“The housing market is coming back and it looks like it will be with a vengeance,” according to economist Joel Naroff. He offered this commentary after a report showed that building permits, an indicator of future activity, soared to the highest pace in nearly eight years. Surging permit requests along with a jump in builder confidence, an increase in activity and a drop in mortgaged residential properties with negative equity could make the summer a strong one for the real estate market. That’s great news for patient homeowners, who have been waiting a long time for the tide to turn. As of March, the S&P/Case-Shiller U.S. National Home Price Index is up 24.7 percent from the post-bubble low set in December 2011, but still remains 7.6 percent below the peak. (In many parts of the country, like the Bay area and portions of New York, prices are above the previous peak.)
But economists are hopeful that activity and prices will continue to perk up, due to a number of factors. The most important catalyst for housing is the improving economy and employment landscape. As Americans feel more confident about the economy and more secure in their jobs, they will be more willing to take the big step of home ownership.
Additionally, mortgage rates remain low and banks are finally loosening credit conditions, both of which has drawn more buyers into the market, including a group called “Boomerang Buyers.” These are homeowners who lost their homes during the housing recession and are ready to jump back into the market.
According to real estate information company RealtyTrac, from 2007 to 2014 some 7.3 million Americans lost their homes to foreclosures or to short sales. Because both of these events can remain on your credit report for up to seven years, this year will see the first wave of return buyers to the market. RealtyTrac projects 250,000-500,000 Boomerang Buyers will come back into the market this year, and then more than a million in the subsequent few years. Presuming that there are no other major credit issues lingering, these people have a good opportunity to come out of the financial doghouse and qualify for a mortgage.
Those markets likely to see the largest influx of Boomerang Buyers materialize are those where there were a high percentage of housing units lost to foreclosure and where current home prices are still affordable for median income earners, like Phoenix, AZ, Merced and Stockton, CA and Cape Coral/Ft Myers, FL.
One last group that could help boost the market is Millennials (those aged 18 to 34). Sure, many of them are spooked by home ownership, because they watched their parents navigate the Great Recession and they are graduating college with a hefty chunk of student loans. But they may find that a fixed rate mortgage is the perfect antidote to rising rents. When they do come to that realization, the nation’s homeownership rate, which at 63.8 percent in the first quarter of 2015 is the lowest level since 1989, will reverse course.
If you are entering the market as a buyer, run the numbers and be crystal clear about what you can afford. If you are planning to get a mortgage, go to AnnualCreditReport.com and correct any errors on the report before you start the process, which will make it easier to get pre-approved.
If you are a seller, price your house reasonably. According to realtors, the first three weeks of a home’s entrance on the market are the most critical for creating interest and attracting buyers. If your initial price is too high, it may sit idly on the market. The corollary to overpricing the house is a reluctance to reduce the price. If there’s no action for three to four weeks, it’s time for a price cut.