Q: Is now the time to buy a short sale or should we wait? Craig
A: This is a great question. There are several key scenarios that could unfold and they would have an impact on whether right now is the right time to buy. I’m not here to tell you what I think is going to happen, but I will give you some things to consider so that you can make an informed decision.
First, as you may have heard, rates have risen more than half of a percent since this time last month. The fact that rates rise doesn’t necessarily mean that the market will slow down and that prices will fall. People who are serious about buying probably will still be happy with a rate in the 4 percent range, instead of the previous 3 percent range. With lending standards being much more stringent than in years past, however, some prospective buyers may not be able to keep up with the combination of rising house prices and interest rates.
Second, the shadow inventory isn’t gone. Shadow inventory is defined as properties that are 90 or more days past due on mortgage payments but not in foreclosure. According to a joint report from the Office of the Inspector General of the Federal Housing Finance Agency and the U.S. Department of Housing and Urban Development, the number of bank-owned homes was only about a tenth of the potential shadow inventory. More than 1.5 million homes are included in the shadow inventory category than currently are bank-owned. If even 10 percent of those go into foreclosure, the banks would have double the number of properties to sell. That also would mean more inventory available to buyers, which might temper housing prices.
Last, the price increases that we’ve seen mostly can be attributed to the lack of available inventory. What happens if a healthy amount of inventory returns to the market and prices fall a bit? According to RadarLogic, this is a very real possibility because: rising prices have brought sellers that were previously in low or negative equity positions into positive ones; building activity has increased 150 percent from its low in 2011; and seller psychology will prompt more people to list their homes once they feel like the market is at its top.
What does this all mean? It means that there are some factors that seem to predict the housing market will start to behave in a manner consistent with its history. Does that mean that you should wait for some presumed savings in six, 12, or 18 months? I wouldn’t. Go out and look to see what’s out there. Price is what you pay but value is what you get. If you find a house you love, how much is that worth to you?