3 Things to Watch in the Housing Market This Spring

    Hint: Supply and demand is in full bloom this season.

    By Geoff Williams, Contributor |April 6, 2018, at 1:02 p.m.

    If you’re ready to buy a home, now is the time – but don’t rush this important decision.

    Spring is a popular time for homebuying and selling, but you may be wondering if you should sit this season out. After all, inventory is dropping, mortgage interest rates are rising and the recent tax cut has negatively impacted some of the housing market. On the other hand, if you’re concerned that interest rates and sale prices will go even higher, you might decide that now is the perfect time to buy a house.

    If you are trying to determine if you should buy or sell a house this season, there are several factors you should consider. Here’s what to expect this spring.

    An imbalanced supply and demand. In past years, you could afford to take time gathering your paperwork. You could leave a room unpainted when putting a house on the market, and you could lowball an offer and realistically hope that the seller would take it anyway.

    But with the rising demand, this is no longer the case. “It’s such a competitive market that it can be difficult for buyers to make their offers stand out,” says Kevin Deselms, a realtor with RE/Max Alliance in Golden, Colorado. That means that ideally you’ll offer a significant down payment, he says.

    Don’t fret if you don’t have enough for a large down payment, however. “Most first-time homebuyers don’t [have enough],” he says. But if you can, you’ll be ahead of where many of your peers are.

    Another way you can stand out is by selling a house that doesn’t need a lot of renovations, says Allen Johnson, an associate broker and realtor at AJ Team LLC/Keller Williams Realty in the District of Columbia.

    “Many sellers have not done the necessary repairs and renovations to make buyers want to jump fully off the fence,” Johnson says. A lot of buyers love to look at renovated homes on channels like HGTV, “but when it comes to real life and real-cost renovations, they aren’t so excited,” he says.

    Still, if the home you’re selling has some of those pricey renovations in place, it could help attract buyers, Johnson says. “Spring buyers are looking for the perfect home. They have been in the house all winter on various [real estate] sites and have seen everything. When they see something that looks great, checks all the boxes and is priced right, they will pounce,” he says.

    Changes from new tax law. “The biggest implication of the new tax law is the change in deductible mortgage interest. Previously a homeowner could deduct the interest on a mortgage up to $1 million. That amount has been reduced to $750,000,” says William Fastow, an associate broker with the Appleton Properties Group with TTR Sotheby’s International Realty in the District of Columbia.

    As for the tax change itself, “This may seem like not much of difference for many homeowners, but in competitive urban markets, like D.C., San Francisco, New York [and] Boston, a starter home is almost always over $750,000,” Fastow says.

    In other words, if you’re buying a starter home in a big city, and you were counting on that deductible mortgage interest to make owning a home more affordable, you may want to reconsider purchasing a house right now.

    Higher interest rates. If you are thinking about buying a house, and you need a reason to start looking, consider rising interest rates. After all, the Federal Reserve is expected to raise rates two more times this year and three more times in 2019.

    “There is no doubt that houses are becoming less affordable. Rising interest rates raises monthly costs for buyers, but it also means that buyers will qualify for less money and need larger down payments to secure their notes,” Fastow says.

    Another problem with interest rates is that the hikes hit buyers from both sides, making property purchases less affordable, Fastow says. “When inventory is scarce, demand drives up prices, which creates an environment where home values are moving up independent of interest rates,” he explains. “Buyers should pull the trigger as soon as possible if they can find a home they like, as the Fed is scheduled to raise rates at least two more times before the end of the year, and 5 percent 30-year fixed notes are not far off. If possible, buyers should stretch now while money is still historically cheap.”

    Mike Tizzano, a Mesa, Arizona-based mortgage broker with Fairway Independent Mortgage, agrees that buying a house sooner is better than later. “As rates and prices go up, you’ll be able to purchase less home for your money. On a $200,000 loan, every eighth of a point the interest rate increases translates to roughly $14 more a month in additional payment,” he says.

    Still, the general rule of thumb is that you shouldn’t buy a house you can’t afford or purchase a house in a rush because you’re worried about the housing market in the future. In other words, buying a house is a major investment. If you’re worried that not buying a home now would be a mistake, buying a house before you’re prepared may be an even bigger misstep.

     Featured Image: Getty Images

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