First of all I want to wish everyone a Merry Christmas, Happy Hanukkah, Merry Kwanza or just happy holidays. If I missed anyone I’m sorry. I know I have talked a lot this year about it being a great time to buy a home. It’s not because I want to make a sale. I believe in home ownership and the benefits to individuals, families and also for the community. Here are some things to consider as you might ponder a large belated gift for you and your family this next year.
Prices have nearly hit bottom. Although prices may fall some they won’t fall by much. Fiserv Case-Shiller, which tracks home prices, forecasts that the median price nationwide will ratchet down for about six more months, then stay flat for three or four years. In most cities median prices won’t fall below their 2009 or 2010 lows, says David Stiff, Fiserv’s chief economist. In cities with lingering oversupply of homes for sale, Fiserv forecasts a decline of 10 percent or more. The San Joaquin valley does NOT have an oversupply.
Houses are affordable again. Homes haven’t been this affordable since 1991. Economists often define affordability as the ratio of median home price to median family income. According to Fiserv Case-Shiller, the U.S. ratio now stands at 2.6 — down from a peak of 4.1 in mid 2005 and just under the long-term average of 2.8. Average mortgage payments are another way to look at affordability. Since the housing market’s peak in 2006, the average principal-and-interest payment in the U.S. has fallen from $1,063 to $645.
Renters considering the jump to homeownership may be encouraged by the price-rent ratio, or the median home price divided by the median annual rent. In 2005, the national median home price had inflated to nearly 21 times the median annual rent. Since the bust, the ratio has deflated to 14, less than the historical average of 15. During the same period, the difference between the median monthly mortgage payment and median monthly rent fell from $745 nationally to $102. Marcus & Millichap expects rental vacancy rates to hit pre-recession levels this year, allowing landlords to raise rents by an average of 3.5 percent.
Mortgage rates won’t go any lower. At the beginning of August the national average 30-year fixed rate was 4.5 percent. FHA loans, which require only a 3.5 percent down payment, had a 4.3 percent rate and even rates for jumbo mortgages have hit lows not seen since the 1980s. Freddie Mac forecasts a 30-year fixed rate of 6 percent by late 2012. Credit is tighter, and you may need a credit score of 740 or more and a down payment of at least 25 percent to nab the lowest rates.
It’s a buyer’s market. Demand is low and there is a supply. You’ll spend less time shopping and competing against other bidders. And you don’t have to waste time with sellers who set unrealistic prices (although they’re still out there). One caveat: If you’re searching among entry-level homes, which had more extreme price declines than upper-end houses did over the past year, you may face stiff competition from investors. They typically pay cash, which makes them attractive to sellers who want to close the deal fast. However, says Popik, you may find opportunities in homes that were bought and fixed up by investors.
You may find a distressed property. Bank-owned foreclosures often sell for a discount. Even with the slowdown in the foreclosure pipeline due to legal-processing issues there will continue to be a supply. Find out more about buying foreclosures from your local Realtor. Short sales, or homes sold with lenders’ permission for less than their owners owe on their mortgages, have also grown in number. Lenders have become more amenable to them as they seek to avoid the often huge losses associated with foreclosures, says Rick Sharga, of RealtyTrac. Banks may still take six months or more to sign off on a short sale, so patience is imperative.
Homeownership is still attractive. A home is the biggest purchase most people ever make. But deciding whether and what to buy isn’t purely a financial decision, says Chris Herbert, research director at Harvard’s Joint Center for Housing Studies. When you own a home, you can control your living environment and security, upgrade and change your home as you see fit, and create a sense of rootedness in your community. Shop carefully, and be patient. Understand that it may take months to find the right house. Enjoy your families in your own home any way that you want to this holiday season. Remember to always consult a Realtor.
Questions or comments can be made to Kerry Suess at firstname.lastname@example.org.