Is it still a good time to buy?

Posted by on Monday, December 13th, 2010 at 1:13pm.

Are you considering buying a new home but are not sure if the time is right? While no external market forces can make it the right time for you, they can (or should) convince you to get the process started. Our market is experiencing two external forces that should make you contemplate a new property. For some time now, many buyers have been waiting and watching the interest rate market. Rates were great, and seemingly getting better. When was the right time to ‘catch the falling knife’? Most of 2010 was blessed with 30-year fixed interest rates between 4.25% and 4.75%. These rates are historic records. The Wall Street Journal (Dec. 8, 2010) reports:

Mortgage rates rose again last week to their highest level since July.
The 30-year fixed-rate mortgage averaged 4.66% last week, up from 4.56% two weeks ago. That’s still below the year-to-date average of 4.74%, but it’s up from a low of 4.21% in October.

On October 26, 2010, MarketWatch reported:

Mortgage rates may be as low as they’ll get — rates are on course to rise, slowly moving toward 5% by the end of next year, according to the Mortgage Bankers Association’s economic forecast, released Tuesday at the group’s annual convention here.

The group predicts rates on the 30-year fixed-rate mortgage will average 4.4% in the fourth quarter of 2010, increasing to a 4.7% average in the first quarter of 2011, and climbing to 5.1% by the end of next year.

For now, it appears our ‘falling knife’ has transformed into a yo-yo. How long can a yo-yo stay down? As the cliché goes: “What goes up must come down”. Or, in our case, “what goes down will soon come up”. Rates won’t hover around 4.5% very long. They just can’t.

The second reason to consider buying before interest rates go up is supply and demand economics. In Omaha’s northern climate, sales activity slows dramatically between Thanksgiving weekend and Super Bowl Sunday. It’s undeniable. Omaha Area Board of Realtor historic results tell the story. What trend is there that should tell us to start shopping for a home now?

  • 2009 average residential closings between March and November was 1016 closings/month
  • 2009 average residential closings in December, January, and February was 480 closings/month
  • 2010 averages are heading the same direction with 772 closing each month between March and November and only 390 in January and February.
  • These trends are typical for all years available

Supply and demand concepts are simple. There are a certain number of homes listed for sale = supply. This figure doesn’t’ change too much between now and early spring. The demand comes from buyers. With approximately HALF the buyers looking between December 1 and February 1, sellers should be willing to accept lower sales prices. Lower demand with stable supply = lower prices. So what is history telling us? Mortgage rates WILL go up in 2010. They have to. Home prices should be at their lowest between December 1 and February 1. Sounds like a good time to get out and look for your new home.


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