Wouldn’t you know it? There are still buyers wondering if now is the time to
buy a home. Now, when inventory is extremely low, mortgage interest
rates are starting to rise (up to 4.46 percent last week) and home
prices have seen huge price jumps in many markets.
And yet there are some who believe there may be a price advantage to waiting a few more
months, until we get into the fall and even winter season. But more
on that in a moment.
There’s no question that the real estate market is healthier than it has been in
years, but the headlines aren’t quite giving consumers the whole
story. While existing home sales, new construction sales and home
prices are trending up, they are still below their pre-recession
peaks, noted Amy Crews Cutts, senior vice president and chief
economist for Equifax.
Single-family housing starts are still down around 60 percent from the
pre-recession peak, while existing home sales are still down about 38
percent and prices are down roughly 20 percent.
“Even with large percentage gains in housing measures, all major indices of housing
market vitality point to a long recovery yet to come,” she said in
a live Webinar on the housing market hosted by Ilyce. (Full
disclosure: Ilyce also serves as the managing editor for the Equifax
What’s keeping the housing market depressed isn’t a lack of buyers but a lack of
inventory. There simply aren’t enough houses to buy. Home builders
can’t build homes fast enough: There aren’t enough building
materials in some communities, and others are experiencing a shortage
of construction workers.
This lack of inventory is starting to push up prices and is making the market move
much more quickly, noted Steve Cook, editor of Real Estate Economy
Watch, and the former head of public affairs for the National
Association of Realtors.
At the same time, mortgage interest rates have jumped up more than half a percentage
point in the last few weeks, even as the Federal Reserve Bank has
continued buying Treasuries and mortgage-backed securities at the
rate of $85 billion per month.
Last month, the stock market was thrown into turmoil when the Federal Reserve hinted
that it may begin to cut back as the economy looks to improve and
wind down the program entirely within a year. The stock market has
more than doubled since 2009, benefiting enormously from the historic
low interest rates, but fell nearly 5 percent in recent weeks.
Economists project the Federal Reserve may decrease its bond-buying
by $20 billion per month, starting in September.
If the Federal Reserve stops buying bonds, mortgage interest rates will rise
further, Cutts said. “But you have to keep it in perspective. In
2012, we hit this interest rate level for the first time in history
and we were celebrating,” she added.
Rising interest rates could mean home prices will slow down, noted Jed Kolko,
Trulia’s chief economist.
“Of course, slower price gains are a good thing if it prevents us from getting
back into bubble territory. Anyone even a little bit worried about a
new housing bubble forming should be happy that the Fed is easing
rates back up,” Kolko added.
Even so, home affordability is near a record high. Which means now is the best time
to buy a house, unless you want to bet that interest rates will hold
where they are now into the beginning of next year. Cutts said that
home prices may fall slightly as buyer demand dips seasonally. That
could mean a price cut of as much as 1 to 3 percent, a not
insignificant number if you’re buying a $100,000 to $300,000 house.
But if interest rates jump another half percentage point, you may lose that price
advantage to higher interest rates and monthly payments.
Still, the question of whether now is the time to buy a home (whether to live in or as an
investment) comes down to different but related question: Is it the
right time for you?
Ilyce R. Glink is the author of many books on real estate and host of “Real
Estate Minute” on her YouTube.com/expertrealestatetips channel.
Samuel J. Tamkin is a Chicago-based real estate attorney.
Courtesy of Washington Post