The Housing Market Is Finally Rebounding
The housing market is rebounding. Really.
After many premature predictions and optimistic announcements, the housing market has indeed turned a corner. Home prices and sales are up. Foreclosures and mortgage delinquencies are down.
Average home prices in the top 20 metro areas were up 1.6% in July from a year ago, according to the S&P/Case Shiller Home Price Indices. All 20 cities in the index reported rising home prices for the third month in a row.
"All in all, we are more optimistic about housing. Upbeat trends continue," said David M. Blitzer at S&P Dow Jones Indices.
The median existing-home price, including all housing types, was $183,900 in September, up 11.3% from a year ago, according to the National Association of Realtors. The year-over-year monthly home prices have increased for seven months in a row. The last time that happened was from November 2005 to May 2006.
"Despite occasional month-to-month setbacks, we're experiencing a genuine recovery," said Lawrence Yun, NAR chief economist. "More people are attempting to buy homes than are able to qualify for mortgages, and recent price increases are not deterring buyer interest." (See also: What It Really Costs to Own a Home)
The Buyer's Market Is Over
What's more, the buyer's market may be coming to an end as sentiment begins to favor sellers. A survey by RedFin, a technology-based real estate brokerage firm, showed that homebuyers believe the market may be shifting against them. Out of 982 homebuyers polled this summer, 46% said they believe that now is a good time to buy. That was down from 56% in the first quarter and 48% in the second quarter. Thirty-two percent think now is a good time to sell, up from 13% in the first quarter and 28% in the second quarter.
Importantly, many homebuyers, 61%, believe home prices will increase, up from 32% in the first quarter. More buyers are coming across competition or even bidding wars for a limited number of homes being sold — 71% of respondents reported encountering competition on at least one offer.
Homes are also selling faster. The median time on the market in September dropped 30.7% from 101 days in September 2011, another indication that housing has strengthened.
Too Many Buyers for Homes
The problem for home buyers is the shortage of homes being sold. In parts of the West, the shortage is especially acute, Yun said. The number of existing homes listed for sale fell 3.3% to 2.32 million at the end of September. That's down 20% from a year ago.
Fewer homes being sold means rising prices, a trend that will accelerate unless home builders ramp up construction fast, Yun said.
Why the shortage? Homeowners who bought their homes before the housing bubble bust are unwilling to sell now and take a loss. Homebuilders all but stopped home construction during the recession, and a wave of foreclosures hitting the market has failed to materialize.
Home Buying Is for the Fast and Ready
Real estate agents advise home buyers — don't fret about home price trends. If you love a house and are comfortable with the mortgage payments, make an offer.
If you want to buy a home, don't keep waiting in an attempt to "wait for the bottom." By the time you've concluded home prices have hit bottom, they'll probably already be rising. And even if prices do fall in your area, interest rates may rise. That will make mortgages more expensive, defeating the purpose of seeking affordable housing.
Don't be too picky. You might not find your dream house, especially with fewer homes on the market than potential home buyers. Don't worry about appliances, colors of the walls, or weeds in the yard. You can always replace a refrigerator and paint walls latter.
Be ready and fast. Obtain mortgage preapproval. Submit your financial documentation to a lender to get preapproval for a maximum home loan amount. Get to know the neighborhood where you're house hunting. Learn about multiple-offer situations and plan out what you'll do.
Should You Buy a House Now?
So should you should you rush to by a home before home prices increase even more? It depends.
Because real estate is local, prices in your area might not follow national trends or the trend in a nearby metro area. Examine local home values when you're home shopping, not national or regional price indexes.
Regardless of the home price outlook, before you jump into home buying, your personal and career situation should be settled enough for you to stay put for at least a few years. Buying a home is not like speculating in gold or stocks. You can sell a commodity like a stock fairly easily, but when you buy real estate, you pay an assortment of mortgage closing costs and fees. When you sell, you pay the real estate agent a commission. For that reason, you should plan to keep the property for at least several years to make the investment worthwhile.
Your financial house, so to speak, should be in order, your credit good enough to obtain a favorable home loan rate, and a savings large enough for a down payment — ideally at least 10% but ideally 20% to avoid private mortgage insurance, which insures the lender and brings no benefit to you.
You should be ready to pay for maintenance and repairs or to fix things yourself. Unlike a renter who calls the landlord when a faucet leaks, you'll be responsible for mowing the lawn and fixing anything that breaks.