On paper, things have been moving in a positive direction for the housing market all year. Specifically, the number of homes sold and the median price of homes are both climbing month after month. According to Realtor.org’s Existing Home Sales Data report, sales rose for the third consecutive month in July. As for prices, the median existing-home price for all housing types was up 5.6 percent from last July to $234,000.
So what’s the problem? After living through the last real estate meltdown and economic downturn that followed, it’s hard not to take a pessimistic look at this progress, and be afraid that we’re heading toward another housing bubble. Although no one can predict with accuracy what will actually happen, all signs point to not seeing a repeat of 2009.
Of course, you should always proceed with caution when investing in a new home, but here are four solid reason why you don’t necessarily need to brace for the worst as the housing market continues its recovery:
1. The job market is stronger
Even though earnings aren’t rising at the same rate as home prices, more people are employed and have employment opportunities than they did a few years back. As NAR chief economist Lawrence Yun explains in the company’s press release, real job growth is at the heart of the housing increases. “The creation of jobs added at a steady clip and the prospect of higher mortgage rates and home prices down the road is encouraging more households to buy now,” he said.
2. Distressed sales are down
Remember when it seemed like everyone you knew was able to snatch up a great deal on a short sale or foreclosure home? That’s because five years ago, distressed sales accounted for about a third of the market share. By this July, that share decreased to 7 percent, which indicates that fewer people are having to walk away from their homes.
3. Rising home values are good for existing homeowners
For anyone who bought a home right when the market fell apart, the climb back up in recent years has helped them get out from being underwater (owing more on their mortgages than their homes were worth). This recovered equity, along with refinance programs like HARP, has helped ease mortgage payment stress, sometimes to the tune of hundreds of dollars per month for refinancing homeowners.
4. Lenders are more wary than before
Plain and simple, predatory lenders learned their lesson the hard way, by encouraging borrowers to take more than they could reasonably afford to pay back, and buy more home than they should have. Today, there is a lot more hoop-jumping to go through in order to qualify for a mortgage.
But that’s not necessarily a bad thing. A higher bar of qualification means a better protected investment for all those who do qualify.
Plus, there are still a number of programs that don’t require a significant down payment (some, none at all). And yes, lenders are loosening up just a bit from the super stringent qualifications they enforced right after the crash, but certainly not to the irresponsible levels of the past decade.
All of that being said, if you’re wondering whether or not it’s a safe time to get into the housing market, the answer really depends on your current financial situation more than anything else. From a housing standpoint, mortgage rates are still quite favorable but might not stay that way for much longer.
And, if home prices continue to increase, the longer you wait, the less home you’ll ultimately be able to afford. On the other hand, rushing into a home purchase if you’re not in strong enough financial shape is never a good idea. Having a strong credit score, ample savings, and enough income is just the start. Working with a reputable mortgage broker or lender will ensure that you choose the right mortgage program for your situation.