Home-Ownership in Today’s Housing Market: What Do Consumers Need to Know?

Monday, April 29 at 09:20 AM
Category: Personal Finance

In February 2013, the Commerce Department reported sales of new homes were up by 29 percent from one year ago in January, and the S&P/Case-Shiller index that tracks home price indices showed that prices rose by 6.8 percent between December of 2011 and December of 2012 (Source: 1). This news, along with continuing historically low interest rates, means the housing market is back, right? What is the whole story for homeowners or those who want to become homeowners today?

Consumers can’t, and shouldn’t, ignore the good news about housing right now. On February 21, 2013, the National Association of Home Builders and Wells Fargo released the Housing Opportunity Index for the fourth quarter of 2012, showing 74.9 percent of the homes sold between October and December were affordable to families earning the median income of $65,000. That is up from 74.1 percent in the third quarter of 2012 (Source: 3). This affordability index put rates and prices in combination, meaning affordability of homes is close to historical highs because rates are low and prices, while rising slightly, are also low. (Source: 3)

The media and housing industry continue to remind consumers interest rates remain at historical lows. But many young people and first-time homebuyers have also heard horror stories of people who lost their savings and ended up in debt when the housing market crashed.

“It’s also been reported that it’s difficult to qualify for a home loan in today’s market, or that banks simply are not lending – especially to first-time homebuyers,” said an Arvest spokesperson. “The truth is those are misconceptions. We made more home loans in 2012 than we ever have. We make loans every day to people with credit scores from 620 and above with as little as 3.5 percent down. There really is great opportunity to be seized right now, but this window of almost perfect conditions – low interest rates and low prices, isn’t likely to last much longer, since home prices are expected to continue rising. It is possible that next year, consumers will see homes not being quite as affordable as they are now.”

Record low rates have continued to spur refinancing throughout the mortgage industry, and a new, improved version of the government’s Home Affordable Refinance Program (HARP) has helped many people refinance who could not afford to in years past. The purchase-money market is also showing improvement. The industry continues to make corrections to ensure there will be access to the long-term, fixed-rate mortgage money mortgage companies have depended on for so many years.

For those who are already in a home, but may be looking to sell their home and buy a larger home, this market could be the time.

“If it is affordable to buy for a first-time buyer then it is affordable to buy for the second time too. Maybe someone has been stuck in a home because of a lack of equity or they lacked a buyer. Now is a good time to try,” the spokesperson said.

For those who might be looking to downsize and sell a larger home, it may still take time to sell. However, if sellers have the ability to buy first and sell later, then they could still take advantage of low rates.

While rates do remain low, home prices have started to rebound. While prices may be increasing, these prices still remain at 30 percent below peak prices before the housing crash. Over the last few years, home prices were low due to a variety of factors, including the high inventory of foreclosures. More often than not, low home prices are indicative of a struggling real estate market, (Source: 2) so this gradual rise is a good sign of recovery as long as consumers don’t wait for prices to fully rebound before they decide to buy.

1. Lazarowitz, Elizabeth.  “U.S. housing market continues to rebound as new home sales and prices reach multi-year highs.” New York Daily News. February 26, 2013.

2. Miller, John. “Real Estate Outlook: Rising Home Prices and Stable Interest Rates.” Business Insider. February 14, 2013.

3. National Association of Home Builders. “Nationwide Housing Affordability Increases at Year-End 2012.” February 21, 2013. http://www.nahb.org/news_details.aspx?sectionID=135&newsID=15797

Tags: Financial Education, Home Loans, Lending and Financing, Mortgage
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