Is Now a Good Time to Buy? Signs Point to ‘Yes’

All that talk about a 2020 shift to a buyers’ housing market might have been a tad pessimistic, as a combination of economic factors point to a market now in which buyers have more leverage.

Zillow Inc., Seattle, said after years of competitive bidding wars and rising prices, it might finally be a good time to buy a home in many U.S. markets. Its analysis of three factors to determine which of the largest U.S. housing markets are becoming more buyer-friendly found that some previously prohibitively competitive markets–including Seattle and Las Vegas–have turned into the best places for buyers this winter.

“The housing market always lets up a little in the fall, when kids are back in school and the home shopping season wraps up for the holidays,” said Zillow Senior Economist Aaron Terrazas. “But this fall and winter are shaping up to be more favorable for those buyers who have struggled to get into the housing market for several years amid red-hot competition.”

Terrazas noted mortgage rates have risen past 5 percent, and will climb much further in 2019 and early 2020 (The Mortgage Bankers Association projects the 30-year fixed interest rate to rise to 5.10 percent over that period). “As purchase affordability deteriorates, expect rents to pick back up as some would-be buyers put their plans on ice. Renters who were thinking of buying and decided to hold off may want to take another look this winter, as a steady clip of mortgage rate increases chips away at affordability and more homes become available on the market,” he said.

Zillow researchers looked at three buyer-boosting metrics playing a key role:

–An increase in the share of listings with a price cut. Price cuts indicate homes are sitting on the market longer, Zillow said, which means more options for buyers, less competition for homes and more room for buyers to negotiate. “Many recently white-hot markets have seen large jumps in the share of for-sale listings with a price cut,” the report said.

–Projected increase in rent appreciation over the next year. Zillow noted rent appreciation has slowed recently, but as mortgage affordability deteriorates due to rising mortgage rates, rents could begin to increase again as some would-be buyers put their buying plans on hold. “We know that nearly half of renters consider buying while they’re looking for a home, and the potential of rising rents also factors in to when it’s a good time to buy,” the report said.

–Affordability relative to the past. Zillow looked for markets where mortgage affordability is poor, but not worse than it was historically. “With interest rates on the rise, and mortgage affordability already closing in on its historic norm, prepared buyers may want to enter the market before housing payments become historically unaffordable,” Zillow said.

Based on those factors, Zillow identified 10 “best places” for buyers this winter: Orlando; Boston; Seattle; Las Vegas; Charlotte, N.C.; Columbus, Ohio; Portland, Ore.; Sacramento, Calif.; Minneapolis; and Dallas.

Meanwhile, First American Financial Corp., Santa Ana, Calif., said wage growth has helped mitigate some of the impact of rising rates on affordability. The company’s August Real House Price Index said rising household income contributed $11,000 to consumer house-buying power, which helped mitigate the negative effects of rising mortgage rates.

The report said real house prices increased by 0.6 percent between July and August; year over year, real house prices increased by 11.3 percent. The report said consumer house-buying power–how much one can buy based on changes in income and interest rates–decreased by 0.2 percent between July and August and declined by 4.7 percent year over year.

First American Chief Economist Mark Fleming noted average household income has increased by 3.2 percent since August 2017 and by 53 percent since January 2000. However, real house prices are 38.6 percent below their housing boom peak in August 2006 and 13.0 percent below the level of prices in January 2000.

“Wage growth translates into rising household incomes, which were 3.2 percent higher in August compared to a year ago. That growth in household income contributed $11,000 to consumer house-buying power, which helped mitigate the negative effects of rising mortgage rates,” Fleming said. “While rising mortgage rates reduced house-buying power by $30,000 over the last year, rising incomes increased consumer house-buying power by $11,000. The net effect? Overall consumer house-buying power fell by $19,000 in August compared with a year ago.”

Fleming noted while the negative effect of rising mortgage rates is outpacing the benefit of rising incomes, consumer house-buying power continues to be strong because mortgage rates remain near historic lows. “Between the peak of unadjusted house prices in 2006 and August 2018, the average 30-year, fixed-rate mortgage fell from 6.8 percent to 4.6 percent,” he said. “Over the same 12-year period, household income has increased 30 percent. Lower mortgage rates and higher income levels mean house-buying power is nearly 66 percent higher today than it was in 2006.”

The report said states with the greatest year-over-year increase in it index were Nevada (+22.3 percent), New Jersey (+20.0 percent), Michigan (+19.8 percent), Ohio (+19.7 percent) and Alaska (+18.1 percent). No state had a year-over-year decrease in August.

Among key metros, markets with the greatest year-over-year increase were Cleveland (+25.8 percent), Las Vegas (+25.2 percent), Detroit (+20.9 percent), Cincinnati (+20.9 percent) and Atlanta (+20.5 percent). No metro had a year-over-year decrease.