Buyers waiting for better selections and better prices MUST RETHINK THEIR STRATEGY. The trend evidence has never been stronger. Be advised that Standard & Poor’s/Case-Shiller Index has posted substantial recent gains in home prices for 20 major cities. All prospective buyers should carefully consider the following findings:
- Year-over-year prices in February on average increased 9.3%.
- Hardest hit areas prices for cities in California, Arizona and Florida increased as much as 23%.
- This is the second month that all cities in the index posted price gains, the first time since the boom years in 2005.
- The national median price of $184,000, compared to $230,400 in 2006, indicates there is still plenty of room for appreciation for people that purchase now.
- Sales of Previously owned homes increased 10.3% in March from a year earlier.
- Inventory levels dropped 16.8% year-over-year in March.
- According to the Wall Street Journal, the Supply of Homes for sale has dropped to as low as a 3-month supply in some cities. This could lead to bigger price jumps.
- Demand is expected to continue to increase significantly because:
- The economy has added jobs increasing the number of new households being formed.
- Rising rents and low mortgage rates have made homeownership more attractive.
- Lower Mortgage Rates have stimulated demand and created urgency.
- Housing is more affordable than it has been in the past 30 years. According to Corelogic, real estate prices would have to increase nationally by 32% just for housing affordability to get back to its national average based on real estate prices, median income levels and mortgage interest rates. In some parts of Florida, at current mortgage rates, prices would have to increase 48% to return to the affordability average.
- There is ample evidence that the increase in prices is sustainable.
Stan Humphries, the Chief Economist at Zillow is encouraging people to buy homes at today’s low interest rates because when rates go back up to 6%-8%, the homes that people can afford may not be the homes that people want. There is strong evidence that shows the homes people really want based on today’s prices and mortgage interest rates, may not be affordable to people a year from now.
What does all of this mean for homebuyers? A home that is purchased a year from now could cost an additional 12% for a buyer that waits another year. That equates to an additional cost to wait of 1% per month. Consider the following examples:
- If a buyer were purchasing a $100,000 home, it could cost an additional $1,000.00 for every month they wait.
- If the home costs $300,000 to buy, the additional cost would equate to writing a check for an addition $3,000.00 each month a buyer waits.
- A $500,000 home would cost the buyer an additional $5,000.00 for every month a purchase is delayed.
When you compare the risk of buying now, against the risks associated with waiting to buy until later, the decision to buy now as opposed to waiting is quite clear!