Are You Ready to Buy Real Estate Now?

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No surprise there since one of the factors that makes up the HAI is interest rates, and as I have written before, they are expected to be heading higher.

You can see from the table that rates are still around 5% for a 30-year fixed loan. But the rate for "jumbo loans"—that is, for a mortgage loan greater than $417,000—is around 6.5%. That's a pretty good indication that if next quarter the Fed stops buying mortgage-backed securities—securities backed by the payments on mortgages of $417,000 or less—lenders are going to begin charging more for home loans. Thus, I think interest rates will trend upward and move the affordability index down further.

Despite the above data, I know many of you think home prices may decline more. If so, do you really think prices will decline more than enough to offset the increase in costs associated with higher interest rates? I don't! The number in the table that sticks out the most is unemployment. Currently hovering around 10%, the unemployment rate is certainly one of the major indicators affecting demand for housing.

Most pundits believe that we've hit or are near the peak in this unfortunate statistic. While I think they are right, I am respectful of those with the opinion that it may still take a bit more time for the job numbers to make a meaningful reversal. The silver lining here seems to be similar to the one I see in the other parts of the table. That is, there has been a deceleration in the rate at which unemployment has been rising and it may very well be on the way down.

Favorable Trends

Is this a sign that the economy is at least leveling off? I think so. If we put all of this data together, what does it tell us? Well, as I've stated, while I believe some regions still have a bit more pain to endure, I think there are quite a few favorable trends here for most of us. First, the numbers suggest we've achieved the first important step of stabilization, which started with a deceleration of poor statistics in the second quarter of 2009. Second, I think we are actually seeing the beginnings of an improving economy, as evidenced by the changes in consumer confidence, housing affordability, and housing prices in both of the previous two quarters.

However, I'm humble enough to admit that it really doesn't matter what I think, especially since I was one of the many lemmings that bought real estate at the top. What really matters is how you read the tea leaves, and what if anything you plan to do with the information at your fingertips. Let me know.

Marc Roth is the founder and president of Home Warranty of America, which touches just about every part of the real estate industry since it sells through builders, real estate agents, title companies, mortgage companies, and directly to consumers.

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