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This question is most for the non-Realtor crowd. Prices are up substantially in just one year but the economic fundamentals don't seem to support it. We have record sized single family investment purchases by large institutional investors and something like 46% of transactions right now are cash.
Anecdotally, my wife and I have been looking to move out to the country (ish) recently from the Atlanta suburbs. This time last year when we first talked about it we thought we would barely get the payoff out of our house ($167k owed on $183k 2009 purchase price). Now it seems we should easily get $190k maybe 200k out of the house. In looking for a new place we have noticed that things are going under contract or pending sale pretty quickly and for prices that just don't seem like a reasonable value. Anything that stays on the market for any reasonable amount of time (with acreage, our #1 req) tends to have a major compromise like being next to a power line cut-through, sits on a highway, something constructed next door etc...
My gut feeling is that we should sell now while things are "hot" and rent for a year or so to let the market cool down. I just feel like something isn't right again. I had that same feeling when the housing market tanked in 2007 and I was right.
There are 2 things now that are significantly different than 2007. Inventory and total # of housing units built has been running well below population growth in most areas for over 5 years. The excess housing capacity is much lower now than it was 6 years ago. Total housing starts were running below replacement level (houses demolished or made uninhabitable outpaced new builds).
Second, heavily risk layered financing isn't around and isn't driving the (overall modest) price increases we've seen over the last 18 months. Very few people are buying homes they can only afford based on future income they'll never receive. There are still a lot of disbalances in the market, some areas still have too many homes while others don't have enough. Some areas still have high concentrations of bad mortgages from the bubble years sitting in default.
Another factor that tends to lessen the likelyhood of another crash is the buyer pool is heavily restricted right now due to unusually strict lending policies, people still recovering from the last recession and people who had their credit ruined during the bust. That last group is starting to emerge as new buyers. However there is a 3-7 year lag between foreclosure and being able to buy again so most of them are stuck renting for a few more years.
I've noticed in one community (Moorestown, NJ, former 2005 Money Magazine community of the year) that homes are selling quickly and probably $50 to $75K higher on a $600k to $700K home. I believe that the increase in prices is purely a function of the lack of viable housing on the market. What is not selling is generally lower quality product. This increase in price has occurred just over the past four months in this zip code. Housing prices in the development we prefer are now in the $235 to $250 per SF range and we are no longer interested in this community as a result. In fact, the home prices in this community are approaching if not exceeding 2008 levels. The same cannot be said in a neighboring community (Cherry Hill). Very frustrating for those looking to move. We cannot take a hit on our existing home and get hit on the purchase.
I believe you should trust your instincts and sell your house now while you rent for a year. This boom is mainly due to record low inventory, which was caused by so many people refinancing.
Cycles tend to run in years... like 5 to 7 in my area...
Selling and renting for a year might have you kicking yourself when you decide to buy...
Lots of things can change... price and finance availability being at the top.
Just posted about a friend that has always rented... she is a scientist and in her 30's and single... always thought she would like to own.
Seven months ago she bought a nicely redone 1930's home for 330k in Oakland CA...
In that time she decided home ownership is not for her... unexpected bills and maintenance issues... like house guest clogging the sewer lines or a furnace needing to be replaced.
17 days ago her home went on the market for 369k and is now in escrow at 425k and the buyer is putting down 200k cash...
For the first time in her life she will be debt free and has several back up offers.
Are you willing to gamble that interest rates will be low when you decide to purchase?
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