and a 4.12% mortgage rate, a buyer’s monthly payment would be about $470. Rent for a comparable house would be more than $1,100 a month, according to data provided by Zillow.com.

Of course, all of this assumes mortgages are available—no given now that lending standards have tightened. But long-term data on down payments and credit scores suggest conditions are more normal than many buyers think, according to Stan Humphries, chief economist at Zillow. “If you have good credit, a job and a down payment, you can get a mortgage,” Mr. Humphries says. “There’s more paperwork and scrutiny than five years ago, but things are pretty much like they were in the ’80s and ’90s.”

Not all housing markets are bargains. Mr. Humphries says Zillow has developed a new price/rent ratio that uses estimates for each individual property rather than city medians, to better reflect the choices facing typical buyers. A fresh look at the numbers suggests Detroit and Miami are plenty cheap for buyers, with price/rent ratios of 5.6 and 7.7, respectively. New York and San Francisco are more expensive, with ratios of 17.6 and 17.2, respectively. The median ratio for 169 markets is 10.7.

For investors seeking income, one back-of-the-envelope way of seeing how these numbers stack up against yields for other assets is to divide 1 by the price/rent ratio, resulting in a rent “yield.” The median market’s rent yield is 9.3% and Detroit’s is 17.9%.

Investors would then subtract for taxes, insurance, upkeep and other expenses—costs that vary widely. But suppose total costs were 4% of the purchase price. That would still leave a 5.3% rent yield in the typical market. With the 10-year Treasury yield at 2.2% and the Standard & Poor’s 500-stock index carrying a dividend yield of 2.1%, rents for residential housing in many markets look attractive.

A few caveats are in order. First, not all transactions are average ones. Even in low-priced markets, buyers should shop carefully. Second, prices could fall further. Celia Chen, a senior director at Moody’s Analytics, expects prices to drop 3% before bottoming early next year and rising slowly thereafter. “If the economy slips back into recession, however, we could easily see a 10% drop,” Ms. Chen says.

And property “flipping” can be dangerous even when prices are rising. That is because, absent a real-estate boom, house price gains simply aren’t that exciting. Research by Yale economist Robert Shiller suggests houses more or less track the rate of inflation over long time periods.

Houses aren’t the magic wealth creators they were made out to be during the bubble. But when prices are low, loans are cheap and plump investment yields are scarce, buyers should jump.

Rate on 30-year mortgage falls to record 4.01%

Fixed mortgage rates have fallen to historic new lows for a fourth straight week and are likely to fall further.

The average on a 30-year fixed mortgage fell to 4.01 percent from 4.09 percent this week, Freddie Mac said Thursday. That’s the lowest rate since the mortgage buyer began keeping records in 1971. The last time long-term rates were lower was in 1951, when most long-term home loans lasted just 20 or 25 years.

The average on a 15-year fixed mortgage, a popular refinancing option, ticked down to 3.28 percent. Economists say that’s the lowest rate ever for the loan.

Mortgage rates tend to track the yield on the 10-year Treasury note. The 10-year yield has risen this week to around 2 percent. A week ago, it touched 1.74 percent – the lowest level since the Federal Reserve Bank of St. Louis started keeping daily records in 1962. As recently as July, the 10-year yield exceeded 3 percent.

Rates on mortgages could fall further after the Federal Reserve announced last week that it would take further action to try to lower long-term rates.

The warm weather homebuying season has kept prices moving up, but Clear Capital says the rate of appreciation is already slowing and weak consumer confidence points to a stormy rest of the year.

The “company’s latest report shows that home prices rose 4.0 percent over the four-month period ending in August when compared to the previous three months – an assessment Clear Capital refers to as a rolling quarter.

The company notes, however, that the recent gains over the summer months have not been enough to recoup longer-term declines, with national home prices still 6.2 percent below last year’s levels.

Dr. Alex Villacorta, director of research and analytics at Clear Capital, points out that the short-term gains reported in recent months are coming off of the record lows of winter.

“With summer coming to a close and the price gains clearly starting to level off, the market is at a critical juncture as to whether it can avoid another significant downturn into the slower buying seasons of fall and winter,” Villacorta said.

According to Clear Capital, low consumer confidence and a continued high unemployment rate support the company’s projection of downward home price movement for the remainder of 2011.

“The latest readings on consumer confidence paint an ominous picture that at present, consumers are still not ready to risk jumping into the market despite very low mortgage rates and very affordable home prices,” Villacorta added.

Based on Clear Capital’s latest report, the Midwest region leads the nation with a seasonal quarterly home price gain of 7.3 percent, buoyed by solid improvement in Chicago and the Ohio markets in particular.

In the Northeast home prices rose 4.9 percent, and in the South quarterly appreciation came in at 3.5 percent.

Home prices in the Western region of the U.S. were up just 0.7 percent. Clear Capital says with economic uncertainty and significant distressed sales activity affecting the West, this small gain may potentially represent peak price growth in the region for the rest of 2011.

Home prices in all four regions came in well below their readings at this time last year, with the smallest annual dip in the Northeast at 2.0 percent.

Jacksonville, Florida replaced Detroit as the “lowest performing” major market, posting a -2.7 percent quarterly price change. Eleven of the 15 markets on the low end of the price performance spectrum reside in the western part of the country.

Cleveland’s rolling quarter price gains jumped to 19.2 percent based on data through August, pushing the market to the top of Clear Capital’s “highest performing” list. The company says Cleveland’s large gains reflect vast differences in its REO composition between the winter and the spring-summer homebuying seasons.