Its been awhile, but in many markets in the United States it is once again a no-brainer to own a home. According to a recent article in the Wall Street Journal, the financial advantages of owning had been dwindling over the last few decades. Evaluated nationally, after tax mortgage payments have been averaging over 25% more than rental payments for nearly 26 years, according to a California real estate consultant firm. In 2006 some metro areas saw that grow to as much as 66% more. But, after the last few years of housing meltdown, average montly rent for the largest fifty metro areas was $1,045 while the after tax mortgage payment was $1,300, the narrowest gap (24%) since 2001. Some mortgage professionals have estimated that if mortgage interest rates fall to 4.5%, a number often seen as possible in the next few months, the gap will narrow even further to a 1998-era 14%.
A study by Moody’s Economy.com gives even better news. They have found eight markets around the country where home prices relative to rents are within 5% of historic levels, leading one of their economists to predict, “The bottom is coming into view.”
While we’ve heard that phrase before over the last few years, its nice to have a fresh reason to believe it might be true this time.
The old geometrical truth is undisputed: the shortest distance between two points is a straight line.
How I wish the firming of the housing market and its path to recovery were following the same truth. In the last eight months, I’ve seen many signs that the market in Baltimore was beginning to recover, and at about the time when my cautious optimism seemed about to be rewarded, there would be some economic event or trend emerge which would send it back downward.
Remember that the data reported in the press with great fanfare is backward-looking. They report what HAS been happening. What I look for is activity… what people are doing now, which won’t be reflected in the data for one or two months. And I’m seeing promising levels of interest and activity.
So, keep the faith. We’re recovering, zig-zag style.
The housing market is in recession. Prices are falling at a record pace in year-over-year comparisons. Homeownership in America is declining.
These are the recent headlines, trumpeted in breathless tones on business cable channels and in heavy black type in newspapers. But this data is routinely reported in hindsight. It does not reflect what professionals around this area are experiencing every day: we’re all busier than we’ve been in a year.
Remember the credit crisis? Well, the loan officers I speak to are busy writing new loans and refinancing older loans. Some are finding it difficult to keep up with the pace of the new business coming in the door. Yes, they are working harder to provide underwriters with more documentation and there are fewer loan programs out there (thankfully the low documentation “liars loans” have been discontinued by most lenders), but people with decent credit scores and some money in the bank are able to get new loans. It sounds almost quaint and old-fashioned to ask that people actually be creditworthy… but perhaps that’s a sign of how far the industry had strayed from its roots during the recent boom.
The Baltimore resale market is picking up quite nicely, from my anecdotal evidence. My colleagues tell me they are busy with new buyers, as am I. We haven’t written many contracts yet, but homes are selling and I have no doubt that by March I’ll be submitting offers on homes for numerous clients currently becoming educated on what is out there for sale (which is taking a bit longer than usual since there’s more inventory to view).
So to the average consumer/homebuyer who has not yet decided to jump into the pool… c’mon in. The water’s getting warmer as spring arrives.
