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With mortgage rates at or near record lows and prices rolled back to where they were a decade ago, this summer would seem an ideal time for first-time buyers to finally take the plunge. The problem is there aren’t a lot of starter homes on which to bid.
An inventory shortage has whipped up a feeding frenzy in some housing markets, with bidding wars and price increases. Is this pressure justified? Would most buyers be better served by waiting?
In this installment of Buying Advice, we’ll look at what’s driving the shortage and how that picture is likely to change in the months ahead. Where does “Act now!” make sense, and where should buyers sit it out awhile?
We’ll also look at the latest housing numbers and respond to a reader who wants to know what to do after learning that a real-estate agent concealed a problem with the home he was sold.
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Buy or wait?
It’s a great time to buy a home – if you can find one.
The inventory of existing for-sale homes declined nearly 25% in the U.S. from the same time a year ago, after a prolonged slowdown in foreclosure processing and continued holdout from sellers, many of whom can’t afford to sell because of negative equity.
The shortage helped inflate the price of existing homes by 7.9% in June from the same period a year earlier, according to the National Association of Realtors. This made some buyers believe that if they don’t buy now, they might be priced out.
That might be true – but only for a small fraction of buyers in certain markets or highly coveted neighborhoods, experts say.
“It doesn’t appear that given the forecast for the next 12 months that most buyers have a lot of reason to hurry,” says Ingo Winzer, president of real-estate research firm Local Market Monitor.
Many economists predict a choppy recovery in the latter part of this year, with a sluggish economy dampening sales and prices. Winzer, for one, does not predict meaningful price increases (think 4% to 5%) until 2014. Indeed, he says, in some markets in Florida and elsewhere, the recovery hasn’t even begun in earnest.
- On our blog, 'Listed': Low inventory may be stalling pending home sales
With foreclosure starts beginning to resume and some sellers getting off the fence after seeing price upticks, there might be more homes to choose from later in the year or next spring. More choices could mean less bidding pressure from other home shoppers.
In a handful of markets, however, Winzer says buyers would be justified in acting, as strong employment growth is likely to keep demand and prices strong. The markets that LMM pegs as having the brightest and most stable year ahead are:
- Austin, Texas
- Houston-Sugarland-Baytown, Texas
- Boulder, Colo.
- Fort Collins-Loveland, Colo.
- Washington, D.C./Arlington-Alexandria, Va.
- Lubbock, Texas
- Clarksville, Tenn.
In these markets, which have strong economies and unemployment as low as 5%, buyers should at least start looking now, because prices could rise as much as 4% next year – maybe even a bit more, because Winzer says his forecast is a bit conservative.
Shockingly low mortgage rates are another good reason for buyers in these markets to get moving.
Housing market snapshot
Just how low have mortgage rates plunged? In the week that ended July 26, the average rate on a 30-year fixed-rate loan was 3.49%, according to Freddie Mac survey data. Sound low? It should. The rate on that same loan was an average of 4.55% last July.
- MSN Money: Hot home deals on short sales
As previously mentioned, tight housing supply helped constrain home sales in June. U.S. existing-home sales declined to 4.37 million in June, down 5.4% from 4.62 million in May. However, that pace is still 4.5% higher than the 4.18 million sold in June of last year.
“Despite the frictions related to obtaining mortgages, buyer interest remains solid,” says Lawrence Yun, the NAR’s chief economist. “But inventory continues to shrink, and that is limiting buying opportunities. That in turn is pushing up prices in many markets,” as is a reduced supply of lower-priced distressed listings. Prices increased the most in the West – 13.3% year over year – due to short supply of affordable and mid-tier homes.
Read: Got a fixer-upper? Get this loan
Nationwide, the median existing-home price was $189,400, up 7.9% from June 2011. June marked the fourth back-to-back increase in monthly home values.
Buyers: It’s back-to-school time: What kind of education would you like on the homebuying process?What confuses you? What aspect of it do you wish you knew more about? Let us know, either on Facebook or via email at msnrealestate@microsoft.com.
What to do when a seller misleads you
Buying Advice received a question recently from a Pennsylvania reader who discovered a huge mold problem in the attic of a home he had purchased. It's a problem he says was covered up by an unscrupulous agent who had purchased the property to flip.
“I found out after my family moved into the home about a year later, when I received a letter from a concerned real-estate appraiser” who had appraised the house for a bank that had foreclosed on the property, the reader wrote.
This appraiser had discovered that the home had a huge mold problem in the attic. It had been reported to the previous owner’s insurance company in a weather-damage claim, but was ultimately shot down when it was found to be the result of a poorly built addition.
“My question is: I am concerned I am stuck with this problem and now my family is having serious health problems. I feel like I was sort of misled and not fully informed by the real-estate agent investor … He actually had the attic entrance crawl space covered with drywall where I did not even know there was an attic to inspect."
What, asks our reader, are his options?
We asked attorney Ilona Bray, author of "Nolo’s Essential Guide to Buying Your First Home."
The key question, Bray says, is whether the agent/investor who sold the home knew about the problem. If he did, he had the legal responsibility to disclose this information to the buyer in writing. In fact, he is doubly responsible, she says, because most state laws — including Pennsylvania’s — require this disclosure both between property sellers and buyers and between selling agents and buyers.
Read: Traditional 'rules' of homebuying return
Of course, sellers don’t necessarily know everything about their homes, and they aren't expected to disclose what they don't know. But, in this case, the agent drywalled over the attic entrance, so he not only knew about it but took steps to conceal it.
“The buyer/current owner should hire a lawyer and sue the seller,” Bray says. “The claim would be that the seller failed to disclose something that should have been disclosed and possibly committed fraud by keeping the buyer from discovering the mold independently.”
Bray also recommends that the reader file a complaint with the state agency regulating real-estate agents. “Just the threat of having his real-estate license revoked may prod the seller to compensate the current owner,” Bray says.
Mold problems such as this one illustrate the need for a good home inspection with every purchase. It’s not clear in this case, however, if an inspection was conducted or if the inspector didn’t find the problem, as inspectors aren’t necessarily expected to look behind walls.
It’s not clear whether an inspector could be at fault for missing the problem. Bray says that depends on several factors, including local standards.
As always, we welcome your questions. Submit them either in the comments section below or on Facebook, or email msnrealestate@microsoft.com. Brief questions have the best chance of being selected.
