
After
years of sluggish sales and false starts, the real estate market is on a
tear this summer, with prices posting double-digit gains every
consecutive month since April.
Prices have increased so much so quickly in some markets that a few experts are already crying “bubble.” There’s no doubt that the bottom has passed. Tight inventory and climbing prices have created a seller’s market in most places and realtors are reporting bidding wars in the hottest markets –
but that doesn’t mean there’s not opportunity out there for home
buyers. “Just because it would have been cheaper to buy a home six
months ago, doesn’t mean it’s not a good time to buy one now,” says
Trulia housing analyst Jed Kolko. That’s good news for the 68
percent of renters surveyed in March by JP Morgan Chase, who said they
wanted to buy a home. It may be risky in today’s market for home flippers
looking to purchase and sell a home quickly for profit. But for those
retail buyers who want to buy and live in a house for five or 10 years,
here are five reasons to act now:
1. HOME PRICES ARE STILL RISING
The massive gains seen over the past few months make it
easy to forget that housing only bottomed out last year, hitting its
lowest level in March 2012. While recent prices increases aren’t
sustainable, there’s plenty of room for home values to climb. Even with
four months of improvement, prices remain about 26 percent below their
2006 peaks. The chief driver of price gains is constrained
supply, reflecting modest homebuilder activity; dwindling foreclosures;
and continued foot-dragging by potential sellers who are waiting for
prices to improve even further. Total housing inventory at the end of
May rose 3.3 percent, to 2.22 million existing homes available for sale,
which represents a 5.1 months’ supply at the current sales pace, down
from 5.2 months in April, according to the National Association of
Realtors. Listed inventory is still 10.1 percent below a year ago, when
there was a 6.5-month supply.
Going forward, price increases will vary by region, while
prices nationally are expected to see more modest increases of an
annualized 3.9 percent per year through 2017, according to CoreLogic.
2. RATES ARE LOW BY HISTORICAL STANDARDS
Rates, currently at about 4.6 percent, have climbed a full
percentage point since May – but they’re still lower than they were just
two years ago and far lower than their long-term average of about 8
percent. “In the history of America, a 30-year mortgage at less than 5
percent is a gift,” says Mark Dotzour, chief economist at Texas
A&M’s Real Estate Center. “It’s not supposed to be that way, and
rates are only that low because of extraordinary monetary policy.”Economists
don’t expect the recent surge to continue. The Mortgage Bankers
Association predicts rates will remain close to current levels through
the end of next year.
3. IT’S GETTING (MARGINALLY) EASIER TO GET A MORTGAGE
Lending conditions constricted considerably during the credit
crunch that hit after the bubble, and lenders have been slow to open
their doors to less-than-stellar borrowers. Still, there are
signs they’re starting to relax requirements. While lending is nowhere
near the no-doc, no down-payment days of the subprime-fueled boom, the
Mortgage Bankers Association’s Mortgage Credit Availability Index showed
that credit availability has increased slightly every month since
April. Since the start of 2013, banks have loosened requirements on down payments, debt-to-income ratios, and credit scores, according to a report from Ellie Mae.Banks
may be even more willing to work with homebuyers over the next year as
rising rates mean fewer applications from refinancers that have
dominated their business in recent years. “A lot of banks were at
capacity dealing with the refinancers, which are easier loans to
process,” says Zillow economist Svenja Gudell. “Now they’ll have
availability to work with other borrowers.”
4. BUYING IS STILL CHEAPER THAN RENTING
Even with the recent increase in prices and rates, it’s
cheaper to buy than to rent in all 100 of the largest real estate
markets, according to an analysis by Trulia.com. Nationally, it’s 37
percent cheaper to buy than to rent, assuming the buyer stays in the
home for at least seven years. In fact, rates would have to more than
double to over 10 percent for markets to tilt in favor of renting in 78
of the largest 100 real estate markets. Typical monthly rent in the 100 largest metro areas is
$1,100, according to RealPage, and it’s not expected to get any cheaper.
The National Association of Realtors expects them to rise 4.5 percent
this year and next.
5. YOU WON’T HAVE TO COMPETE WITH INVESTORS
Realtors and homebuyers have complained
in recent years that it’s tough for retail buyers to compete in the
hottest markets, since an influx of investors were able to snap up
thousands of properties at deep discounts by promising fast, all-cash
deals. Recent price increases make such buys less appealing. The
distressed sales that brought investors to the table are diminishing as
the number of foreclosures in the works finally wanes. In May, there
were one million homes in some stage of foreclosure, a 29 percent
decline from the previous year, according to CoreLogic. “Investors
are recalculating their numbers, because it might make less sense for
them to buy in order to flip or rent now,” says Lawrence Yun, chief
economist for the National Association of Realtors. “That’s an
opportunity for primary owner-buyers who have less competition and still
a historically favorable environment, even if affordability is weaker.”