Thinking of buying a home? These days you have a lot of company -- or to put it another way, a lot of competition. That means it is time to raise your game.
A new report shows that home buyers were out in force at the end of 2014, pushing prices of newly-constructed dwellings higher. Mortgage rates are still in buyers' favor, but with prices on the move and the future of interest rates uncertain, hesitation could be costly.
Higher Volume Leads to Higher Prices
The Census Bureau recently reported that new home sales jumped by 11.6 percent in December, to an annual rate of 481,000. This represented a year-over-year increase of 8.8 percent and is the fastest pace for new home sales in over six years.
Real estate prices are heavily influenced by supply and demand, so it is only natural that this acceleration in new home buying led to higher prices. The median price of a new house sold in December was $298,100, a new high and 8.2 percent more than the average price of a new home sold a year earlier. Home buying activity and prices had some weak spots at time during 2014, but they both ended the year with momentum behind them.
The Northeast Market Heats Up
One of the most noteworthy aspects of December's new home sales was the strong recovery of activity in the Northeast part of the country. Though real estate trends are often discussed on a national basis, the truth is that regional markets can behave very differently, and while housing generally has been bouncing back in recent years, the Northeast has tended to lag behind. However, the pace of new home sales in the Northeast jumped by an impressive 53.6 percent in December, giving the region an overall gain of 72 percent for the year. This was easily the strongest increase in the country during 2014.
This activity should be considered a call to action for anyone intending to buy real estate. Price changes can happen quickly, and with even the previously sleepy Northeast market heating up, the pace of the game seems to be accelerating.
Mortgage Rates Add Urgency
One of the forces that has helped spur all this home-buying activity is that mortgage rates have continued to ease downward. According to mortgage finance company Freddie Mac, 30-year fixed mortgage rates fell by 10 basis points (10/100th of one percent) in December to close the year at an average of 3.87 percent. This moved those rates a total of 61 basis points lower than they had been a year earlier, and mortgage rates continued their descent in early 2015.
For would-be home buyers, those lower mortgage rates take some of the sting out of rising prices by making it less expensive to finance a home purchase. At the same time though, mortgage rates are by no means certain to stay at such low levels. In some ways, conditions were ideal for low mortgage rates in 2014, with the dramatic plunge in oil prices leading to an unusually low inflation rate. If inflation firms up at all, lenders may be compelled to charge higher interest rates to protect their profit margins. Low interest rates mean anyone thinking of buying a home should take action now, because they cannot be counted on to stay at such unusually low levels indefinitely.
So, what can you do to get in the game? Here are three things you should do to turn your intention of buying a home into action:
- Don't wait out the winter. In much of the country, temperatures are below freezing and snow is falling. It may seem like an unpleasant time to go house hunting, but that is precisely why you should do it now. Remember, other house hunters are your competition. The more of them there are, the more they drive prices higher and potentially snap up desirable properties before you get to them. You can grab an edge by braving the weather and getting in the game now, while some of your competition is huddling in front of a fire and waiting for springtime.
- Check your credit score. Don't make the mistake of pursuing financing after have found a house you would like to buy. If it turns out there are any unpleasant surprises on your credit record, you may not have time to address them before you miss out on the property you wanted. It's time to check your credit score (you can do this for free at LendingTree) and take care of any problems while you are still in the early stages of house hunting.
- Shop for lenders while you hunt for houses. Another thing you can accomplish while searching the real estate ads and going to open houses is shopping for a lender. Compare rates and get rate quotes for your credit rating and home price. This way, you will be ready to act as soon as you find the house you want, rather than running the risk of encountering delays at the crucial moment.
Buying a home is a fast-paced game, with prices and mortgage rates always changing. Right now, home prices are on the rise, and mortgage rates could follow at any time. If you are serious about buying a home, it's time to get in the game or risk getting left behind.