In the market to buy a house? A look at this year’s real estate market can help buyers make informed decisions.
The housing market is generally very strong. The U.S. Department of Commerce recently announced that new single family home sales surged in July to a seasonally adjusted rate of 654,000 units – a 12.4% increase from June – thus reaching their highest level since October 2007. Additionally, while tapering off in July, existing home sales leaped ahead in May and June to what was their highest pace in almost a decade, according to the National Association of Realtors®.
Looking ahead to this Autumn, the real estate market could remain strong. The primary reason: historically low mortgage rates driven by rock-bottom interest rates, which expand buying power and create a sense of urgency for buyers to capitalize on low rates while they can. According to Freddie Mac, the monthly average commitment rate and points on a 30 year fixed-rate mortgage decreased to 3.44% and .5 points in July 2016 as compared to 4.05% and .6 points in July 2015.
The nation’s economic engine also appears to be chugging along. As a result, we can hope to see continued job growth, which should mean that more buyers will enter the housing market. The nation added 255,000 jobs in July 2016, as compared with 215,000 jobs in July 2015, according to the U.S. Bureau of Labor Statistics.
New buyers are entering the housing market. In fact, the strong numbers in June’s existing home sales report were boosted by a greater share of sales to first-time buyers, which was 33 percent — a figure that has not been seen in nearly four years — according to the National Association of Realtors. In July the share of first-time buyers was 32% —up from 28% a year ago.
First-time buyers represented 30% of sales in all of 2015 and, thus far in 2016, represent 31% of all buyers. This is partially because of increasing rental prices caused by demand and supply pressures, making savvy renters — who have been paying increasingly high prices, especially in major cities — think again about the benefits of buying a home.
Even with the positives outlined above, we can’t forget that millions of Americans still remain locked out of the home buying market, as The Wall Street Journal recently reported. The supply of affordable starter homes is not keeping pace with the number of buyers who want to purchase a home. Starter homes with lower price ranges typically see multiple offers, drive bidding wars and go under contract quickly. Moreover, prices for homes nationwide are only 2% below the peak of July 2006, according to the S&P CoreLogic Case-Shiller Indices. This means many Americans will find it tough to find a home they can afford and will need to look for ways to save in the buying process – on items such as commission fees and expenses.
Tight credit will be a challenge for many buyers, with home prices in many areas hitting all-time highs and median sale prices increasing across the country. In fact, according to the National Association of Realtors, the median existing home price in July was $244,100, up 5.3% from July 2015 ($231,800), which marks the 53rd consecutive month of year-over-year gains.