Traditionally, spring is when prospective home buyers come out of hibernation and begin the hunt for their next residence. But with the economy still in flux, budget battles raging in Washington, and a housing market on shaky ground, many house hunters are wondering whether it's the right time to buy.
The wild card remains home prices, which are still down 31 percent from their pre-recession peak in July 2006, according to the S&P/Case-Shiller Home Price Index. While some experts see another wave of foreclosures further depressing home values regionally, others say the worst of the housing slump is over. "I'm hopeful the spring will be better because the job market is improving," says Celia Chen, senior director at Moody's Analytics, who expects housing prices to bottom nationally by the third quarter.
Despite the uncertainty surrounding the housing market, experts say for Americans poised to plant roots, the market climate can't get much better. "Confidence is building, prices are down, interest rates are wonderful for a 30-year fixed rate mortgage. It's a good time to borrow money," says Dorcas Helfant-Browning, managing partner at Coldwell Banker Professional Realtors.
To help consumers sort through the pros and cons of buying this spring, U.S. News gathered house-hunting advice from the experts:
Get qualified and determine your budget. Interest rates on 30-year fixed-rate mortgages are at historic lows—about 4.69 percent, on average, nationally—but experts concede that qualifying for a mortgage this spring might be more challenging than it has been in the past. "The big constraint on [housing] demand this year is going to be the availability of mortgages," says Chen. "Lenders are still being very cautious."
Although there are signs that the credit markets may be loosening a bit, even some of the most credit-worthy consumers may still be unable to snag the best interest rates on mortgages. Consumers with lower credit scores could also face higher down payment requirements, says Keith Gumbinger, vice president of mortgage information website HSH.com. "You'll need good credit to get the best pricing," he says. "We're talking about a FICO 740 or above for the best possible pricing."
Would-be home buyers must jump through additional hoops, as lenders are demanding more financial documentation from applicants. "You need to be able to fully document your income and all your assets," Gumbinger says. "Your debt loads relative to your income need to be pretty low. You can't have the leverage you used to be allowed several years ago."
Despite these obstacles, qualifying for a mortgage is an essential step, says Diann Patton, Coldwell Banker Real Estate consumer specialist. "Too many people put the cart before the horse," Patton says. "It's so important to know exactly what you qualify for and have that pre-approval letter in hand before you even look at houses."
Knowing how much you can borrow to finance a home purchase is important, but it shouldn't be the only consideration when looking at your budget. "Look at what you qualify for and then what you really want to have as excess capital," says Helfant-Browning. "Provide yourself a savings plan, an entertainment fund, and give yourself a little cushion. Don't buy at the top of what you qualify for, but what's comfortable, so you can do all the other things in life you wish to do."
Think local, not national. Don't let national headlines about plummeting home values or foreclosure trends spook you, says Patton. "Real estate is not global, it's local," she says. "I could sit and talk to people from Wisconsin or New York or Manhattan, [and] their market could be 180 degrees different from my own market."
Over the next year, experts say the trajectory of home prices will vary widely from region to region, state to state, and even city to city. For example, home values in Minneapolis are expected to increase 21 percent by 2018, while prices in Austin, Texas, are projected to rise only 8 percent, according to Moody's Economy.com.