Home prices have been rising since early 2012, but so far this year the pace of increase has slowed. That change in dynamics could affect the best strategy for buying a house in today's market.
Given the recent trend, this would be a good time to look at some home buying tips for a slowing – but still rising – housing market.
Recent Home Price Trends
According to the S&P/Case-Shiller U.S. National Home Price Index, the housing market experienced devastating losses from mid-2006 through early 2012, at which point things slowly started to turn around. The pace of this recovery reached a double-digit rate of year-over-year increases in late 2013 and early 2014, but recently has begun to cool off.
The year-over-year rate of recovery peaked at 10.9 percent in October of 2013, but by 2015 the pace of recovery had slowed to less than 5 percent. The most recent 12-month period shows an increase of just 4.4 percent. This leaves home prices up 28.4 percent since bottoming out back in 2012, but still not fully recovered to their 2006 peak.
Slower Does Not Mean Cheaper
Bargain-conscious homebuyers might take heart from the fact that the pace of price increases has slowed, but keep in mind that houses are getting more expensive. In other words, unlike a few years ago, this is not exactly a buyer's market.
Still, mortgage rates are still unusually low, and while you may not have a great bargain fall into your lap in today's environment, you should not have to chase properties the way buyers did during the housing boom, often making offers that were above the asking prices in an attempt to keep up with a fast-rising market. Expect conditions to be more of a mixed bag today, with pricing dynamics very much a function of the local market and even the specific property. A few timely home buying tips can help you make the best of today's opportunities.
Home Buying Tips for Today's Market
With the housing market slowing, buyers can be a little more discerning in their approach, but not complacent. Here are some home buying tips for this type of market:
- Get to know your local market. While talking about national trends is helpful for getting a big-picture view of housing market conditions, it is important to remember that conditions vary greatly from one area to another. For example, while prices nationally rose by an average of 4.4 percent over the past year, the increase in Denver was 10 percent, while in Washington, D.C. it was just 1.3 percent. So, rather than make any assumptions, look at what prices have been doing in the area where you are looking – and be as neighborhood-specific as possible.
- Look at data beyond prices. Price trends are important, but if you want to anticipate what might happen next with prices it is helpful to look at some of the factors that can affect prices. For example, statistics on how many properties are currently on the market and how long it takes them to sell can tell you about the supply/demand dynamics in a given area. In particular, it is a good idea to look at how this information has changed in recent months, so you can tell whether the local market seems to be heating up or cooling down.
- Shop for mortgages before making an offer. The housing market may have slowed, but it is not standing still. This means that you want to be well prepared before you get to the point of making an offer. So, contact lenders and do some rate comparisons in advance, and possibly get pre-approved for a mortgage so you will be ready to act when the right opportunity comes along.
- Consider asking for concessions other than price. With prices still rising, you might not be able to convince sellers to knock a large amount off their asking prices, especially if they have done their homework and know their properties are priced fairly. However, in areas where demand is softening, you might find sellers anxious enough that they will entertain other concessions, such as making certain repairs or upgrades as a condition of a deal.
- Be decisive. If prices were falling, you might get away with letting some good opportunities pass you by because things would just be getting cheaper. Not so when prices are rising. When a market is going up, delays can cost you. If you do your homework on what you can afford and what the local market is like, then you should have the confidence to act decisively when you find the right house at the right price.
The housing market today is somewhere between two extremes – it is neither the soaring seller's market of the housing boom, nor the collapsing buyer's market of a few years ago. For careful buyers, this can represent an attractive set of conditions, since the market is not so hot that you have to make extreme sacrifices to afford a house, but still stable enough to make people comfortable with buying at this time.