Falling prices have made homes around the country more affordable, but prospective homebuyers continue to stay on the sidelines. Those who continue to hold out for lower prices might miss a prime combination of low home prices and low interest rates. Knowing exactly when to get into the home buying game is next to impossible.
Forecasts for future sales are bleak according to the Pending Sales Index from the National Association of Realtors. The index, based on contracts signed in January, lists a 7.7% decrease in pending sales compared to December. Reasons for the month-to-month decline include a sagging economy and a wait-and-see approach to the housing incentives in the recently passed stimulus package.
Despite attractive prices and rates for potential buyers, Lawrence Yun, chief economist with the National Association of Realtors, recently noted that job losses and weak consumer confidence continue to drag down home sales. He expects home sales to remain soft in the near future, but does see some optimistic signs on the horizon. "Buyers are expected to respond to much improved affordability conditions from the $8,000 first-time buyer tax credit," Yun said in a press release.
The prospect of further declines in both the housing market and the economy suggest that the window of opportunity is likely to extend for the time being.
Philip van Doorn, a banking analyst with BankingMyWay.com, suggests that there doesn't seem to be much risk to waiting a little longer. However, consumers need to be aware that the situation can change quickly. "With the tripling of the federal budget, we could get to a point where interest rates increase sharply, because everybody will be competing with the federal government for funding," says van Doorn, adding that an economic recovery could push interest rates higher -- even into the double-digit range seen in the early 1980s.
Homes these days are more affordable than they have been in more than three decades due to low interest rates and declining home values -- the latter down almost 18.5% year-over-year, according to the 20-city Case-Shiller Home Price Index. Even though interest rates on 30-year fixed-rate mortgages (FRMs) rose 0.14 percentage points to 5.46% for the seven days through March 5, they remain around historically low levels.
Best advice: If you are thinking about buying a home, consider starting the process sooner rather than later. Head to BankingMyWay.com and enter your ZIP code to find the latest rate offers from local institutions. New York residents can apply for 30-year FRMs with interest rates such as 5.875% from Citibank (Stock Quote: C), and 5.375% from KeyBank (Stock Quote: KEY) and JPMorgan Chase Bank (Stock Quote: JPM).