Experts knew home prices had to cool down at some point, and it seems that it started to happen toward the end of 2014 and early 2015. According to the S&P Cash/Shiller index, annual home appreciation in 2014 was at about 4 percent, compared to 13 percent in 2013, and there’s been a gradual slowing down month after month.
According Forbes, economists expect the home price slowdown to continue for the rest of the year. Stan Humphries, Zillow’s chief economist told Forbes: “The slower pace of home value appreciation we’ve been seeing for the past few months is further proof of a market in transition, getting healthier as it returns to growth driven by fundamentals like more jobs, higher incomes and improving household formation.”
Tapering Home Prices Good Sign for Market
One of the reasons for the cool down is that there are fewer investors in the market. As explained by real estate reporter Jonathan Horn of UTSanDiego.com, the county’s housing market topped out in 2013 when investors began to run out of properties to fix and flip. Add to that a decrease in foreclosures in 2014, and home prices once again are being determined by more traditional factors like employment, wages, supply, demand and interest rates, none of which are conducive to double-digit annual appreciation.
So have we officially left the recovery period into a more slow and steady growth?
That seems to be the conventional wisdom, with Realtor.com predicting an annual gain of 4-5 percent. And that’s a good thing, according to economists and housing market experts. A more stabilized appreciation rate is an indicator that the market that healthy and growing, but not heading toward a housing “bubble” that caused so much trouble a few years ago. As quoted in CBS.com, Patrick Newport and Stephanie Karol, U.S. economists at IHS Global Insight explain that the smaller gains in appreciation are “strong enough to make current owners consider listing their homes, but slow enough to keep those homes within buyers’ reach.”
Home Prices Starting to Favor Buyers
While current homeowners might not be too thrilled about the slow down as it relates to their own equity recovery, this trend is favorable for potential buyers. If you’re thinking of buying a home, the slow down in home appreciation could actual signal that it’s a good time to enter the market. Here are some reasons why you might not want to delay your home search any longer:
Rents are rising faster than incomes. And, in some cities or depending on your financial situation, buying a home can be cheaper than renting. Overall, the cost of rent grew twice as quickly as household income between 2000 and 2014, forcing renters to use nearly 30 percent of their income to cover the rent, according to a recent Zillow report.
More houses should be coming on the market. When home appreciation slows, sellers jump into the market to try to maximize their profit, meaning more houses will likely be put up for sale. Plus, it’s springtime, a traditionally busy time of year for homes to go on the market. From a buyer’s perspective, the more competition there is among sellers, the more bargaining power you’ll have. The shift from having to compete for a small number of homes to having more options makes it a good time to move ahead.
Interest rates are still low. Incredibly, rates are still hovering around 4 percent for 30-year fixed rate mortgages. When they do start to rise (and experts say you can expect them to gradually climb toward 5 percent by the end of the year), it could mean having to look for a less expensive home. The sweet spot for pursuing your home buying dream could be right now, when rates are still at historically low levels, and there are more homes on the market from which to choose. Lower monthly payments, plus having room to negotiate, can put you in a unique position. As rates go up, your fellow buyers will likely decide to forge forward, so why not beat them to the punch?
Buyer Opportunities Returning
Steady home appreciation is good for the economy as a whole, but homebuyers in particular. Buyers don’t have to “chase” home prices in a steady market. They can save up a down payment that will be enough when they pull the trigger on a home.
It would be difficult to construct a better time for buyers. The market is primed for a robust home purchase market in the coming year.