U.S. housing market is like a case of good cop/bad cop.
The good cop softens you up with record-low mortgage rates and a huge supply of available houses. The bad cops -- risk-averse lenders -- have tightened their loans and require bigger down payments along with stellar credit.
This push-pull scenario is likely to continue in 2012, say U.S. housing experts. The National Association of Realtors forecasts a rise in home sales of 5 percent, to 4.5 million in 2012. “[Growth] is a slow, gradual process. It’s been frustrating,” says Walter Molony, National Association of Realtors spokesman. “It’s tough to get a mortgage. People have to pay attention to their credit scores.”
In December, the Wall Street Journal reported that a number of hedge funds, including Caxton Associates LP, SAC Capital Advisors LP and Blackstone Group LP, have been investing in the housing market. If you’re in the market for a house, why wouldn’t you want to buy one at a bargain price?
Housing markets good local economic conditions and good job creation are generally doing better. The 10 best performing states are North Dakota, Wyoming, Minnesota, Alaska, Nebraska, Utah, Virginia, Colorado, Kansas and New Hampshire, based on LendingTree’s State Recovery Index from December that looks at six elements influencing the housing market, such as unemployment and home/rental vacancies. For cities, a Clear Capital report released last week predicts the five best-performing metro areas will be Orlando and Miami in Florida; Bakersfield, Calif.; Washington, D.C.; and Phoenix, Ariz.
Below are some pros and cons of jumping into the market now:
Why You Should Buy
• Low mortgage rates. The new year is starting with record low rates. The average rate on a 30-year fixed mortgage to 3.88 percent this week, said Freddie Mac on Thursday, down from a record low of 3.89 percent last week and the lowest since 1950. Mortgage rates are not going to be an impediment to well-qualified borrowers anytime in 2012.
• Pent-up demand to buy houses. For the past several years, household formation has slowed, Molony points out. Young people have moved home with their parents or shared a place with friends instead of buying their own houses. With low mortgage rates and time to save for down payments, prospective buyers who have been on the sidelines may finally take the plunge into homeownership. Once they do, prices will start to climb again.
• Rising rents. With declining vacancies in rentals, prospective buyers may be more motivated to purchase a house instead of paying high rent. Rents in San Francisco, for example, increased 25 percent in the last 18 months, says Adrian Nazari, chief executive officer of Credit Sesame.