July 23rd, 2014
There is still time to buy a house this year. And in fact, there are a number of good reasons why you should. Hopefully you have been monitoring your credit score, and getting rid of mistakes on your credit report. And hopefully you’ve found a professional loan officer, and are starting the process of getting pre-approved. When you know how much you can afford, you can start adjusting your current spending and see areas where you may need to make some adjustments.
The housing market has done extremely well over the past couple of years, with the average U.S. home price up about 27% since bottoming in early 2012. This has caused a slight reduction in selling activity, but prices continue to hold steady, for now. And while it may seem home prices are pretty high, they’re still 20% off from the 2006 peak.
Millennials have become very hesitant to buy homes. Higher student loan and credit card debt than recent generations, as well as a poor job market for younger adults have made the younger generation of Americans more likely to rent than buy.
According to data from the Federal Reserve, only 22% of 30 year olds with student loan debt have a home loan, down from 34% in 2008. And, only 63% of Americans between the ages of 18 and 31 had jobs in 2012, the most recent year available, which was down from 70% five years earlier.
This combined with the fact that wages have actually fallen for workers in that age group, has produced significantly lower demand for homes in the lower price ranges. Sales of homes in the $100,000 to $250,000 price range have fallen by 6.6% over the past year, and homes under $100,000 have fallen by 14.5%.
Interest rates are slowly climbing, and as the Federal Reserve concludes its economic stimulus plan, rates are expected to continue to rise. Some experts are predicting interest rates to hit 5% by 2015. And the smallest increase in interest rates could impact your monthly payments quite a bit.
With the perception that there aren’t enough homes to buy, and with more people thinking that they can only afford to rent, landlords are raising rental rates.
According to Trulia.com, the top most unaffordable places to rent are New York City, Miami, Los Angeles, San Francisco and Boston. In these cities, rents often make up half or more of a renter’s average monthly wage.
In their most recent survey, the apartment-research firm RealFacts found not only that rents are up nationwide in 39 of the 41 markets analyzed but that these increases also occurred even in cities that are building rental units at a precipitous pace.
Forbes reported this year that buying is much more affordable than renting in all of the 100 largest metro areas in the nation. According to mortgage lender Freddie Mac, buying is an average of 41% cheaper than renting nationwide.
The summer season is typically the busiest time of the year in real estate. Kids are out of school, making it easier for families to pack up and move. Plus, the weather is more conducive to house-hunting than it is the rest of the year.
According to realtor.com, about 50% of all home sales occur during the summer months. Fall, and especially winter, are the least favorable time of year for sellers. Bargains in the housing market are more likely to occur after the summer selling season. Sellers whose homes are still on the market tend to become more willing to negotiate.
This summer is already shaping up to be worse than expected. Housing starts in May dropped 6.5% after a lowered April number. So there may be some inventory that’s flexible as we head into Fall.
Americans have been steadily reducing their debt load. Hopefully you have, too. The lower your debt, the higher your buying power. Creditors will consider your debt-to-income ratio. Plus, the lower your debt, the better your credit score. And that all adds up to better interest rates which allow you to buy more home.