Home Buying Anxiety
Housing is the hot topic of the day. The run up in prices and low loan rates have helped the American economy recover quickly from the 2001 recession and the after-effects of the 9-11 attacks.
Now that housing isn’t setting records every month, there are some people in the mainstream media and the blogosphere who are preaching a huge reversal in housing. They cite the costs of renting vs. buying, rising interest rates and tightening lending standards as key reasons for an impending housing crash.
This thinking has led many potential homebuyers to hold off on purchasing, waiting to see how the housing picture develops.
While the costs of renting in some areas of the country are certainly lower than buying, that statement is not true across the country. Interest rates stopped rising and have been declining up until very recently. Lending standards are not tightening.
An article in last week’s Miami Herald shows the other side of the coin. Some excerpts appear below:
With all the dismal reports about the home real estate market, don’t lose track of something critically important: Mortgage interest rates have been falling quietly but steadily for weeks, and are now at their lowest level in half a year, barely a percentage point above 40-year lows.
New mortgage applications are up sharply, the number of pending home sales is up, the national economy continues to expand moderately, and the rate of unemployment just declined again — to 4.6 percent.
All of which raises the question: Just what kind of housing bust is this anyway? With gloom-and-doom purveyors forecasting imminent crashes in dozens of metropolitan areas, how could such key fundamentals as jobs, interest rates and even pending home sales simultaneously be trending in the opposite direction?
Donald L. Kohn, the Federal Reserve’s vice chairman, took a stab at that seeming conundrum in a speech Oct. 4 at New York University.
To begin with the fundamental point: Kohn sees no imminent bust or crash in housing at all. It is a ”correction” that’s underway — a cyclical rebalancing of a marketplace that got too hot for too long in some parts of the country, and is now heading back toward more ”normal” conditions, where prices are more in line with what consumers can afford.
Second, said Kohn, the housing correction — expressed through new home starts — ”may be closer to trough than to peak.” Translating from Fed-speak, this means that we appear to be well on our way toward bottoming out and eventually returning to positive growth in new home starts and resales.
Now to interest rates. Today’s ”unusually low” long-term mortgage rate environment” stands in sharp contrast to some past downturns in the housing market that followed actions by the Federal Reserve to tighten credit conditions significantly.” Translation: Affordable mortgage money should help shorten the current housing down cycle compared with credit-squeezed periods in the 1980s, when mortgage rates sometimes exceeded 16 percent for fixed-rate loans.
A final key factor, according to Kohn: “Continuing growth in real incomes should underpin the demand for housing, and as home prices stop rising, help erode affordability constraints.”
Personal income is increasing, a fact the housing bears keep downplaying. Consider the latest wage statistics from the FDIC:
California - up 7.8%
Colorado - up 7.1%
Florida - up 6.9%
Kentucky - up 5.5%
New York - up 7.8%
Utah - up 9.9%
The bottom line is if you’re in the market for a home, don’t let what other people say keep you from buying. Your needs, the affordability of the home and your personal financial situation trump every other factor.