If you're in the market to buy a house, the time to buy is now. Let's quickly run down my improvised "Should I buy now?" checklist.
- Lowest interest rates in a generation? Check.
- Lowest home prices in a generation? Yep.
- Sellers under the gun to sell? You bet.
- Will it be like this forever? Absolutely not!
1. Mortgage rates are still low by historical standards
But they're rising...
If all you read are the headlines, you would have been led to believe that mortgage interest rates spiked to historic highs this past summer. Yes, they spiked, but they are nowhere near historic highs. A 5% mortgage loan is still a great deal.
Remember how excited we all were just a few short years ago at the prospect of refinancing our old 9% mortgages down to 5%? In the early 1980s, mortgage rates were routinely more than 14 and 15%. Considering that, 5% is flat out cheap!
But rates are on the rise. That's another undeniable fact. Quantitative easing is rapidly approaching its end. The Federal Reserve today is more concerned about deflation, and they're looking at the near-zero interest-rate policy as a possible cause. And with the labor market looking stronger by the month, the era of cheap money will likely soon be over.
Wait to lock in your rate at your own peril, because 5% mortgage loans will not last forever.
2. Home prices are still low by historical standards
But they're rising faster and faster...
One of the lingering scars of the financial crisis is the massive loss of wealth for everyday Americans from declining home prices. Seemingly overnight, a house that was worth $300,000 is now struggling to be sold for $200,000.
For homebuyers, though, this was a great situation. Those with the means and creditworthiness to buy were getting 50%+ more bang for their buck. Buyers today may not be getting that same 50% boost, but prices remain in the buyer's favor.
But again, time may be running out. Home prices across the country continue to improve, with the locations most hurt by the recession rebounding the most. It's becoming harder and harder to find that deal of a lifetime.
As the economy continues to improve, it's only going to get harder.
3. Pending sales are down
But the spring selling season is just around the corner...
Houses on the market today have likely been there for some time. The spring and summer are the prime seasons for home sales. It follows that homes currently for sale likely went through the spring and summer without finding a buyer.
The chart above shows a very sharp decline in pending home sales over the summer. This is being driven by higher interest rates, and compounded by the seasonality of the winter.
Sellers recognize the dynamics at play, as well. When mortgage rates go up, its harder for buyers to afford a larger mortgage. Home prices are rising, yes, but it's a slow process. Sellers are a long way from returning to 2006's highs.
They know that buying conditions are on the brink of reversing. They want you to buy their houses. In general, the buyer, you, has the negotiating leverage. For now.
The market will normalize. Rates and home prices will continue to rise. Spring is just a few months away. The time to buy may be right now.
But before you buy, make sure you read this first.
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