It’s starting to look like a good time to buy a home. Last week, according to the Mortgage Banker’s Association, US mortgage applications lifted from a seven month low. Existing home sales rose by 9.2% in May compared to April. It was the first back-to-back monthly increase since September 2005, before the mortgage crisis hit.
It’s not that home prices have bottomed out, although in some markets like Charlotte and Denver they might have. The Case-Shiller 20-city home value index has plummeted 32.2% from its peak in July 2006. In May, the median U.S. home sales price for May was $173,000, down 16.8% from the year before. For one clue as to where the index is headed take a look at the nation’s unemployment rate. In May it increased to 9.4%. The June figures will be released by the US Bureau of Labor Statistics on July 2nd.
Since your mortgage payment is a combination of principal and interest, interest rates have to be considered. Despite the fact that the Federal Reserve has decided to keep its overnight rate at close to zero, federal stimulus borrowing is still pushing interest rates up.
According to Freddie Mac the rate on a 30-year fixed loan averaged 5.42% in June, up from 4.78% in April. A half percent increase in the interest rate can typically raise the rate on a 30 year fixed mortgage by hundreds of dollars a month.
Here’s another factor to consider, the Obama stimulus package includes a first time home buyer’s credit that’s due to expire in five short months on December 1st. First time home buyers made up 29% of May’s purchasers, concentrated in the low end of the market. They are taking advantage of the 10% first time home buyer tax credit for principal residences. The tax offset is capped at $8,000 and applies to anybody who hasn’t owned a primary residence for a total of 3 years, meaning that even if you’ve owned a vacation home you qualify. The credit is available to single buyers with an adjusted gross income of $75,000 or less; $150K for a married couple. This tax break isn’t for property flippers. Owners must live in their homes for at least three years.
Unlike during the heyday of the home buying bubble, today it’s a buyer’s market. Take stock of your finances. Get your credit score into the best shape possible. Save for a down payment. Keep an eye on the economy. Be ready to act. Over the next five months, the stars could very well align to allow you to finally acquire the house of your dreams for the right price, at a reasonable interest rate.