After making the big decision to become a homeowner, when to buy a house is the next big issue to tackle.
What if we told you the answer is right now? Maybe you’ve heard the conventional wisdom that you can’t time the market when it comes to buying stocks, but nobody said anything about real estate.
Today just might be the day you want to pick up the phone to tell your lender and real estate agent that you’re ready to buy.
Mortgage applications lowest since 2000
Economics always come down to supply and demand, and if you’re a buyer in a low-demand market, you and your offer will command more attention from sellers. Well, demand for mortgages has fallen off sharply. In fact, according to the Mortgage Bankers Association’s Market Index, published today, mortgage applications have fallen to their lowest level since December 2000.
Meanwhile, the MBA’s Refinance Index followed suit, falling to its lowest level since November 2008. The purchase and refi indexes don’t always travel in the same direction, but they are now, which is more confirmation that lending activity has moved well out of the fast lane. So, if you’re in the market for a loan, you may draw the interest of lenders, who are a competitive bunch.
In such slack periods, including the current environment, lenders sometimes adjust their corporate margins (they make less money) to “buy” additional business when volume slows, according to a prominent midwest lender. Well, volume is slow and slowing, which puts you in a better position to negotiate a lower mortgage interest rate.
Mortgage rates are still bouncing around their 2014 lows
Mortgage money is still cheap. As of today, the average 30-year-fixed rate mortgage is 4.18%. The lowest level over the last 52 weeks was 4.08%. Currently the 15-year fixed rate mortgage is 3.33%. It’s 52-week low was 3.25%.
Historically, 30-year fixed-rate home loans have been in the 5 percent to 8 percent range. For the sake of comparison, let’s look at what your monthly payments would be to purchase a $400,000 house, with a 20% down payment ($80,000). After running your own scenarios on MyBankTracker’s mortgage calculator, you’ll see how dramatically interest rates affect affordability.
At 4 percent = $1,914
At 5 percent = $2.184
At 8 percent = $2,815
All-cash sales fall… finally!
Stories have been reported ad nausea about prospective buyers getting outbid by an all-cash buyer. Those heady days could be winding down. According to CoreLogic, a leading real estate information firm, the market share of all-cash home sales fell to its lowest level since the start of the financial crisis. For June 2014, cash sales comprised 33 percent of all home sales. By comparison, cash sales hit a peak of 46.2 percent of sales in January 2011.
So with less cash to compete against, the chances of your financed offer being heard and, more important, accepted, just gained a far wider audience of sellers.
Of course, like politics, “all real estate is local,” so try to steer clear of states where cash transactions are still frothy. CoreLogic reports that Florida has the largest share of cash transactions of any state at 50.9 percent, followed by Alabama (48.1 percent), New York (44.6 percent) and Nevada (40 percent).
California came in at 27 percent and Hawaii at 26 percent.
Quantitative easing ends in October
Touching on our supply and demand theme again, when the government is in the market buying up financial assets like a drunken sailor, also known as quantitative easing, interest rates fall and the cost of all the financial instruments tied to them, like mortgages, fall accordingly. Because of the U.S. government’s unprecedented buying spree for the past five years, mortgage rates mirrored that aggressive intervention and remained artificially low.
But the U.S. government’s last $15 billion asset purchase takes place in October. After the punch bowl is taken away, a vital barrier to rising mortgage rates will have been removed.
Labor Day has come and gone
Labor Day traditionally marks the end of the superheated home buying season. Typically, by Labor Day, parents have found homes for their kids so their children can begin class at the start of school instead of the middle of the school term.
But with all those parents now out of the way, the competition for the home you want has just decreased. Shopping for a house has become like visiting Europe or Hawaii in the fall after all the crowds have returned home. The scenery is no less beautiful or tempting, there are just far fewer people looking at.
This return to normalcy might not bode well for sellers, but for buyers it’s nirvana. Use this as your cue to huddle with your lender to find out how much house you can afford, clean up any credit issues and get preapproved, which will make you even more of a standout buyer in the real estate market’s second season.
Fewer consumers think it’s a good time to buy or sell, but not you!
That’s the latest data from Fannie Mae’s National Housing Survey. Reflected in the data were respondents’ views that their income prospects had turned more negative despite an improving job market. As incomes are directly tied to mortgage activity, you could see why consumers were less gung ho about buying or selling.
At first blush, you might be thinking that if fewer people thinks it’s a good time to buy or sell, why wouldn’t you also want to hang on the sidelines. It’s a valid thought, but here’s why you don’t want to be a fence sitter.
It’s called contrarian thinking. If there’s this general feeling out there that sentiment on home buying or selling is just so-so, then this is the exact time to make your case and connect with those sellers who do want to sell. Again, it has to do with competition. If you decide to buy, you’ll be butting heads with fewer bidders who are all out to lunch.
So if you’re looking for the answer to your question of when to buy a house, it’s hard to overlook all the current data. If you’re a serious buyer, all the pro-buying trends — more lenders competing for your business, low rates, fewer cash buyers, an end to QE, post Labor Day — are going your way.
When to buy a house? Hmmm. Why not today!