Tuesday, July 23, 2013

Is Now a Good Time to Buy a House?

Lots of people who are thinking about buying a house feel overwhelmed with news stories on the market. Prices rising? Well, they seem to be, in most places. Sales up? Well, they were until May, when sales of existing homes dropped. Too many buyers competing for fewer homes? Should increasing mortgage interest rates push a buyer off the fence?

My advice: Take a deep breath and exhale slowly. Then, do it again. If you really want to buy a house, you will, at some point, and it will be the house you want, in the general neighborhood you want, and at the price you want to pay.

If you're a fan of a football team that's been playing badly and is falling in the standings, it feels as though this is the way it's going to be all the time. And so it is for home buyers: The way the market is going right now feels like the way it's going to be forever.

My take is that unusual and non-recurring forces are affecting the current market. First, I suspect the competitive pressures resulting from too many buyers chasing too few homes for sale is a temporary phenomena. Because of the economy and lending restrictions, buyers held back, and the current activity is from pent-up demand.

Second, with so many homes for sale having been foreclosures and short sales, buyers had to compete with cash investors. Moreover, downsizing Baby Boomers brought cash to the table. It's tough for first-timers to compete with that.

I believe that low-to-negative equity among current owners is a leading cause of low inventory for sale. People who may want to sell can't. Even if they aren't underwater, their equity is so low (or nothing) that they may have to bring cash to escrow to pay for sales commissions and other closing costs.

Most of the commentators I see do not agree with me when I say that rising mortgage rates have to drive down home prices. To me, it's arithmetic, since a buyer can make the monthly payment he or she is qualified for. If rates go up, the payment has to go up, and the only way to get the payment down is to lower the price. 

All of which means that the housing market in most areas has yet to find a definition or otherwise "get legs." The way it looks right now isn't the way it's going to be in a couple of months, so if you're looking, don't be discouraged.

And don't feel pressure to overpay, waive your contingency rights or otherwise give in. A house is waiting for you if you'll be patient.