The housing market is cyclical, and this year is no exception. The roller-coaster of a market that is currently in place continues to defy both economists and expectations. Subsequently, to the surprise of many, pending home sales dropped in June after a string of encouraging months. Mortgage rates, which were showing strong gains, are now regressing to near-historic lows. Of particular interest, however, are rising home prices in the face of continued inventory shortages. As a result, trends and forecasts become irrelevant to many buyers. On the other hand, prospective buyers typically tend to care more about what is happening in the heat of the moment. Who cares about trends when you are buying now? At the moment, despite the uncertainty, it is possible for savvy buyers to land a good deal on a home. These deals have taken a front seat to those that typically try to predict trends.
Having said that, the following illustrates three reasons why there are still great real estate deals to be had this summer:
Low Mortgage Rates
At the onset of this year, the question wasn’t whether interest rates would rise – it was a matter of how high they would actually go. While most experts believed that mortgage rates would exceed 5% by the end of the year, few expected what we are currently witnessing. Rates are actually dropping. Barring some unexpected setback, rates will most likely not pass 5% – let alone come close to it. In fact, mortgage rates are currently below where they were this time last year. According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage was 4.13% at the end of last month. Last year, the market saw the average reach 4.31%.
In terms of getting a great deal this summer, prospective buyers can save a lot of money if they lock in at currently available rates. In the long-run, receiving a low rate will save a lot of money. In regards to a 30-year, $300,000 mortgage at 4.5%, the principal and interest payment is about $1,520. Conversely, if rates were to increase to 5.5%, buyers would experience a $200 increase in their monthly mortgage payment.
Essentially, mortgage rates are decimating predictions. They are nowhere near what experts predicted at the beginning of the year. However, that is not to say that they won’t increase. In fact, they will most certainly rise in the coming months. Savvy investors already know that waiting for rates to go down will not work in their favor. If you see a rate you are comfortable with, consider locking it in before it goes up.
Inventory & Prices
According to the National Association of Realtors (NAR), there were more existing homes on the market in June than at any point since August of 2012. This, of course, is great news for buyers, as less competition is more conducive to a cheaper transaction. On the other hand, a dearth of available properties may initiate a bidding war, driving up prices. Bidding wars, as their name implies, can make it difficult for potential buyers to acquire a cheap home. The mere presence of other interested buyers makes the property more expensive.
Fortunately, buyers are seeing more homes hit the market as prices stabilize. More owners are building equity in their homes, making selling a viable option. The median home price for all housing types in June was about $223,000, up 4.3% from a year prior. But the rate of appreciation is at its slowest since March 2012.
“Inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country,” Lawrence Yun, chief economist for the National Association of Realtors, said in a news release. “This bodes well for rising home sales in the upcoming months as consumers are provided with more choices.”
After the recession, lending practices became incredibly tight. Lending institutions became cautious, as to avoid a repeat of the housing sector meltdown. However, now that the economy has gained a little more traction, lenders are competing even harder for purchase loans. As a result, lending practices are easing once again. Underwriting standards have already begun to loosen.
According to an index created by the Mortgage Bankers Association, the availability of mortgage credit increased slightly in June. In addition, the average credit score on a successful home loan in June was 728, nearly 15 points lower than in June 2012.
Consumers who might have been shut out of the mortgage market a year or two ago may now able to join the fray. To be sure, borrowers will still need at least fair credit and the income and assets to convince lenders they’re safe bets. If you’re not sure of your credit standing but you’re thinking of buying a home, it’s important to check your credit reports and credit scores.
While the housing sector is in flux, these three factors should be encouraging for prospective buyers. Despite contradictions and uncertainty, there are, and will continue to be, great deals to be had within the housing market this summer.