Is now a good time to buy a home?
It’s a question many potential homebuyers ask themselves, their peers, their families and their real estate agents, regardless of what’s happening in the market or the economy.
Ideally, homebuyers want to buy low, then later sell at a higher price. That means finding a home that has appreciation potential.
That’s been a challenge in the last year. It’s been a seller’s market, with homes selling for top dollar because of:
- A strong economy.
- Low mortgage interest rates.
- A dearth of inventory up for sale.
The lack of homes on the market may be the most significant contributing factor. Housing construction slowed considerably following the 2008 recession and has yet to fully recover. What’s more, data indicates that homeowners are staying in their homes longer; 10 years on average compared with a typical stay of seven years.
With more buyers than sellers in recent years, home values have increased 48 percent overall since 2011, according to the National Association of Realtors (NAR).
Median home values in the fourth quarter of 2017 reached an all-time in 64 percent of measured markets in the U.S. This was due in part to an uptick in sales that caused an all-time low of housing inventory.
The trend has continued into 2018, as more than a third of homes sold in January garnered an amount at or above list price, according to NAR. Another recent report indicated that 35 percent of the nation’s 100 largest markets, primarily in the western U.S., are overvalued meaning that prices are at least 10 percent more than typical, sustainable levels.
There are indications, however, that home price growth could be moderating.
Lawrence Yun, chief economist for NAR, predicted a 2 percent growth rate in home values in 2018.
It's anticipated that home values in the states of Colorado (projected 5.9 percent increase in home prices), Utah (5.7 percent), Arizona (5.6 percent), Washington (5.5 percent), and Idaho (5.5 percent) will riser higher than the national average.
New Jersey and New York will experience the largest decline in home prices in 2018, according to the data. New Jersey home prices are expected to fall about 6.2 percent while those in New York will drop 4.8 percent. Other states where prices are anticipated to decrease this year include Connecticut (3 percent), Illinois (2.1 percent), Maryland (1.5 percent), Vermont (1.5 percent) and Massachusetts (1.3 percent).
There are two factors leading some analysts to predict a negative impact on home prices.
One is the recently passed Tax Cuts and Jobs Act.
One of the biggest changes in the tax law is mortgage interest deduction. The new law reduces the limit on deductible mortgage debt from $1 million to $750,000 for new loans taken out after December 14, 2017.
Real estate watchers are also concerned that the tax law doubles the standard deduction, which means only a small percentage of tax filers will itemize deductions such as mortgage interest.
With less of a tax incentive to homeownership, some warn that the demand for homes will decrease, which will restrain home values.
Another potential cause for moderating growth is a rise in mortgage rates.
According to Freddie Mac, average mortgage rates have risen significantly during the first part of 2018. For the week ending March 1, the average rate on a 30-year fixed mortgage was 4.43 percent. At the beginning of 2018, the average rate for a 30-year loan was 3.99 percent.
Even with the surge in rates, Freddie Mac anticipates a stable housing market for 2018.
“Historically when mortgage rates surge, housing swoons. But we think strength in the economy and pent up housing demand should allow U.S. housing markets to post modest growth this year even with higher mortgage rates. We really have to wait for housing markets to heat up in spring, but early indications are that housing demand remains robust to these rate increases,” said Len Kiefer, Freddie Mac’s deputy chief economist.
The latest report on home purchase mortgage originations showed a 3 percent increase from a year ago.
For more housing market insights and analysis, check out:
2019 Housing Market Predictions [According to the Experts]
Joel Palmer is a writer and personal finance expert who focuses on the mortgage, insurance, financial services, and technology industries. He spent the first 10 years of his career as a business and financial reporter.