- Experienced agents who keep up to date on many different data points to determine when the time is right for consumers to make a move in the housing market are proving themselves invaluable to their clients.
- Price appreciation is typically favorably received by homeowners who like to see their home equity growing, but it can present issues for potential homebuyers, especially when rising prices start to influence affordability.
- The good news for many consumers is that, although credit remains tight, it is getting better, and more and more lenders are creating a diverse range of loan programs to help an array of credit profiles.
As many real estate agents know, despite breathless media reports to the contrary, the decision to buy or sell a home doesn’t hinge on just one factor, like interest rates or price appreciation.
Rather, consumers should look at the intersection of many different data points to determine when the time is right for them to make a move in the housing market — and experienced agents who are aware of and keep up to date on these factors are proving themselves invaluable to their clients.
What do clients want to know?
As spring continues its thaw across the country, the housing market, too, begins to heat up. Many potential clients will start to consider whether the time is right to purchase a home.
They’ll be asking:
- Is this a good time to buy a house?
- Are homes affordable right now?
- Is mortgage credit available?
The answers, of course, depend on a number of variables: individual consumers’ own personal financial status, geographic location and the type of house being considered — as well as the type and size of mortgage being considered. A look at the overall housing landscape, however, will allow agents to help their clients make the right decision.
Is this a good time to buy a house?
According to the National Association of Realtors (NAR), 89 percent of the country’s metropolitan areas saw increasing home prices in 2015. This past fourth quarter, the national median existing single-family home price was $222,700, an increase of 6.9 percent from the fourth quarter of 2014.
NAR points to limited availability as one factor influencing prices, as there were just 1.79 million existing homes available for sale at the end of this past fourth quarter — a dip from the 1.86 million available at the end of the fourth quarter of 2014.
Of course, price appreciation is typically favorably received by homeowners who like to see their home equity growing, but it can present issues for potential homebuyers, especially when rising prices start to influence affordability.
Are homes affordable?
Affordability is different for everyone, and agents with potential homebuyers will have to look carefully at home prices in their area, as well as their clients’ personal financial figures. But to get a general sense of the housing affordability picture, NAR keeps track of national figures via its housing affordability index.
NAR recently broke down this index to look more closely at what affordability looks like for first-time homebuyers versus the overall market. Their housing affordability index is based on national figures, and it measures whether or not a family with a median income can qualify for a mortgage on a median-priced home.
When the index is at 100, the median income is exactly enough to qualify for a median-priced home; anything above 100 means that the median income is more than enough to qualify for a median-priced home.
This past fourth quarter, the overall affordability index was at 165.2, and although that is a good figure, the index declined from the 170.5 seen in the fourth quarter of 2014.
For first-time homebuyers, however, the affordability measure is much tighter: The index was at 109 this past fourth quarter, down from 112.5 in fourth-quarter 2014.
Is mortgage credit available?
Although housing may still be affordable — for some, at least — buyers want to know: Is the credit necessary to purchase a home likewise available? Like most things related to the housing market, that also depends on several factors, including loan type, down payment size and credit history.
When looking at national historical trends, however, credit is more available now than it has been for many years, according to the Mortgage Bankers Association’s Mortgage Credit Availability Index. Benchmarked at 100 in March 2012, the index stood at 123.5 this past March, part of a general upward trend since 2012. Although overall credit declined slightly in March from February, it increased from the 121.4 seen in March 2015.
An important factor to consider, when looking at the credit landscape, is the type of loan your clients will be seeking: Are they looking for a government loan (from the Federal Housing Administration, U.S. Department of Veterans Affairs or the U.S. Department of Agriculture)? Or are they considering a jumbo loan (generally, anything over $417,000)? Are they considering both bank and non-bank lenders?
The good news for many consumers is that, although credit remains tight, it is getting better, and more and more lenders are creating a diverse range of loan programs to help an array of credit profiles. Many lenders are lowering their minimum credit-score requirements, as well as adjusting amounts required for a down payment and various loan-related fees.
In addition, some lenders for government-sponsored loans, particularly FHA-backed loans, now have manual underwriting capabilities to help potential borrowers with more challenging or unusual credit profiles. Agents who partner with experienced and diverse lenders can be a great asset to their clients.
The bottom line
Clearly, the housing market is complex; and the decision whether or not to enter it is a serious one for any consumer. Many housing indicators continue to trend positively, however, and more and more consumers are stepping off the sidelines and into the housing market. In fact, according to the Mortgage Bankers Association, mortgage applications for new home purchases increased 24 percent from this past January to this past February, and that trend is likely to continue.
Knowing the landscape of the market is a critical first step; and savvy real estate agents can help potential homebuyers weigh credit availability, affordability, prices and more before making their move.
Ray Brousseau serves as executive vice president for Carrington Mortgage Services Mortgage Lending Division. Please follow Carrington on Twitter orLinkedIn.