Am I crazy? Is optimism growing?

A question I have been hearing a lot lately when people contact me is "Am I crazy to be thinking about buying? Am I nuts given the current ecomonic conditions?"

Some people call me the eternal optimist…I just can't help it…there are always two sides to everything!  But I must say that I've been feeling a renewed sense of optimism lately, and it seems to be coming from many different sources. The most obvious related to the housing market…

• Very low interest rates…below 4.5% may be the lowest in over 40 years!
• Low housing prices…prices continue to be low, and as we head into the deep freeze prices tend to drop along with temperatures
• Declining housing inventory…total homes for sale dropped below the last two years in May and has stayed below ever since…as foreclosure inventory is gobbled up prices will stabilize and eventually begin to rise again

But it goes beyond there…

• Low fuel prices…back to prices of about 4-5 years ago
• The Obama Effect…markets always tend to pause as we are in the midst of a presidential election…with that behind us and president-elect Obama being very proactive at preparing to turn things around optimism extends beyond partisan boundaries…it won't be a quick fix, but you can feel hope replacing fear
• The 10-year real estate cycle…all markets are cyclical and a 10-year cycle is common in many places…real estate markets were down in the early 1990's, stabilized in the mid-90's and started going up again in the late 1990's, peaking in 2005-2006 before starting the current downward trend…looking cyclically, we should be ready to pull out of the bottom and begin the return to a more normal market again

Both the New York Times and Washington Post published articles in the last couple weeks talking about how it may be time to buy.

• Allan Sloan of the Washington Post said, "for the first time in years (or maybe decades) prices of homes…have fallen low enough to be considered reasonable long-term investments again"

• Ron Lieber of the NY Times said, "5 or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers"

This doesn't mean everyone should rush out to buy, however…there are some practical considerations…

• To get the best mortgage rates you need a credit score of 720 or above…if yours isn't already there, now is a good time to work on improving it
• Plan to make a down payment of at least 3.5%
• Be cautious if you think your job might be vulnerable
• Get back to pre-bubble spending basics…like spending no more than 28-30% of your pretax income on mortgage payments, taxes and insurance
• Use your home as a place to live, not a cash machine or a get-rich quick scheme

Finally, think about how you would feel if you bought and prices dropped some more…it is a possibility…we won't know we have hit bottom until we look back. If you are committing to stay in your home for at least six years, however, it probably won't make much difference…you will likely wake up in 2015 or 2016 and see that you've done okay.