The spring home-buying season is in full effect, and the summer could be even busier. We now have all of the conditions in place for a “perfect storm” of home buying fever. Mortgage rates are low, the economy is stronger, and the threat of rising prices has created a sense of urgency for home buyers.
Purchase Loan Applications Highest Since Summer 2013
Earlier today, the Mortgage Bankers Association (MBA) reported the results of its most recent survey of loan application volume. According to the MBA, mortgage applications for home purchases rose by 7% last week, compared to the previous week. That puts purchase loan volume at its highest level since July 2013.
According to Mike Fratantoni, MBA’s Chief Economist: “Purchase volume has increased for three straight weeks now on a seasonally adjusted basis.”
Of course, this is not surprising to housing industry observers. Mortgage rates have been hovering below 4% all year, and the nation’s job sector has vastly improved over the last couple of years. These factors, along with the specter of rising house values, continues to light a fire under home buyers.
We expect these trends to continue for at least the next few weeks, and we are therefore predicting a strong summer home-buying season in 2015.
Low Mortgage Rates Bring Buyers Into the Market
According to the latest industry survey conducted by Freddie Mac, long-term mortgage rates are still hovering below 4%. They’ve been in this range since the beginning of the year.
In fact, the average rate for a 30-year mortgage loan is 17 basis points (0.17%) lower today than it was at the start of 2015. This flies in the face of earlier predictions that rates would rise steadily throughout the year.
As you can see from the chart below, current mortgage rates (shown on the far right) are significantly lower than they were at the same time last year (far left).
Granted, we’re only about 13 weeks into the year, and rates could certainly rise between now and the end of 2015. But for now, they appear to be holding steady in the sub-4% range, and that’s bringing more home buyers into the market.
We could still see an uptick in lending rates before the start of summer, as the economy continues to improve. But they probably won’t rise far — if at all. The bottom line is that mortgage financing is very affordable right now, and this will likely contribute to a strong summer home-buying season.
Rising Prices Create a Sense of Urgency
Economists are predicting more modest home-price gains for 2015, compared to last year. According to Zillow, house values across the country rose by around 5% over the last 12 months, which is nearly double their one-year outlook of only 2.6%.
While prices may cool in 2015, they’ll continue rising to some degree in much of country. This means that home buyers who delay their purchases until, say, the start of 2016 could end up paying more for a house. They could also miss out on those sub-4% mortgage rates. This creates a sense of urgency for home buyers, which will likely result in a surge of demand as the summer months roll around.
More People Working = More Home Buyers
The U.S. unemployment rate has improved considerably since the height of the recession. (Let’s not forget that it rose to 10% in 2009). At the latest reading in March 2015, the nation’s jobless rate had fallen to 5.5%. That’s nearly half what it was in 2009.
Employment is a key factor in the housing market. With all other things being equal, higher employment makes for a stronger real estate market by giving buyers the means to purchase. Add in those enticingly low mortgage rates, along with the threat of rising house prices, and you have all of the ingredients for a hot summer of home buying activity.
If history is any indicator, the school factor will also contribute to a rise in purchases this summer. Families with school-aged children who are in the market for a home often aim for the summer months, so they can move while the kids are out of school.
Should You Buy a House in Summer 2015?
This article is not meant to urge people toward a home purchase. It is simply meant to give potential buyers a sense of what the market could be like this summer. The decision to buy (or not to buy) a house starts with the individual, not the market.
Here are some questions you should ask before taking the plunge:
- Do I plan to stay put for at least a few years? (If not, you’re probably better off renting. If so, a home purchase could work to your advantage.)
- Are home prices rising in my area? (If they are, you might want to consider buying a home sooner rather than later. Delaying a purchase in a rising market means you’ll end up paying a higher price for the house.)
- Are my finances in order? (If you need a mortgage loan to finance your purchase, you’ll need a decent credit score and a manageable level of debt. If your credit score is too low, and/or you have too much debt, you might not qualify for a home loan.)
- Is my income stable? (If you’re about to change jobs, you might want to hold off on entering the housing market. If you’re in a stable job with a reasonable expectation of continued employment, it might be a good time to buy a home.)
Disclaimer: This article contains forward-looking statements and predictions about the housing market and home-buying activity in summer 2015. Such statements are theoretical in nature and are the equivalent of an educated guess. We make no claims, guarantees or assertions about future conditions within the housing or mortgage industries.