5 Compelling Reasons to Buy a Home in 2017
May 1, 2017
When you’re thinking of purchasing a new home, you want to be as confident as possible that you’ve done so when the time is right. If you’re too cautious, you might be left buying a home when interest rates are high and the housing market is in a volatile period. Despite the fact that the housing market had a relatively volatile year in 2016, it was actually a good time to purchase a home. Mortgage rates were the lowest they’ve ever been and home prices were also at a good spot. This year has gotten off to a good start as well and is a fantastic time to buy a home. This good start is unlikely to last for too long, however, for a variety of reasons. In fact, there are many compelling reasons that you should buy a home now before it’s too late!
1. Mortgage Rates Continue to Rise
Mortgage rates are decidedly low these days, having bottomed out in August 2016 at 3.55 percent. At the worst point of the 2008 U.S. housing market crash, mortgage rates were well above 6 percent for 30 year mortgages. Since that time, they have seen a steady recovery until the low point was reached towards the end of 2016. However, it was around that time that the Federal Reserve decided to actually raise its primary interest rate. Since then, mortgage rates have started to increase.
The Federal Reserve increased their benchmark interest rate by another quarter percent in March 2017, leading banks to increase mortgage rates from 3.75 percent to 4 percent. While these increases in mortgage rates have been exceedingly slow, it is predicted that this trend will continue throughout 2017 and into 2018.
— James Salazar (@jsalazargroup) March 22, 2017
You should understand that while mortgage rates are rising, a small increase isn’t going to break the bank. For instance, an increase from 4.2 to 5 percent would lead to an increase of your average monthly mortgage payments by around $90. However, there’s no end it sight for these changes, so now would be the best time to buy a house if you’re worried about rising mortgage rates.
As of today, mortgage rates sit at around 4 percent. It’s estimated that these rates will increase to around 6 percent in 2019-2020. If you would like the monthly payments you pay on your mortgage to be as low as possible, shopping for a house today will allow you to lock in the current rates. There’s a chance that these increasing mortgage rates may even help you during the home buying process, as homeowners looking to sell may be somewhat more flexible on price due to the presence of more competition on the market.
2. Credit Terms May Improve
One distinct possibility throughout the year is that credit terms could improve for those looking to purchase a home. One of the suggestions made by the current White House administration is that the Dodd-Frank act could be rolled back in the very near future. If this suggestion is followed through and the Dodd-Frank act is wholly repealed, this allows for the lessening of regulation on lenders.
While a reduction in regulation doesn’t always help the consumer, there’s a possibility that it could in this case. Though this is only a theory for the time being, the repeal of Dodd-Frank could cause banks to be more forthcoming with their loans, allowing a wide range of buyers to seek loans for a new home. The Dodd-Frank act was brought about soon after the stock market crash of 2008.
While the increase in regulation was designed to make the banks more accountable and help the consumer, it has also caused the bank to be more risk averse with the credit terms that they provide. With the repeal of this law, your current credit rates could be seen as more appealing by whichever bank you use, making the possibility of obtaining a favorable loan much higher. If you’re considering the purchase of a house, look out for the repeal of the Dodd-Frank act and proceed accordingly.
3. Loans May Become Harder to Acquire
Today, there is less regulation on the banks than ever before. When the government has less regulation on the banks, the banks that control potential loans have more control over who they decide to lend to. In most respects, limitations on who is able to obtain a loan is only going to make things more difficult when you wish to purchase a home. It’s believed that regulation on banks is going to continue to decrease, which is why now is as good of a time as ever to seek a loan for the purchase of a house.
One of the primary reasons for the tightening of lending standards is because banks believe that the economic outlook is more uncertain at this point in time, which has been determined through a study held by the Federal Reserve in January 2017. This is just one of the many reasons as to why these lending standards continue to tighten. Further reasons include a reduced tolerance of risk, a worsening of problems specific to the industry, and a decline in the bank’s liquidity positions. On the other hand, the possible repeal of the Dodd-Frank act could improve the availability of loans. If you’re considering buying a house, you may want to do so before these lending standards are tightened even further.
4. Homes are Becoming Less Affordable
— Ewing Sotheby's (@EwingSIR) February 11, 2017
One of the most compelling reasons that you should considering buying a home in 2017 is because homes are becoming less affordable and have been since 2012. There are currently no signs that this trend is coming to an end. While the type of home you’re interested in now may very well fit within your budget, that very same house may be outside of your budget by the end of 2017, pushing you to settle for less than what you truly wanted.
Home prices hit their lowest point in 2011. Since then, they have seen an average increase of more than 40 percent and are starting to reach levels not seen since 2006. When you’re trying to save for a down-payment on a home, these rising prices can be detrimental to your plans. The money you save now for a 10 percent down-payment may not be enough to get you the home of your dreams if you wait to long. Thankfully, this increase in prices is currently offset by relatively lower mortgage rates. Since these rates are also increasing, albeit slowly, 2017 is a good time to start your search for a house. There’s a chance that the rise in mortgage rates will lead to a decrease in home prices, but that’s not certain to be the case.
The National Association of Home Builders tracks the opportunity that buyers have to purchase a home through their Housing Opportunity Index. For the third quarter of 2016, the amount of homes within the U.S. that were affordable for the average family sat at a rate of 61.4 percent, which was in line with rates for the previous two years.
During the fourth quarter of 2016, this rate dropped to around 59.9 percent. Though this isn’t necessarily a sharp decrease, it does point towards a lower affordability overall and a trend that is likely to continue in the near future. With the rise in mortgage prices and home prices, the Housing Opportunity Index will likely continue to drop, which is why it’s heavily recommended that you start looking for a house today. It’s in your best interest to secure today’s rates, which still remain relatively affordable.
5. Less Residential Real Estate Available
— RE Investing Today (@REI2day) January 30, 2017
Over the course of 2017, it appears as though there will be less residential real estate available, as has been the case over the last year. This is true for a wide variety of reasons. For one, more people are holding onto their homes, either because they believe that the market is currently a buyer’s market and not a seller’s one or because they just don’t want to go through the home selling process. No matter the reason, this means that there are less homes on the market for you to purchase.
There is also a second issue that compounds this problem. Currently, more people are buying homes. With less homes available on the market, this means that finding the home that’s right for you is more difficult. Even when you do find the right home, it’s possible that the seller will already have several competing bids that you’re unable to go up against.
When demand is higher, the market remains a seller’s one. It’s important to note, however, that the current mortgage rates are good, homes are generally affordable, and credit terms are likely to improve. While the mortgage rates aren’t set to hold at their current low rate and the affordability of homes is expected to rise in the coming months, the current market affords you the ability to purchase a home before the market becomes increasingly volatile.
At the end of the day, you must do what’s right for you and your current financial setting. 2017 is proving to be an attractive market for home buyers, but it ultimately comes down to timing and financial responsibility. You don’t want to purchase a home when you’re simply not ready. If you are, indeed, looking to buy a home or trying to determine if this is the right time to do so, let our team of professionals guide you through the home buying process so that you can be confident with your decision and find the home that is right for you!