Why Now May Be A Good Time To Buy A Home
But getting a mortgage may still be a problem
Wednesday, July 18, 2012
Yes, it's still scary out there but recent data from the housing market suggests this might be a good time to buy a home.
Prices are still relatively low but rising, while interest rates have never been lower. Assuming you can qualify for a mortgage, you often can get more house for less money than if you were to rent. In one of its periodic reports on the state of the industry, CoreLogic notes that home prices are up in many markets and that future increases are likely.
One reason for that is the supply of homes for sale has fallen sharply, even with the distressed properties finally making their way to the market. The construction industry is only now beginning to put up new homes again after the housing collapse sent many builders into hibernation.
Would like to sell but can't
At the same time, many people who would normally sell their homes and move, can't. They're under water, owing more on their mortgages than their homes are worth.
With fewer homes for sale, the old law of supply and demand begins to exert itself. Even with tighter lending standards keeping many would-be buyers out of the market, there are enough consumers looking at homes to support present price levels.
The CoreLogic report contains other encouraging data. It shows that the lower end of the home price tier is rebounding at more than three times the rate of the upper end. In previous months the lower end was dominated by foreclosures, usually sold at a steep discount. The new data shows that either there are fewer distressed sales or the discount for these homes is not as cheap as it once was.
CoreLogic's Home Price Index (HPI), including distressed sales, posted the largest year-over-year spring price gain in the last 25 years. That should give buyers confidence that a home they purchase should hold, and eventually increase it's value.
Getting a loan may still be tricky
First, of course, they have to be able to qualify for a mortgage. That seems to be easier to do if you already own a home. Estimates show that refinancing accounted for 70 percent of the total mortgage originations market over the past 12 months.
Last week the National Association of Realtors (NAR) urged Congress to develop a broadly defined Qualified Mortgage (QM) regulation that does not shut out qualified buyers from purchasing a home. The QM is designed to protect lenders to ensure that loans only go to consumers with the ability to repay them. But NAR says making the regulation to narrow will deny credit worthy borrowers and strangle the recovering market.
"The first step to creating certainty in the housing finance system is to broadly define QM so that it encompasses the vast majority of the safe, high quality lending being done today," said NAR Vice-President Scott Louser.
In testimony before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit, Louser said current underwriting standards are already tight and are contributing to the slow housing market recovery.