House hunting? Is now a good time to buy a home?
Spring is here, which means peak homebuying season is right around the corner. Although it varies from place to place, generally most people start shopping for homes at the end of March and the peak season chugs on through summer until school starts up again.
For many homebuyers, 2019 might prove to be a better year for buying.
Last year, buyers in many areas faced significant roadblocks to homeownership, such as a severe inventory shortage, home price growth at twice the rate of income growth and increasing mortgage rates. The situation isn’t expected to drastically change this year, but it’s getting better.
Most experts predict housing starts to increase by around 2.5 percent. Although those are modest gains, when coupled with a strong job market and increasing wages, buyers will have a little more momentum going into the buying season.
“This is going to be a pretty good spring, we’re seeing growth relative to last year in home sales. Not a blowout year, but increasing by a couple of percent relative to where they were last year,” says Michael Fratantoni, Mortgage Banker Association chief economist.
Jobs, wage growth increase buying power
The job market is relatively strong even with the weak employment report for February. As job growth is expected throughout the year, the unemployment rate has remained at record lows. Meanwhile, wages crept up by 4.16 percent in January compared with the same time last year.
These are favorable conditions for people who are considering buying a home. Households should feel confident about their income and job prospects, Fratantoni points out.
However, not all buyers are convinced that the economy is going to stay on course. Despite unemployment falling to the lowest levels in almost half a century, dropping below 4 percent in the latest Bureau of Labor Statistics jobs report, a dismal 20,000 jobs were added in February. These low jobs numbers might reflect a weariness that’s apparent in the sluggish housing market.
“While limited inventory and high prices still plague many markets, the added element this year is the higher level of uncertainty many people are feeling about the economy,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “Despite the best labor market in 50 years and the best wage growth seen yet in this economic recovery, fewer houses are being sold – which speaks to a hesitancy among would-be buyers that is uncharacteristic for this type of economic backdrop.”
The strongest markets thus far in 2019, according to a recent report by Realtor.com, have two things in common: affordability and a strong economy. Places like Lakeland, Florida, which are commutable to larger metro areas like Tampa, boast significantly lower home prices than their larger counterparts. The median home price in Lakeland is about $170,000 compared with Tampa’s $261,000 median home price.
For motivated buyers, moving to a smaller city in order to save almost $100,000 on housing, is a viable option. Factor in today’s low mortgage rates and 2019 might see more buyers flee expensive places to more affordable areas.
Buyers can still take advantage of low rates
Mortgage rates depend on many factors but economists are expecting little change this year, giving buyers time to lock in a sub-5 percent rate. This is good news for folks who were on the fence last year, as the low-rate train is lingering at the station.
“With financial market volatility at the end of 2018, long-term rates — Treasury rates and mortgage rates, dropped by half a percentage point. They really stayed in that lower range, close to 4.5 percent. We don’t see them moving from that rate in 2019 because the pace of growth, both globally and in the U.S., has slowed. You’ve seen the Fed and other central banks become much less eager to raise rates,” Fratantoni says.
This is also good news for folks who have improved their credit and can refinance into a lower mortgage rate or go from an adjustable rate to a fixed rate.
Home price growth slows
Home prices increased more than 6 percent nationally last year, with lower-priced homes seeing some of the largest gains. This was bad news for entry-level buyers who couldn’t afford the higher prices.
In the costliest markets, like California, where the median home price was around $530,000 in 2018, about 70 percent of residents couldn’t afford to buy a home. However, California’s market is starting to cool as are some of the least affordable areas on the West Coast. The rest of the country is expected to see a slowdown, as well, to around 4 percent.
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However, that’s not enough of a drop to cause a big change in the market this season, McBride says. Instead of waiting for the market to take a plunge, people who are serious about buying a home should financially prepare themselves now.
“Price dynamics will differ by market, but most markets are unlikely to see significant price erosion this year – they just won’t see significant price appreciation either,” McBride says. “The right time to buy a house is when you are financially prepared to do so, your life circumstances are supportive of buying, and you find the right home at the right price. Waiting can help build a better financial foundation but offers no guarantees of future market conditions.”