Hope For Home Buyers: Cash Buyers Bow Out, Fall Is Coming

Deborah Kearns
Deborah Kearns
The Mortgage Reports Contributor
August 2, 2017 - 4 min read

Housing Market Considered “Healthy”

Although low housing supply has somewhat stifled the spring selling season, it looks like there’s finally a breakthrough.

Pending-home sales rose 1.5% in June to a reading of 110.2 on the Pending Home Sales Index, according to the National Association of Realtors. That’s a slight bump from an upwardly revised 108.6 in May.

Any reading above 100 indicates a healthy housing market. The index is pegged to conditions in 2001, which is generally considered a good time for housing.

After three consecutive months of disappointing declines, June’s increase is the first time pending sales have risen since March.

NAR’s index, based on signed offer contracts, gives industry watchers a sense of where market activity is heading.

So what exactly helped reverse an otherwise flat spring selling season?

“The first half of 2017 ended with a nearly identical number of contract signings as one year ago, even as the economy added 2.2 million net new jobs,” said Lawrence Yun, NAR’s chief economist, in a release.

“Market conditions in many areas continue to be fast paced, with few properties to choose from, which is forcing buyers to act almost immediately on an available home that fits their criteria.”

Still Hope For First-Time Buyers As Investors Bow Out

Buyers, particularly first-timers looking for the ever-elusive starter home, are still facing dramatic inventory shortages.

But there’s a reason to be hopeful.

Investors comprised 13% of all buyer activity for existing-home sales in June, the lowest level of the year.

That’s bumping all-cash sales down to 18% — the smallest share since June 2009 at 13%, NAR reported.

“It appears the ongoing run-up in price growth in many areas and less homes for sale at bargain prices are forcing some investors to step away from the market,” Yun said.

“Fewer investors paying in cash is good news as it could mean a little less competition for the homes first-time buyers can afford.”

While that’s certainly relieving to hear, first-time buyers will need to have their pre-approval letter in hand and be ready to pounce if a home comes on the market.

Mortgage Rates Staying Low (For Now)

Persistently low mortgage rates are helping buyers get their foot in the door. Interest rates have stayed relatively low at or below 4% for 30-year fixed loans.

Industry analysts don’t see that changing much, especially after the Fed opted not to raise rates at its July meeting.

Buyers can score good bargains on home financing through myriad loan options. FHA loans, for example, require just 3.5% down. You can finance your down payment 100% through a gift, too.

However, FHA loans have a key (and costly) drawback: mortgage insurance premiums, or MIP. You’ll pay 1.75% upfront and 0.85% of the loan balance annually thereafter in 12 equal installments with your mortgage payment.

On a $200,000 loan, that’s $3,500 upfront and $141 per month. The upfront fee can be rolled into the loan amount, or paid upfront at closing.

But, for first-time buyers with a small down payment and tarnished credit, FHA’s extra cost is a small price to pay to become a homeowner.

Other programs offer 100% financing, such as USDA loans for rural and suburban properties, and VA loans (for eligible military personnel).

These and other competitive loan products, along with low mortgage rates, keep the playing field level for many home buyers. In this seller’s market, a little help can go a long way.

With Fall Approaching, Sellers Will Be More Motivated

As we enter the last half of the year, buyers will likely see asking prices come down a bit in the fall.

Buyer traffic typically slows down by end of August and early September, especially among young families who want to move before the school year starts.

As a result, sellers are more motivated to cut a deal to sell before colder weather and the holidays set in.

If you’re not tied to a summer move, fall could be the ideal time to buy a home. For starters, there’s less buyer competition.

Sellers whose homes have lingered on the market will be more likely to be flexible on pricing and terms. Also, real estate agents aren’t as busy; they can focus more individual attention on you.

Meet with a lender today to find out what you can afford and get your finances in shape before the house hunt begins.

If you’re not working with a real estate agent yet, now’s a good time to talk to a few and find one you trust. You’ll be glad you got the process moving early. Once a house becomes available, it’s usually gone within days.

Check Your Home Buying Eligibility

Mortgage rates are low, and the market is about to become less competitive as fall arrives. Now is the perfect time to check your buying eligibility and get fully pre-approved.

Those that delay could miss out on the ideal home.