Anytime you hear commentary about “the housing market,” keep in mind that this expression is a simplification – the U.S. actually contains many housing markets, each with different characteristics. Newly released home price data shows just how extreme the variance among those markets can be.
Whether you are a potential buyer, a would-be seller, or someone in the middle of a long-term mortgage, knowing the characteristics of conditions in your particular area could inform your strategy towards the housing market.
Leaders and Laggards
Conditions generally continue to be favorable for the housing market. Consistent job growth over the past couple years has helped boost demand while reducing the default rate. Mortgage rates remain low, meaning more of people’s housing budgets can go towards the price of a home rather than towards interest payments.
According to the latest data from the S&P Case-Shiller National Home Price Index, the average home price has recovered to within 4.9 percent of its 2006 peak. However, the picture can be very different depending on where you look. Home prices in Denver and Dallas are about 25 percent ahead of their 2006 peaks. These leaders are far from the norm – they are two of only six major markets that have recovered close to or beyond their 2006 levels.
The most serious laggards include Phoenix, which is 30.9 percent below its 2006 peak, and Las Vegas, which is still down 37.8 percent. For these markets, full recovery looks like it is still years away.
Housing Market Strategy
Which kind of housing market you are in – one of the leaders, one of the laggards, or part of the main pack – should impact how you pursue your housing market goals:
If you are looking to buy: A steady pace of increase in housing prices helps you plan, and means you don’t have to rush into anything. When a market starts to get hot, it pays to be more decisive because any delay could cost you money or the opportunity to buy the property you want. If a market gets too hot, you might want to back off altogether if prices threaten to stretch your budget too much. At the other end of the spectrum, a sputtering housing market allows you to pick your spots and drive a harder bargain, though if the market is too weak you may want to reevaluate whether you want to invest in it.
If you are a seller: For sellers, a hot market means you can be aggressive about pricing strategy – even if you set your target a little above the market, rising values should catch up to your asking price before long. You can also be very selective about making any concessions to would-be buyers. In contrast, sellers in weaker markets should price conservatively to make sure they are not out of step with market reality. When it comes to making concessions, sellers in weak markets should think very carefully before letting an interested buyer walk away.
If you are interested in refinancing: The recovery in housing prices has been a key to opening up refinancing opportunities while interest rates are still low. If you are in a hot market, you not only should have a shot at refinancing by now, but you may also have enough equity to consider options like cash-out refinancing. In contrast, homeowners in slower markets may need to carefully measure where home values are relative to their current market values, so they can be ready to pounce when their mortgages move above water.
The mainstream housing market, as reflected by national averages, is in mode of consistently solid gains that makes it easy for consumers to pursue their goals simply because it is moving at a somewhat regular, predictable pace. However, markets outside the mainstream – those that are lagging or soaring ahead – require a more thoughtful approach to buying, selling, or refinancing.