After years of sluggish sales and false starts, the real estate market is on a tear this summer, with prices posting double-digit gains every consecutive month since April.
Prices have increased so much so quickly in some markets that a few experts are already crying “bubble.” There’s no doubt that the bottom has passed.
Tight inventory and climbing prices have created a seller’s market in most places and realtors are reporting bidding wars in the hottest markets — but that doesn’t mean there’s not opportunity out there for home buyers. “Just because it would have been cheaper to buy a home six months ago, doesn’t mean it’s not a good time to buy one now,” says Trulia housing analyst Jed Kolko.
That’s good news for the 68% of renters surveyed in March by JP Morgan Chase, who said they wanted to buy a home. It may be risky in today’s market for home flippers looking to purchase and sell a home quickly for profit. But for those retail buyers who want to buy and live in a house for five or 10 years, here are five reasons to act now:
1. Home prices are still rising
The massive gains seen over the past few months make it easy to forget that housing only bottomed out last year, hitting its lowest level in March 2012. While recent prices increases aren’t sustainable, there’s plenty of room for home values to climb. Even with four months of improvement, prices remain about 26% below their 2006 peaks.
The chief driver of price gains is constrained supply, reflecting modest homebuilder activity; dwindling foreclosures; and continued foot-dragging by potential sellers who are waiting for prices to improve even further. Total housing inventory at the end of May rose 3.3%, to 2.22 million existing homes available for sale, which represents a 5.1 months’ supply at the current sales pace, down from 5.2 months in April, according to the National Association of Realtors. Listed inventory is still 10.1% below a year ago, when there was a 6.5-month supply.
Going forward, price increases will vary by region, while prices nationally are expected to see more modest increases of an annualized 3.9% per year through 2017, according to CoreLogic.
2. Rates are low by historical standards
Rates, currently at about 4.6%, have climbed a full percentage point since May — but they’re still lower than they were just two years ago and far lower than their long-term average of about 8%. “In the history of America, a 30-year mortgage at less than 5% is a gift,” says Mark Dotzour, chief economist at Texas A&M’s Real Estate Center. “It’s not supposed to be that way, and rates are only that low because of extraordinary monetary policy.”
Economists don’t expect the recent surge to continue. The Mortgage Bankers Association predicts rates will remain close to current levels through the end of next year.