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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
Real Estate

Here's what the spring housing market will look like this year

Trulia Chief Economist: Expect this

March 14, 2016

While spring homebuying started early this year, as famous Punxsutawney Phil confirmed without a shadow of a doubt at the beginning of February, this doesn’t mean you’re quite ready to add the title of homeowner to your name.

It’s likely to be the biggest financial decision you will ever make, and one that does not need to be decided on the premise that everyone else is doing it.

To help in your deliberation, HousingWire talked to Ralph McLaughlin, chief economist with Trulia, to compile a list of five factors that define this year’s housing market.

1. Selling your home will be easier, but buying your next one may be more difficult

McLaughlin explained that inventory of all homes for sale is down over 35% over the last four years.

“We are in a time of short supply, which is great news for sellers because they will likely be faced with multiple offers due to the little inventory out there,” he said.

But on the flipside, he noted that it’s not so great for people looking to buy a home. “They will be up against a lot of other people and against a short supply of existing homes,” McLaughlin said.

Interestingly enough, he said that the inventory of starter homes, or the homes that are in the least expensive, are probably at the lowest supply they have been in four years.

The February S&P/Case-Shiller report echoed similar inventory concerns, with Zillow Chief Economist Svenja Gudell commenting on it saying, “There are a lot of economic forces at work behind the scenes that will have a big impact on housing as we enter the busy home-shopping season. Low inventory is a factor in almost every market, so buyers should be prepared for a limited selection in the months to come."

2. It’s finding a home that’s tough to come buy

McLaughlin advised that shoppers should consider buying a new home or a new home off a plan.

Rather than deal with bidding wars, he said you should turn to new inventory, specifically homes off a plan.

In the most recent new home sales report, McLaughlin explained that the share of new home sales not started, in other words homes purchased off a plan, hovered near a 10-year high.

"Why? The inventory of existing homes continues to fall. Low existing inventory likely pushes prospective buyers away from existing homes towards new homes, and as new home sales rise, this allows builders to sell more new homes off plan," McLaughlin said.

3. It’s still cheaper to buy than rent

Even though inventory is down and buying a home is more difficult and stressful, in most parts of the country, it is still cheaper to buy a home than rent over a 5-year period. And it gets cheaper after that, McLaughlin explained.

Most notably, it’s especially true for younger homebuyers that put less than 10% down. He cautioned buyers to remain patient because over a 5-year period it will be in your financial best interest.

4. Don’t panic over possible interest rate increases

"A lot of people ask me this. Should I be concerned? Will it make a difference? The short answer is no,” he said.  

As it stands, he said that interest rates are nothing to worry about because what the Fed does is only loosely tied to mortgage rates.

Even if mortgage rates do go up, which they will do in the medium to long run, in places like California and Honolulu, rates would have rise to 4.5% to 5% to roughly equate the cost of renting.

And in the rest of the country, McLaughlin said, “Rates would have to reach 6% to 7%, and we are a long way off from interest rates at that level. Keep an eye on it but don’t fret."

5. Buyers should be aware of bargain homes

Trulia did a study earlier this year, looking at where properties listed with the word bargain, or similar words, are actually priced at a discount.

Turns out, only 55 of the 100 biggest U.S. housing markets where properties described as a “bargain” are actually listed for a lower price.

“Doesn’t mean you can’t find a bargain, but you are more likely to find it in the Midwest of south,” McLaughlin said. 

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