The housing market has changed a lot over the last couple of years. There have been many changes within the mortgage industry as well. For instance, many first-time home buyers will be shocked to find that they are now in a sellers’ market, instead of a buyers’ market. In order to prevent such surprises (and for educational purposes in general), we have compiled some recent trends within the housing and mortgage industry.
Here are five things you should know if you are buying your first house in 2013.
1. Home Prices Are Rising in Many Areas
A recent report by the National Association of Realtors showed that single-family home prices rose in 88% of U.S. cities last year. Granted, the price gains were widely varied. Many parts of California have seen double-digit gains in the last year, while most cities in the Northeast have seen only modest appreciation. But the general trend is upward.
If you are buying your first house in 2013, you should research your local housing market to see what home prices are doing. This will give you a realistic picture of the market, which helps immensely when it comes time to make an offer and negotiate with the seller.
2. Buyer’s Markets Are Not as Common as They Used to Be
Over the last few years, we have heard countless stories of desperate homeowners struggling to sell their houses. As a result, we have been conditioned to expect a buyers’ real estate market. This was actually the case in much of the country, immediately after the housing collapse. But things have changed dramatically since then.
In 2013, many of the markets that used to favor the buyer now favor the seller. In these sellers’ markets, inventory is low and prices are rising. There are more buyers than there are properties. In such markets, multiple offers are the norm. Bidding wars have even made a comeback in certain areas, such as California and the Southwest.
If you are buying your first house in 2013, you need to understand what type of real estate market you are in. Real estate agents can be helpful in this area. An experienced agent can tell you what to expect in terms of inventory, negotiating power, and competition from other buyers.
And don’t expect to have the seller “against the ropes.” It’s not that kind of housing market anymore.
3. Inventory Is Down; Competition Is Rising
Many first-time home buyers will be surprised by the level of competition in their local housing markets. In many cases, there just aren’t enough homes to go around. Inventory reduction was the big story of 2012, and it will continue to make headlines in 2013. Consider the following:
Realtor.com publishes a monthly housing summary that includes 146 of the largest metro areas in the United States. The most recent report (at the time of publication) was published on January 24, 2013. It contained data through the end of 2012. According to that report, housing inventory has dropped over the last year in almost every metro area. Some cities, like many in California, have experienced inventory reductions greater than 25%. For example, the total number of real estate listings in Sacramento dropped by 67% over the last year. Talk about shrinkage!
How does this apply to you, when buying your first home in 2013? In short, it means you could face some stiff competition from other buyers.
Housing markets tend to heat up when inventory falls. And when inventory drops considerably, bidding wars can erupt. Inventory reduction also puts upward pressure on home prices. When you have limited supply and rising demand, prices typically rise.
You can see how all of this is connected. The general housing trend for 2013 involves declining inventory, rising demand, and rising home prices. The magnitude of these trends will vary from one local housing market to the next. But the entire nation is moving in this direction. We expect to see a continuation of these trends in 2013.
When buying your first house, you must have a clear understanding of local market conditions. Find out what home prices are doing in your area. Take a look at the average time homes are listed before being sold. Find out if inventory is rising, falling, or holding steady. This knowledge will help you make smarter choices during the home buying process. For example, if you’re in a market with very low supply and frequent bidding wars, you wouldn’t want to make a low-ball offer on a house. Market awareness is key.
4. Mortgage Rates Are Expected to Remain Low through 2013
On February 14, 2013, Freddie Mac reported that the average interest rate on a 30-year fixed-rate mortgage was 3.53%. This is near a historic low. Rates have been hovering at these low levels for months, and they are expected to remain low for the rest of 2013. In fact, many analysts have predicted that the benchmark rate will stay below 4% all year. Freddie Mac’s own forecast shows a slow but steady rise from 3.4% to 3.7% by the end of 2013.
Granted, the rate you receive from a lender will depend on your individual qualifications as a borrower. This will come as a shock to many first-time home buyers. They see the “average rates” reported in the news, and they expect to get that same exact rate from their lenders. In reality, a well-qualified borrower can secure an interest rate that’s below average. Less-qualified borrowers, on the other hand, are typically assigned above-average mortgage rates. Much of it comes down to your credit score, your down payment, and other risk-related factors.
With that being said, mortgage rates are still incredibly low right now. If you’re considering buying your first house in 2013, this is one factor that should work in your favor.
5. Documentation Is the Name of the Game
Mortgage lenders today are requiring more documentation from borrowers than they did in the past. This is a direct result of the housing and mortgage crisis that still plagues us.
During the housing boom, lenders would allow the now infamous no-doc and low-doc mortgage loans. These were scenarios where the borrower provided little or no documentation as proof of income and assets. In many cases, borrowers would simply declare their income, with no documentation whatsoever. But things are much different in 2013.
The Consumer Financial Protection Bureau recently announced a new set of rules that will affect mortgage lenders and borrowers in 2013. If you are buying your first home in 2013, you need to be aware of these rules. The Ability-to-Repay rule requires lenders to verify and document the borrower’s ability to repay the mortgage loan. This means they must request sufficient documentation from the borrower.
When you apply for a mortgage loan, the lender will likely request a tremendous amount of documents. These include, but are not limited to, your tax records, bank statements, pay stubs and the like.
Buying your first house can be a daunting experience. After all, there is much at stake. Research and preparation are the keys to success. We hope this article has helped you get off to a good start.