Current Housing Market Favors Buyers

Happy Spring!
The Minneapolis Area Association of REALTORS® (MAAR) just reported that the Housing Affordability Index jumped to 155 in early April, a 10.9 percent increase over April 2007. This means that home ownership is well within the means of the average home buyer in the Twin Cities metro area.
Interest rates are still at historic lows, which is giving consumers more buying power. Fixed-rate conforming loans with no points are being offered by local lenders with rates in the high 5 percent range for 30-year loans and in the low-5 percent range for 15-year loans.
The recent interest rate cuts and subsequent reductions in mortgage rates are significantly improving prospective homebuyers’ ability to afford a home, and are allowing them to purchase more amenities in a home than they thought possible. For example, with a 1.5 percent reduction in interest rates on a $250,000 home, a buyer could purchase a home that costs 14.5 percent more (with 80 percent financing and using the same down payment).
Another positive development is the economic stimulus package that will give consumers a welcome rebate and that raises the FHA loan limits on homes bought through the end of the year. In the 13-county metro area, the FHA limit for one unit was increased from $271,050 to $365,000, in Cook County (Minnesota) it was increased to $296,250, and in other parts of the state it was increased to $271,050. FHA loans are a great alternative to sub-prime loans, and the higher limits should provide more options for consumers and allow even more first-time homebuyers to enter the market.
Our area also has a large supply of homes for sale, which is giving buyers more choice. The inventory levels are the strongest for starter homes, which is great news for first-time home buyers. According to MAAR, in early April compared to April 2007 there were 150.3 percent more homes priced under $120,000, 55.8 percent more homes prices from $120,001 to $150,000, and 21.2 percent more homes priced from $150,001 to $190,000.
A recent issue of Time magazine included a story entitled “Ignore the Headlines” by Dan Kadlec that confirmed that now is an ideal time to purchase a home. The author referred to the renowned money manager Peter Lynch and noted that in Lynch’s view, “A top reason to not buy stocks is if you don’t already own a home—in which case that should be your first investment, since an owner-occupied home is nearly always profitable.” The article noted, “Let’s say you are emotionally ready to be a homeowner. You have good credit, plan to stay put for five years and have been waiting for the perfect entry point. It’s time to get serious—before an inevitable rise in interest rates wipes out your advantage.”
So the message to prospective homebuyers is clear. There is a plentiful supply of homes for sale, financing is available at attractive rates, homes in our area are affordable, and higher loan limits are giving buyers even more options including the ability to purchase a higher priced home. Buyers need to act now so they will be able to enjoy the best of all possible circumstances.