New Housing Boom? Not So Fast, Let’s Wait and See
Hubbub over housing prices, no real improvements
Mortgage rates fell again here in the U.S. for the fourth week in a row. The 15-year average is now at a record low. For 30-year fixed mortgage the rate is currently at 3.40 percent, down from 3.41 percent and the 15-year rate fell from 2.64 percent to 2.61 percent according to Freddie Mac.
A recent report from Zillow shows that someone earning median income of $52,513 buys a home at the median price of $157,400, only 12.6 percent of their income would be required for mortgage payments. That is more than a third of the average pre-bubble; during the bubble the average was approximately 20 percent.
While it is an improvement for consumers there is still a large gap between income and home prices. During the bubble housing prices were nearly quadruple the amount of income of the average American. Home values are now approximately three times the median income – 15 percent more than the past average, relative to income.
At a time when renting and home buying seem to be approaching equal monthly cost it is almost harder than ever for those with credit which was previously considered good to buy a home. Young professionals are the lifeblood of the future real estate market. Homebuyers from that group typically will buy their first home and as their lives progress, children enter the equation, and the initial home becomes too small, a larger home is purchased to accommodate their needs. Without the first step of buying a home, at a younger age it is harder to establish credit and build wealth. The market may suffer in the future without entry of these critically important buyers.
Recent pricing gains have mainly been the consequence of decreased traditional inventory and increased sales volume. The shadow inventory of distressed properties is not typically taken into account. Short sales are not often advertised like equity sales and Many are heralding a housing recovery and possible boom (or bubble) but Fitch Ratings recently released a report about its concern over alternate economic factors. According to Fitch pricing may be inflated by up to 10 percent.
Here in the Sacramento area unemployment is officially at 9.2 percent. Another factor to consider is the number of homes being purchased by investment groups. The Sacramento Business Journal reported in November of 2012 that Blackstone Group is buying homes at a rate that is astounding. Although mortgage rates are currently low it is quite possible that they are set to rise in the near future. Market volatility is expected to continue into 2014 or even 2016.
If you have any questions or concerns about your own personal situation I would be happy to give you a FREE one on one legal consultation. You can call me at 916.442.6400 or send me an email at firstname.lastname@example.org or just visit my website www.upsidedownca.com.
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