Spring Puts Bounce in the Housing Market

This may be a great time to buy before prices rise and interest rates go up. The same house can cost you 18% more next year, as stated in this story in The Wall St Journal

The demise of the housing recovery has been greatly exaggerated.

Despite the fact that bond yields—and, therefore, mortgage rates—did precisely the opposite of what Wall Street expected in 2014 by staying low, the pace of home-price appreciation slowed. The year-over-year change in the S&P/Case-Shiller 20 City Composite index has fallen sharply to 4.5% last December from 13.8% in November 2013.

Not only should Tuesday’s report on prices for January show a slight quickening, but the ingredients appear right for a strong spring and summer. Economists polled by The Wall Street Journal see the S&P/Case-Shiller index’s year-over-year pace having risen to 4.8%.

Rather than one single factor, the market seems to be in a sweet spot due to a handful of positive trends.

The mortgage market remains friendly, with the average 30-year mortgage rate recently falling to around 3.7% from 4.4% a year ago. Credit conditions have loosened, too. Federally supported mortgage guarantors Fannie Mae and Freddie Mac reduced their down-payment thresholds in December and the Federal Housing Administration sharply lowered the premium it charges for insuring mortgages in January.

Meanwhile, supply and demand appear conducive to price increases. Research provider CoreLogic said recently that the share of home sales that are distressed, such as foreclosures, has grown less year over year each and every month since July 2011.

Although for-sale inventories and even rental vacancy rates are low, there are indications of a robust start to the spring selling season. On Monday, the National Association of Realtors reported February’s seasonally adjusted index of pending home sales hit its highest since June 2013. That came despite frigid, snowy weather across much of the country.

Housing bulls shouldn’t extrapolate the trend very far, though. Once the Federal Reserve starts raising interest rates, likely sometime this year, affordability will begin slipping.

Say 30-year mortgage rates are a percentage point higher a year from now, and prices are 5% higher. Then a monthly mortgage payment, assuming a typical down payment, would rise by about 18%.

What’s more, while the housing recovery hasn’t restored prices to their precrisis peak, they are at or above their long-run trend on some measures. That includes their relationship to rents and the long-run pace of residential inflation.

Enjoy the house party while it lasts.

Raveis Real Estate Page updated: April 3, 2015 @ 8:23 am | © 2017 Denise Gannalo, Realtor Licensed in the State of Connecticut
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