I’m often asked whether now is a good time to buy a home. Mostly, I tell people that it’s always a good time to buy, as long as you’;re buying the right home, at the right price, and on the right terms.
But as we move into the fall home selling season, it seems like a good time to take that answer a step farther and look at what’s happening in the world of residential real estate and how you can make a smart move on your own schedule.
For buyers and sellers nearly everywhere in the country, the housing market has slowed down. The National Association of Realtors announced that existing home sales dropped more than expected.
More new and existing homes are on the market than at any time since 1993. Homes are taking longer to sell, and according to the latest Freddie Mac survey, house price appreciation has slowed to 4.9 percent annually from 13 percent. The National Association of Realtors says that existing home appreciation will slow to just 2.8 percent in 2006.
These statistics would seem to suggest a housing market on its last legs. But as is often the case with economics, the numbers are confusing.
As Frank Nothaft, Freddie Mac vice president and chief economist notes, single family housing sales are strong enough to make 2006 the third-strongest year for housing sales in history, but sales are expected to be off more than 16 percent from last year’s pace. Sales of existing home sales are expected to fall 7.6 percent to 6.54 million units this year.
Of course, the long-term interest rate picture continues to be eye-opening. Interest rates on a 30-year fixed rate loan are averaging about 6.5 percent. The interest rate on a 15-year loan is averaging about 6.16 percent. Over the last two years, interest rates on short-term loans have skyrocketed, with home equity loans and lines of credit now at anywhere from 8 to 9 percent.
While long-term interest rates are up dramatically from a year ago, they’re still cheap by historical standards — and they should remain constant through the end of the year.
“We expect that mortgage rates will continue to fluctuate as new economic data are released, but still remain in the 6.5 to 7 percent range for the rest of the year,” Nothalf said.
Will housing prices continue to fall? That depends on supply and demand, economists say. Right now, sellers are holding onto their prices, preferring to keep their homes listed for months rather than drop their price.
“Housing number for existing home sales will fall through the end of this year before stabilizing. Then, they’ll move sideways,” explained Dave Seiders, chief economist of the National Association of Home Builders.
Seiders said that builders were pouring a lot of effort into developing incentives for buyers, including paying the buyer’s closing costs, absorbing financial points and buying down the mortgage’s interest rate.
“Listings have remained aggressive while sales have been falling. Inventory (of new and existing homes) is rising aggressively. People who want to sell their existing home aren’t getting what they thought they would get, and end up pulling their house back off the market,” Seiders said.
If you combine higher housing inventories with longer list times and historically low interest rates, it’s a strong hand for home buyers with at least some down payment cash in the bank and good credit.
And it may mean that now is a great time to start choosing a neighborhood and looking at the housing stock. If you find a house you like, and the home has been listed for the past 3 to 6 months, it’s possible that the seller is really ready to get rid of the home and cut you a great deal.
But take your time. In a buyer’s market (where more sellers have listed homes than there are buyers to purchase them), buyers typically have plenty of time to compare prices, amenities, neighborhood, commute and other features.
“It allows potential home buyers more time to look around and decide what they really want and what they can afford,” Nothalf observed.
One thing to watch for is an increase in foreclosures due to sellers defaulting on their pay-option ARM loans. If more sellers find they can’t make the payments on these exotic mortgages, you may find that the best time to buy a house isn’t today, but over the next six to nine months — when those homes start to go into foreclosure.