The U.S. housing market has been extremely tight for several years, with low inventory and rising prices pushing many prospective homebuyers out of the market.
If those unfulfilled homebuyers had resigned themselves to a life of renting in the face of the persistent sellers’ market, they may have done so in haste.
Florida-based real estate agent Alexander Diaz de Villegas says that conditions have improved quite a bit for homebuyers during 2019, making it one of the best times to buy a home since the end of the financial crisis.
Alexander Diaz de Villegas, a former Chairman of the South Dade Venture Community Development District and one of Battlefield Investment Group’s top realtors, lays out several reasons why it is a great time to purchase a home or refinance a mortgage.
Mortgage Rates Are Near All-Time Lows
Mortgage rates have fallen dramatically over the past year, spurring an increase in the number of homeowners that are refinancing.
The 30-year fixed-rate mortgage rate fell from nearly 5% a year ago to just 3.57% in early October according to Freddie Mac. That’s just a hair above the all-time weekly low average rate of 3.3% set in 2012, shortly after the subprime mortgage crisis.
With mortgage rates unlikely to go much lower, homeowners have been furiously dialing up their lenders to refinance. According to the Mortgage Bankers Association, there was a 163% jump in refinance applications in early October compared to the same period of last year.
Interest Rates Are Too Low to Drive Mortgage Rates Down Much Further
Mortgage rates tend to closely track the 10-year Treasury yield, which has fallen by a full percentage point in 2019 to 1.67%. However, that only applies to a point says Alexander Diaz de Villegas, after which the spread widens between mortgage and interest rates.
That point is about the 2%-mark, which interest rates have been well below since the end of July. Therefore, should the Fed further lower rates later this year, which is a possibility given that inflation remains below 2%, banks are unlikely to respond in kind.
Part of the reason for that is should interest rates continue to fall, it means the risk of a recession is likewise rising, as the rates tend to trend in the same direction as the economy. And a recession would likely weigh on home prices, which introduces a new level of risk for banks, as default rates rise when house prices fall.
Due to those factors, mortgage rates won’t fall much lower, meaning there’s no better time than now to refinance a home. And unless you believe housing prices will fall in the near-term and plan to wait for a better entry point (which most analysts don’t think will be the case), there’s also no better time to buy a home.
Housing Price Growth Rates Have Slowed Considerably
Overall housing prices aren’t falling but the rate at which they are growing has slowed quite a bit since early 2018. Annual growth rates peaked at over 6.5% in early 2018, but had fallen to just 3.5% by the end of the year. That trend continued in the first half of 2019, with price growth slowing to just over 2%.
That trend may not last long though. A report from CoreLogic predicts that by the middle of 2020, housing prices will be posting 5.4% annual gains. The report also estimates that 25% of U.S. housing markets are currently undervalued, so great deals are out there.
Economic Uncertainty Is Making Homebuyers More Cautious
Alexander Diaz de Villegas notes that many prospective homebuyers don’t appear to be ready to take advantage of the favorable conditions due to economic uncertainty, leaving a big opening for those that are.
Consumer confidence in the housing market fell in September according to a survey conducted by Fannie Mae, despite more respondents believing that now was a good time to buy a home.
Employment and recession fears outweighed those beliefs, as there was a large drop in the number of respondents who expressed no concerns over their job security. And while housing price growth has slowed to just over 2%, wage growth remains even more stagnant at just 1.2% over the past year.
According to data provided by Redfin, bidding wars for homes listed on the company’s platform have fallen steeply in the past year. In August, just 10% of offers faced such a challenge, an 8-year low and down from 41% a year earlier.
Even scorching hot markets like San Francisco have seen huge declines in the amount of buyer interest, with that market generating bidding wars on just 28% of Redfin listings in September, down from 69% in September 2018.
Without nearly as much competition, buyers are far more likely to nab homes at market or even below-market rates.
Housing Inventory Is Rapidly Dwindling
U.S housing inventory has been tight for several years, particularly on the entry level end of the market. Despite the general lack of exuberance from homebuyers right now, it became even tighter in September. According to a report issued by Realtor. com, the national housing inventory fell by 2.5% in September, accelerating from a 1.8% decline in August.
Much of that shortage developed on the entry level end of the market, as the inventory of homes priced under $200,000 fell by 9.8% in September. According to Alexander Diaz de Villegas, longsuffering first-time buyers that have had a hard time finding a starter home appeared to be less willing to forgo the great market conditions than their wealthier peers.
It’s true that wealthier homebuyers have more options available and can afford to be somewhat pickier. Their uncertainty could cost them however, as the mid-level of the market, which represents close to 60% of the entire market, is also tightening up.
After modest growth in the segment over the past 18 months, mid-level inventory has begun to flatline over the past few months. If that trend persists into 2020, home prices should rise quickly, as predicted by the CoreLogic report.
Alexander Diaz de Villegas concludes that the housing market represents a tremendous opportunity for buyers right now, with slowing price growth, rock-bottom mortgage rates, and muted competition from other buyers. This perfect storm of conditions won’t last long, making it the best time to purchase a home in years.
