Unless you're very, very rich, there's a good chance that your first home purchase is the biggest transaction of your life. That makes it scary, and, during the last few weeks before closing, few get to sleep without worrying that their dream might fall down, get rezoned for industrial use, turn out to be located next door to a meth lab or meet some similarly apocalyptic fate.
Right now, those natural fears are joined by another: Is this really the right time to buy? Supposing it's not. If house prices go down again, you could end up trapped in an underwater mortgage. If today's low mortgage rates fall even further, you could find yourself making higher monthly payments than necessary -- or possibly face another round of closing costs as you chase the best refinance rates. Either of these scenarios are possibilities, but most experts seem to agree that they're now unlikely -- and growing less likely all the time.
Other Factors in Timing Your Buying Decision
You may want to take a whole raft of other factors into consideration, including:
- How does buying stack up financially compared with renting? The New York Times has a handy online calculator that can help you work that out.
- How secure are your job prospects? On the one hand, you don't want to take on a home only to lose it to foreclosure. On the other, you can't live your life assuming the worst will always happen. Make a sensible judgment.
- How's your credit? Even if you apply for a mortgage that doesn't require spotless credit (a VA loan, perhaps), you’ll find it easier to get the best mortgage rates if your credit score is as high as you can get it. FICO, the company that devised the most commonly-used credit scoring system, provides hints on repairing and improving yours before you make a mortgage application.
Current Home Mortgage Rates Are Key
Those can all be important factors, but mortgage rates and prices are crucial. And prices come a distant second, because, once you own your home,they're pretty much academic until you sell. Plenty of people who felt rich before the credit crunch as they watched their property values rise, soon discovered they weren't. Similarly, millions of others who more recently stressed out over falling real-estate values have, in the last two or three years, seen their underwater mortgages break the surface again.
Maybe you believe the American economy is down the drain, and will be there longer than you'll live in your next home. Fair enough. But, if you don't believe that, think twice about delaying buying a home because its value could fall. The real danger may be the precise opposite. According to a March 4 press release from Fiserv Case-Schiller: "Trends point to a return to a normal housing market, with prices projected to grow 3.3 percent per year over the next five years."
What Might Happen to Current Home Loan Rates
Many experts still forecast that mortgage rates will inch up over the next year, and continue on the same, gentle trajectory for a while after that. Fannie Mae's February 2013 Housing Forecast, for example, reckons that 30-year, fixed rate mortgage rates will average 4.1 percent in the last quarter of this year, and 4.6 percent during the same period in 2014. But some predict a much more rapid rise.
On March 8, the U.S. Department of Labor unveiled unexpectedly cheerful unemployment data: the rate had fallen to 7.7 percent from 7.9 percent. And in the wake of that, according to The Guardian, a UK newspaper, European financiers are looking at America with envious eyes. French bank SociétéGénérale predicts that 2013 is going to be the U.S. economy's "breakout" year, while M&G, a British fund manager, says that unemployment could be down to 6.5 percent by next summer.
And 6.5 percent is a magic figure. When unemployment gets that low, the Fed plans to stop purchasing assets, which it's currently doing at a rate of $85 billion per month. What will happen then? Nobody knows for sure, but some are predicting much steeper rises in both inflation and interest rates than the current consensus expects.
If they're right, those who are yet to get onto the housing ladder could face a perfect storm: rapidly rising house prices and mortgage rates.