Is now a good time to buy a home?
Iris Price | Improvement Center Columnist | June 9, 2015
Housing market news for May 2015 was all a-buzz about the explosion in home sales this spring and the spike in home sale prices.
According to figures from RealtyTrac, a real estate data service company, homes sold for more than 100 percent of their market value in the San Francisco Bay Area; the Washington D.C. and Alexandria, Va. area; and in parts of North Carolina and North Dakota.
Global property information and analytics company CoreLogic reported early in the month that prices for home sales in 27 states reached 10 percent or more of their peak. Their figures show that as of March 2015, home prices rose 5.9 percent above those in March 2014.
Is this another boom-followed-by-bust cycle? Is it better to wait before sticking your toe in the housing market or should you jump in before prices climb higher and mortgage rates lose their deal appeal?
Housing sales: what's fueling the run-up of home prices?
The increased demand for homes -- reflected by the highest number of pending home sales in nine years for April 2015 -- and higher home prices in specific markets dominate the housing market news with explanations like these:
- Younger buyers finally seeking home ownership
- Increased jobs
- Higher rents
- Listing shortages
- Low mortgage rates
- Increased mortgage availability
According to the National Association of Realtors®, (NAR), rising rents have finally forced Millennials into the housing market, and they have now become the largest segment of American home buyers, surpassing the older Gen X. High-paying jobs make home ownership possible in many of the highest-priced markets.
Low mortgage rates, averaging 3.84% -- down from an average in 2014 of 4.14% for a 30-year FRM -- has made home ownership more appealing, and according to the Mortgage Bankers Association (MBA), mortgage credit became more available with new FHA, VA, and jumbo loan products.
Explanations for the current surge in home seekers even include the end of an especially tough winter in the Northeast, with buyers finally able to get out to shop for homes with the arrival of the spring thaw.
Clearly, however, demand exceeds supply, which has kicked off an increase in new home starts to a pace not seen since November of 2007. Even so, new communities take time to plan and the completion of new construction homes could be a year away at least.
Should you fear another housing bust?
With home prices heading back to where they were before the last housing crisis, some potential sellers who are still underwater on their mortgages are just waiting until their homes are worth at least as much as they owe before they put out the "For Sale" sign.
Prices may start to level off with new-construction homes becoming available in a year, but one way or another, inventory is going to increase and when it does, sellers who want to buy another home can put theirs on the market.
If you're worried that home prices will drop like a rock anytime soon and you'll be stuck with a home that isn't worth what you paid, consider the reason homeowners got hurt so badly in the last bust. Irresponsible lending like aggressive financing and lack of borrower documentation contributed to the housing crisis in 2008. Those increasingly lax refinancing practices, especially with regards to cash outs, left homeowners with little to no equity in their homes even before home prices plunged. With stricter lending requirements in place today -- for example, mortgage interest payments for FHA loans and more restrictive credit score criteria for cash outs -- some of the factors that contributed to the housing crisis should be averted, assuming lending remains sane.
So should you take the plunge and buy a house? With interest rates low and prices likely to stabilize when new inventory comes on the market, homeowners with the means to finance and afford the expense of home ownership should not be afraid to jump in anytime soon. According to RealtyTrac, 60 percent of homes for sale right now are selling below market value. If you're buying in one of those markets, you probably don't have to worry about slipping under water.
Photo credit to Kevin Irby