Sunday, August 26, 2012

Is now really the best time to buy?

Is now really the best time to buy? (© Steve McAlister/Getty Images)
With mortgage rates at or near record lows and prices rolled back to where they were a decade ago, this summer would seem an ideal time for first-time buyers to finally take the plunge. The problem is there aren’t a lot of starter homes on which to bid.
An inventory shortage has whipped up a feeding frenzy in some housing markets, with bidding wars and price increases. Is this pressure justified? Would most buyers be better served by waiting?
Let us take a look at what’s driving the shortage and how that picture is likely to change in the months ahead.  Where does “Act now!” make sense, and where should buyers sit it out awhile?

Buy or wait?
It’s a great time to buy a home – if you can find one. The inventory of existing for-sale homes declined nearly 25% in the U.S. from the same time a year ago, after a prolonged slowdown in foreclosure processing and continued holdout from sellers, many of whom can’t afford to sell because of negative equity.
The shortage helped inflate the price of existing homes by 7.9% in June from the same period a year earlier, according to the National Association of Realtors. This made some buyers believe that if they don’t buy now, they might be priced out.
That might be true – but only for a small fraction of buyers in certain markets or highly coveted neighborhoods, experts say. It doesn’t appear that given the forecast for the next 12 months that most buyers have a lot of reason to hurry.
Many economists predict a choppy recovery in the latter part of this year, with a sluggish economy dampening sales and prices. Winzer, for one, does not predict meaningful price increases (think 4% to 5%) until 2014. Indeed, he says, in some markets in Florida and elsewhere, the recovery hasn’t even begun in earnest.
With foreclosure starts beginning to resume and some sellers getting off the fence after seeing price upticks, there might be more homes to choose from later in the year or next spring. More choices could mean less bidding pressure from other home shoppers.
In a handful of markets, however, Winzer says buyers would be justified in acting, as strong employment growth is likely to keep demand and prices strong. The markets that LMM pegs as having the brightest and most stable year ahead are:
  • Austin, Texas
  • Houston-Sugarland-Baytown, Texas
  • Boulder, Colo.
  • Fort Collins-Loveland, Colo.
  • Washington, D.C./Arlington-Alexandria, Va.
  • Lubbock, Texas
  • Clarksville, Tenn.
In these markets, which have strong economies and unemployment as low as 5%, buyers should at least start looking now, because prices could rise as much as 4% next year – maybe even a bit more, because Winzer says his forecast is a bit conservative. Shockingly low mortgage rates are another good reason for buyers in these markets to get moving.

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