04-03-2014 08:02 PM
By Winston Wilkinson,
Senior Vice President, Real Estate Lending
A popular saying boils real estate down to “location, location, location,” but if you’re thinking about buying a house, you should also keep an eye on home prices and mortgage rates.
Right now, the news on prices and rates is pretty good. In much of the country, prices are still below their 2006 peak, though they have been climbing. And mortgage rates remain near their lowest levels ever, but we expect them to rise as the U.S. economy gets stronger.
So if you’re ready and able to buy a home now, then what are you waiting for?
Are you waiting for lower home prices? Housing values fell by more than a third from the top of the market in July 2006 to the low point in March 2012, according to the Case-Shiller national home price index.
Source: The 5-year city price trend data is based on the S&P/Case-Shiller City Home Price Indices. These city-specific indices measure the average change in value of residential real estate given a constant level of quality. The 5-year period is based on the most recently released data of Dec. 1, 2008, to Dec. 1, 2013. The 5-year state price trend data is based on the Freddie Mac House Price Index. The 5-year period is based on the most recently released data of Sept. 30, 2008, to Sept. 30, 2013.
But since the bottom, housing has bounced back with increasing strength. Prices improved by more than 7% nationwide in 2012, and last year the gain was about 11%. Some places have done better than others. The illustration above shows the state-by-state range of recovery since 2009, with those shaded green doing the best (North Dakota, California, Texas) and those in dark blue tones the worst (Illinois, New Jersey, New Mexico).
Based on what we’re seeing in the market, we think U.S. housing prices will continue to rise in 2014 as economic growth picks up. Bottom line: Affordability is not likely to improve by waiting.
Are you waiting for lower interest rates? The Federal Reserve has kept interest rates at very low levels for several years to help the nation recover from the Great Recession of 2007 to 2009. Low interest rates can encourage borrowing and spending, which helps the economy grow but also raises the risk of high inflation over time.
With each passing month, it appears that the economy is getting healthier, so the Fed is now thinking less about stimulating growth and more about heading off potential inflation. One of the ways to do that is by raising interest rates. When interest rates rise, mortgage rates also tend to rise.
Fixed rates for 30-year mortgages have gone up from less than 3.5% to about 4.5% since early 2013. This has many would-be homebuyers worried that they may have missed their opportunity, but we don’t think that’s the case. At less than 5%, mortgage rates are still extremely low by historical standards.
We believe rates will climb slowly from where they are now, so in our view it’s unlikely that people considering a home purchase now will benefit from waiting.
What this all means: If you’re financially and emotionally ready to join the ranks of American homeowners, there’s no time like the present. Housing prices may be rising, but they are still affordable in most parts of the country. And mortgage rates may also be rising, but they are still very low by historical standards.
Sitting tight may have been the right approach a few years ago, but we think now is the time to stop waiting and start doing.
USAA offers a wide range of products and services that can help make your homebuying experience easier. These offerings include:
1 FHA loans are currently offered through a referral arrangement with a respected financial institution that will independently make and service such loans. The availability of FHA loans, available terms, and eligible property types offered through our referral solution are subject to change at any time without notice.
Membership and product eligibility and underwriting restrictions apply and are subject to change.
MoversAdvantage® is offered by USAA Relocation Services, Inc., a licensed real estate broker and subsidiary of USAA Federal Savings Bank. Program may be unavailable for employer- sponsored relocations. Not available for transactions in Iowa or outside the US. This is not a solicitation if you are already represented by a real estate broker.
Bank products provided by USAA Federal Savings Bank, Member FDIC.
Home Circle® is a program provided by United Services Automobile Association. Availability, eligibility restrictions and fees may apply to certain banking, insurance or ancillary products. Property and casualty insurance provided by United Services Automobile Association, and its affiliate property and casualty insurance companies is available only to persons eligible for P&C group membership. Loans subject to credit and property approval. Bank products provided by USAA Federal Savings Bank, Member FDIC. Purchase of a bank product does not establish eligibility for or membership in USAA property and casualty insurance companies. Equal Housing Lender. Some products provided through Home Circle are provided, directly or indirectly, by third party providers. Each company or provider has sole liability for its own products.
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