Home shoppers advised to stay patient amid overheated housing market

Experts advise home buyers to take their time. Within a year, the inventory of homes is likely to improve and it should get easier to qualify for financing.

Be patient. Hang in there. Keep trying.

In one form or another, that's the advice some real estate experts give buyers in dealing with this overheated housing market.

Yes, it is a good time to buy in terms of house prices and mortgage rates. If you find a good house at a good price and a loan at a good rate, go for it.

But the inventory of available homes for sale is extremely low, for any number of reasons.

In many markets, regular buyers are competing with investors who are willing to pay cash to turn properties into rentals. At the same time, some home builders are "metering," or constraining sales, to take advantage of rising prices. That's one reason that the inventory of new homes is at a 30-year low.

Even the number of distressed properties has shrunk because lenders are slow at processing foreclosures. And on top of all this, the expected rush of pent-up sellers who were thought to be waiting to put their places on the market hasn't materialized.

Yes, this is a seller's market and the typical buyer is at a disadvantage. Some buyers are being rushed to make decisions, which can quickly lead to remorse over paying too much for a house. Or the place's condition may not be as good as expected.

Hence the admonition: Take your time.

"It is important to stay patient," said Svenia Gudell, senior economist at real estate website Zillow.

And don't get "over-invested" or obsessed with just one house, "because a lot of times," Gudell said, "you'll get involved in a bidding war. It gets so crazy that [some buyers] end up at a price they aren't comfortable with."

Six months to a year from now, as the market shakes out, the inventory of unsold homes should improve markedly, experts say. Investors probably will have left the market at that point. Financing may be a little more expensive, but it should be somewhat easier to qualify. And appraisals may not be the deal breakers they are now.

For now, the housing sages say, leave the market to local and Wall Street-backed investors, who are driving prices up in many places because they are willing to pay more than list price.

It may seem counterintuitive, but that may actually help buyers in the longer term, said Rick Sharga, executive vice president at Auction.com.

Although investors are accelerating the housing recovery, Sharga pointed out that appraisals generally trail rising values, a fact that borrowers discover when the valuation on the property they intend to purchase comes in too low.

At the same time, cash buyers are resetting property values every time they buy a house. And as comparable property values reset, borrowers will be able to obtain a higher-value loan on subsequent sales. "It will make it easier for them to compete," Sharga said of patient purchasers.

Once prices reach a point where it doesn't make sense for the big investors, they will move on to other markets. But "they are not causing a bubble," the longtime mortgage industry executive added. "The [higher] prices are sticking after they leave the market."

In the midst of this strange market, buyers need to be patient for one more reason: It is going to take some time for the inventory of homes for sale to reach more normal levels. Lawrence Yun, chief economist at the National Assn. of Realtors, said it may take two years before that happens.

Currently, according to many sales indices, prices are rising at an annual rate of 10% or so. But Yun expects sales and prices to moderate next year.

"It will be less hectic," the economist said, noting that buyers should not be hurried into undertaking such a large financial transaction as buying a house.

"This time next year, there will still be a shortage in inventory but not the degree of tightness we have been experiencing. It will provide consumers with additional time to make that decision," Yun said.

That doesn't mean you should stop looking. If you are not turned off by the current state of things, Joan Patterson in Rancho Cucamonga is one of many realty pros who suggest that you need to be persistent. "Be ready, willing and available to look at homes" as soon as they hit the market, she said.

Steve Bachman in Chantilly, Va., noted that it has become the norm for buyers to make several offers on different properties before one is accepted. "Buyer patience combined with a willingness to act decisively when the right home becomes available is critical in today's challenging market," he said.

"Every year, buyers who are patient and monitor the market will find a certain amount of new listings in each price range that are superb values," Kanare said. "Being patient and waiting for the rare gem to come on the market is only half the battle. Equally critical is being decisive."

Written By Lew Sichelman

Make your house look bigger to potential buyers

No matter what the square footage is of your home, there is always potential to make it appear larger and more appealing to potential buyers. An offer can depend on whether your property is interpreted as a cozy bungalow or cramped old cottage. The difference between these two descriptions often depends on staging and utilizing the space effectively. Here are some tips on how to make the most of a small space.

1. Crisp and clean. First and foremost, your home should be clean and free of any fingerprints, scuffmarks and dust. Dirt and grime can detract from even the most spacious of rooms.
2. Let in the light. Natural light is a major selling point. Open curtains and blinds to illuminate every room and make sure those windows are streak-free.
3. Eliminate clutter. Clutter on countertops can make a space feel cramped. Even if you ordinarily store the blender, knife set and toaster oven on the kitchen counter, store these items away when potential buyers are viewing the property. The same goes for bathroom counters.
4. Invest in built-ins. Built in shelves, bookcases and wall units provide both a showcase and storage without seeming clunky. Built-ins often add interest to a small space with architectural detail.
5. Think neutral. Bold paint color can make a room seem smaller, consider white or neutral tones to enlarge the space.
6. Minimize for maximum results. An oversized couch or extra wing chair can overwhelm a room. Don't cramp an averaged-sized room with unnecessary furniture.

Mortgage Rates Hold Steady

Average rates on U.S. mortgage loans are now in a holding pattern. The leveling off comes after a rise of more than a full percentage point from early May until June.

The home-loan settling can be attributed not only to cooled concerns regarding the Federal Reserve's massive bond-purchase program, but also to a decline in the number of people looking to refinance. Despite the previous spike in rates, home loans remain low by historical standards and continue to fuel demand for mortgages to purchase homes.

The average rate on a 30-year fixed loan remained unchanged, staying pat at 4.4 percent week over week, according to the latest survey by mortgage buyer Freddie Mac. The 30-year fixed has risen by just 0.01 percentage point over the past three weeks. It previously hit a two-year high of 4.51 percent in July, a spike that correlated with concerns over the Fed's bond-buying program. One year ago, the average rate on a 30-year fixed mortgage loan was 3.62 percent.

"Fixed mortgage rates have been bouncing around over the past few weeks on market speculation that the Fed will taper some of its monetary stimulus," Freddie Mac vice president and chief economist Frank E. Nothaft said in a statement. "In fact, 65 percent of economists surveyed by Bloomberg expect the Fed to reduce the amount of bond purchases at its September 17-18 monetary policy committee meetings."

"Currently, mortgage rates on 30-year fixed mortgages are 1.1 percentage points above their all-time low set on November 21, 2012, which translates into $125 more per month in mortgage payments on a $200,000 loan."

A year ago, the average rate on a 15-year fixed mortgage was trending at 2.88 percent. This week, the average on a 15-year fixed loan saw a slight increase of 0.01 percentage point. After remaining static at 3.43 percent over the past two weeks, the 15-year fixed is now at 3.44 percent. It previously achieved a historic low in early May, when it dropped to 2.56 percent, but has remained above the 3 percent mark since June.

Surveying this morning's bond and stock markets, mortgage expert Al Bowman opines that it would be in the best interest of the Federal Reserve to continue its massive stimulus policies - a bond-purchase program involving $85 million worth of Treasury notes and mortgage-backed securities. Despite concerns that the Fed will begin to scale back its program, Bowman is under the belief that the tapering is still a way off:

"I still think that the Fed is going to need further economic growth to support the start of winding down QE3, not just status quo of the past several months. In fact, in my opinion there are some red flags and indicators that hint of new problems that make further economic growth less likely without help from the Fed. I strongly believe that Chairman Bernanke and friends need to get it right the first time and will not pull their support or stimulus until they are certain they won't have to step back in again. I just don't feel we are at that point yet."

Both the one-year and the five-year hybrid adjustable rate mortgages registered a slight increase week over week. Previously at 2.62 percent, the one-year ARM rose 0.05 percentage point to 2.67 percent this week. The five-year ARM saw a 0.04 percentage point increase, climbing to 3.23 percent from 3.19 percent a week ago.

Looking ahead, home buyers looking to lock in a low rate may want to act fast. In the latest Mortgage Rate Trend Index by Bankrate.com, 67 percent of the loan experts and analysts polled believe rates will trend upward over the course of the week. Another 22 percent foresee little or no change in mortgage rates over the next week. "Rates are range-bound, but where they move within that range is dependent on what the market thinks of tapering," says Bankrate.com senior financial analyst Greg McBride. "Right now, talk of a September tapering is heating up, so rates are moving to the upside."

Written By Neal J. Leitereg