(TNS)–This spring will be a good time to buy or sell a home. But life isn’t perfect, so expect to run into a couple of hurdles, especially if you are a buyer.
With limited inventory of homes for sale, buyers will continue to face competition when bidding on homes—even for million-dollar homes.
But on a brighter note, they may find it a bit easier to get a mortgage as credit standards are loosening up.
If you want to grab a low mortgage rate, you’re still in luck—but don’t waste much time, because rates will eventually rise this year.
These are some of the housing trends you should expect this spring.
Still Not Enough Homes
If you are looking to buy a home, get ready to compete with other buyers this spring. The inventory of homes available for sale will likely continue to tighten, says Jonathan Smoke, chief economist at realtor.com®. In February, the number of home listings decreased 10.9 percent, compared with the previous February, according to data released by realtor.com®.
“Inventory is probably one of the biggest variables to potentially worry about holding back the market this year,” Smoke says.
That’s especially the case for entry-level homes. The situation might worsen as mortgage rates rise and homeowners reconsider moving and losing the low mortgage rate they have locked long term, he adds.
“There’s going to be a mortgage rate lock-in effect,” Smoke explains. “People will become less likely to want to trade up because they won’t be able to improve their position financially.”
But the lack of inventory of homes for sale isn’t a problem everywhere. Realtor.com® says some growing markets where inventory has been increasing include:
— Detroit metro area, with a 5.7 percent increase in inventory from February 2014 to February 2015.
— Pittsburgh, up 3.9 percent over the same period.
— Jacksonville, Fla., up 3.3 percent.
— Indianapolis, up 1.9 percent.
Possible Uptick in Mortgage Rates
You may have heard this before, but this year may really be the year when mortgage rates rise.
The 30-year fixed rate is expected to edge up slightly to about 4 percent in the second quarter of the year, according to the latest forecast by the Mortgage Bankers Association. The rate will reach 4.6 percent by year-end, according to the forecast.
That’s not a huge jump, but rates could increase quickly, depending on how investors react to the Federal Reserve’s move if the central bank raises the federal funds rate this year.
“We may have some sort of shock to rates,” says Brian Koss, executive vice president of Mortgage Network in Danvers, Mass.
A Rise in Home Sales
Even if rates rise, home sales and home prices will likely increase this spring.
Sales of previously owned homes are expected to rise about 8 percent this year, according to realtor.com’s® Smoke. Home prices should continue to increase, too.
“We are forecasting home prices to go up 5 percent,” Smoke says, adding that he doesn’t expect high rates to deter buyers.
“Part of me believes that maybe a little bit of upward movement in rates can improve things,” he says. “It would turn more attention to the purchase market.”
New home sales should also rise. The MBA expects a jump of 13 percent in sales in 2015.
An Increase in Credit Availability
For those who think the lending standards are too tight and are afraid they will be denied a mortgage, here’s some good news: Credit availability is expected to continue to increase through the spring, says Mike Fratantoni, chief economist for the MBA.
The MBA’s credit availability index increased 0.7 percent to 118.6 in February, according to the latest data. Increases in the index indicate that credit is loosening up. The index was benchmarked to 100 in March 2012.
“I expect that credit availability will continue to slowly improve over the next couple of years,” Fratantoni says. “Beyond the availability of mortgage credit, as captured by our index, another beneficial change for the market is that FHA reduced mortgage insurance premiums in time for the spring season. This should be a positive for the market, as well.”
The FHA, or Federal Housing Administration, has significantly reduced the annual insurance premium that borrowers have to pay. Borrowers who take out FHA loans and make down payments of less than 5 percent will be charged 0.85 percent of the loan amount every year for mortgage insurance. Until recently, the premium was 1.35 percent per year.
A Rise in High-End Homes
If you can splurge on a vacation home or are looking to buy a high-end home, get ready to enter a hot market.
While sales of previously owned homes were somewhat flat in the beginning of the year, sales of homes in the $750,000 to $1 million range grew 12.6 percent in February, compared with the previous February, according to the National Association of REALTORS®.
Baby boomers and international buyers are driving part of this surge, says Koss of Mortgage Network.
The trend is partially attributed to the threat of higher interest rates, Koss says. A rate increase of 1 percentage point on a 30-year loan for a $1 million home translates into mortgage payments that are nearly $600 higher each month.
“We actually get a pickup in business when rates go up a bit,” he says. “People are worried they are about to lose the opportunity.”
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