The growing signs of a slowdown in the housing market might be good news for homebuyers. Slowing home prices – after the double-digit increases last year – mixed with still-low interest rates are making homes more affordable.
In addition, the supply of homes for sale today represents 5.8 months of demand, the most since October 2011, giving buyers more choices than they’ve had in the recent past when inventory shortages plagued many markets.
In addition, some lenders are easing qualification standards. Impac Mortgage Holdings Inc., for example, announced that it’s launching several mortgage products that will ease underwriting standards for qualified borrowers, particularly first-timers and small business owners.
“From an individual perspective, the best investment you can make is to buy a primary residence,” says John Paulson, who runs the hedge fund Paulson & Co. “Today, financing costs are extraordinarily low. You can get a 30-year mortgage somewhere around 4.5 percent.”
But despite low interest rates and slowing home prices, first-time homebuyers have mostly been absent from the housing recovery so far. They made up 28 percent of existing-home sales in June, but typically take up 40 percent of the market, according to the National Association of Realtors®.
“The first-time homebuyer is just not the factor that it once was,” says Peter Boockvar, chief market analyst at the Lindsey Group, a D.C.-based economic advisory firm. “Without the first-time homebuyer, and now with the reduction in the pace of investor purchases, the recovery will remain lumpy.”
While first-time homebuyers’ numbers remain low and home prices and mortgage applications have fallen in recent months, not all analysts predict that housing prices will fall. Barclays analysts, for example, expect housing prices to rise about 7 percent this year.
Last year’s “double-digit home price gains were unsustainable” because income growth has been about 2 percent, says Boockvar. “We should be cheering slower home price gains, not fearing them, because it is the main factor that will entice the newly created household to consider buying instead of renting.”
Source: “Real Estate’s Epic Rebound Starts to Cool,” The Wall Street Journal (Aug. 2, 2014) [Log-in required.]
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