SLADE COLUMN: House-hunting in an improving market
If you've been thinking about buying a house, several reports during the past week may have given you a sense of urgency. And if you're trying to sell one, those reports may have lifted your hopes.
There's now substantial data showing that trends have turned positive for the Charleston area's residential housing market, as I reported in a story on this page July 22. The market is no longer glutted with unsold houses, demand has been rising and prices appear to have stabilized after a five-year slide.
Two days after my story appeared, the national online real estate website Zillow issued a report concluding that home prices in the Charleston metro area hit bottom during the first quarter of this year. That same day, mortgage finance company Fannie Mae said residential investments nationwide should boost economic growth for the first time since 2005.
So what does all that mean for average folks hoping to buy or sell a home?
For those who have the financial means and good credit needed to buy a house but were holding back to see if prices would keep falling, it's probably time to get off the fence.
Piles of statistics and reams of reports make a convincing argument that home prices and mortgage interest rates are more likely to rise than fall going forward. Meanwhile, rents are rising.
The combination of depressed housing prices and record-low interest rates means someone buying a midpriced home in the Charleston area would borrow less, at lower interest rates, than in the past. By my calculations, the monthly mortgage on a median-priced home would be 37 percent lower today than five years ago.
But there's no need to rush. While home prices are expected to rise over the next year, they aren't expected to rise significantly. In the long run, you're better off finding a good deal on a home that's just right for you instead of jumping into a purchase because you're afraid prices will increase.
First-time buyers are often asked how much they can spend. Instead of shopping based on the largest loan for which you could qualify, think in terms of what you could comfortably afford. Also, consider shopping for a house you could afford to finance with a 15-year or 20-year loan, which allows you to quickly build up equity in the property. Shorter-term loans carry lower interest rates but higher monthly payments than 30-year mortgages.
Add up the costs. In addition to a monthly mortgage payment, you'll be paying for homeowners insurance, utility costs, private mortgage insurance if your down payment is less than 20 percent, flood insurance if you're in a flood zone (optional if you're not) and maybe homeowners association dues. Buying in an area that's at higher risk for hurricanes and flooding can add thousands of dollars in insurance costs to your yearly bills, particularly for homes in the “wind pool” area near the coast.
Do your own preliminary research. Use websites such as the real estate section of postandcourier.com to see what's for sale in different areas, and different price ranges. Use tools such as Google Maps to look at photographs of neighborhoods and streets. And use floodsmart.gov to see if your potential home is in a high-risk flood zone. Visit the S.C. Department of Education's website for information about schools and school report cards.
Realize the real estate market can vary tremendously by neighborhood and price range. Peek at the statistics in market reports posted on charlestonrealtors.com, and you'll learn helpful information, such as what percentage of the asking price homebuyers are paying in different areas, and how long houses are sitting on the market before they sell.
Hoping to sell a home?
What do these reports about the market hitting bottom mean to sellers?
The good news is that buyers are returning to the market, and lots of knowledgeable people who have examined the statistics and trends think prices aren't going to fall more. In some parts of the Charleston area, in some price ranges, the number of homes for sale has fallen to the point where real estate agents are calling it a sellers' market.
The bad news is that prices are way down from where they stood when the real estate market was hot, and it's going to be a long time before real estate reaches those values again.
Zillow, for example, says that home values in the Charleston metro area today are about where they stood in 2004. That means most people who bought a house after 2004 would be selling at a loss today, and Zillow says nearly four out of every 10 homes sold here in June were sold at a loss.
Zillow predicts residential real estate values will increase by just 1 percent in the Charleston area during the next year. Some real estate firms in the region say they are conservatively estimating a 2 percent price appreciation in the coming years.
Either way, that's not very encouraging news for people who owe more on mortgages than their homes are worth. Those are the “underwater” or “upside-down” loans we keep hearing about, and there are plenty of them.
Even for those who don't want to sell, being underwater is a terrible thing, because it means you can't refinance the loan at today's record-low rates. If I were in that situation, I would look at all financial resources available to me and see if I could pay down the loan to the point where I could refinance.
Reach David Slade at 937-5552 or Twitter @DSladeNews.