Toss a few obstacles in front of Americans, and many will take up the challenge. That appears to be the way some wannabe homebuyers are facing today’s market conditions.
Despite a lack of houses for sale, rising mortgage rates, higher prices and strong competition from other would-be owners, not to mention investors, nearly two-thirds of the people responding to Gallup’s annual housing survey still say it’s a good time to buy.
This doesn’t exactly square with a couple of other recent studies. One, by secondary mortgage market giant Fannie Mae, found that the share of those who believe it’s a good time to buy dipped in April to less than 30 percent. The other, by credit reporting agency Experian, found that many potential buyers have dropped out of the market altogether.
For those of you still in the market despite the odds, perhaps your attitude can be best described by the immortal words of David Farragut, the first admiral of the U.S. Navy. His (likely paraphrased) order from the Civil War’s Battle of Mobile Bay: “Damn the torpedoes, full speed ahead.”
Here’s what current home-shoppers are up against:
- Competition. Of the people who told pollsters from the National Association of Home Builders (NAHB) that they will be buying within the next 12 months, more than 40 percent are out there house hunting right now. These folks know that the current market is “a tough nut to crack,” said NAHB research economist Rose Quint, “but they are not deterred.”
- Indeed, of those who plan to continue looking, 60 percent will continue looking for the right home in the same preferred location, while less than half said they might have to expand their search area or change their search criteria.
- Only 13 percent said they might have to give up the chase. That, says Quint, “suggests that despite the difficulties and delays, most prospective buyers will press ahead, undeterred.”
- New research from Trulia found even more striking results among millennials: Nearly 90 percent of them plan to buy a home at some point, and of those, 35 percent plan to reach that goal within the next year.
- Time. The NAHB survey also found that active buyers are spending a considerable amount of time stalking their prey. More than half have been trying to find the right home for three months or longer.
- Cost. What’s taking so long? First and foremost, affordability. The No. 1 reason for homebuyers’ failure so far is they can’t find a place that meets their requirements and that they can afford.
- Availability. The National Association of Realtors (NAR) reports that there are now fewer homes on the market than any time since last December.
No one has a count of unsold new houses, though most builders won’t even start building until they have a firm contract. But the number of existing houses for sale at the end of March stood at 1.67 million, vs. 1.8 million a year earlier.
NAR says the inventory is starting to rise, which appears promising until you examine the “housing supply” numbers. Housing supply is a calculation of how many months it would take to exhaust the current inventory of available homes at the current sales pace. A normal supply is seven to eight months, but the current unsold inventory is at a 4.6-month supply.
Why so few houses? Builders are throwing up houses as quickly as they can, but most current homeowners are staying put, for any number of reasons. One is that they can’t find a new place that suits their needs. Another: They don’t want to let go of the lower-than-market interest rate on the mortgages they now carry. And like those buyers in the hunt, they, too, are put off by ever-higher prices.
In other words, current owners are constrained just like everybody else.
- Hurried closings. If you do find the place of your dreams, be prepared to settle on your financing quickly. According to mortgage-software company Ellie Mae, millennials closed loans in March at a faster clip then ever: 39 days.
“As more millennials reach the prime homebuying age of 29 to 32 years old,” said Joe Tyrrell, an executive vice president at Ellie Mae, “they are finding a mortgage experience leveraging technology that is fast and engaging in ways that their parents couldn’t imagine when they bought their first home.”
— Rates. Speaking of financing, it’s highly likely you’ll be paying higher mortgage rates over the coming months. HSH Associates, a mortgage reporting service, says the recent run-up in loan costs has paused for the time being, but it fully expects the Federal Reserve to “lift rates” at least a quarter-point more soon.
Such a move, of course, will give lenders an opportunity to boost their own rates, even though there is no correlation between mortgage rates and the central bank-controlled federal funds rate that banks charge each other.
— Credit. Even though the typical credit score for borrowers in March was in the 721-723 range, it has become easier lately to qualify for financing. That’s partly due to the fact that the loan “pie” is shrinking, so lenders have to figure out how to stand out from the crowd. One way is to take on more risk and accept the fact that more of their loans will become delinquent.
(Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at firstname.lastname@example.org.)