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Is Now the Right Time to Buy a Home?

December 28, 2015 | By

In the fluctuating housing market, the question “Is now a good time to buy a home?” remains in the forefront for prospective buyers.

Fannie Mae Senior Vice President and Chief Economist Doug Duncan offers a simple answer: “If at today’s interest rates and house prices they can find the house that can fit their budget, they should buy,” says Duncan. “If they’re guessing where interest rates are going to go, or where house prices are going to go, now they’re a speculator. Can they afford to be a speculator?”

Duncan cites the recent interest rate—3.82 percent as of December 21, 2015, compared with the normal 6 percent 30-year post-Depression average—as a reason to buy a home within the constraints of a well-thought-out budget.

Still, it’s important to note that now may not be the best time of year to buy a home, due to what is known as seasonal slowing—stalling market trends in part caused by the need to keep children in school at the beginning of the school year and a general slowdown as the winter holidays approach.

Seasonal slowing and what Duncan calls minor “fundamental weakening” were evident in Fannie Mae’s Home Purchase Sentiment Index (HSPI) report for the month of November, with the Good Time to Buy and Good Time to Sell components dropping two and six points, respectively.

“That doesn’t mean that I think that the housing market is coming apart,” says Duncan. “Not at all. I think it will continue to grind upward.”

Buoyed in part by strong consumer attitudes toward job security, Duncan forecasts a small increase in home sales (3-5 percent) despite a low inventory of new homes on the market. Increasing demand for homes also can be considered cause for optimism.

“In general it will be—we expect it to be—a slightly better year in 2016 than in 2015,” says Duncan.


Future growth of the housing market is dependent on Millennials, a generation that boasts the newest crop of homebuyers who have the potential to shape the housing market in the immediate future.

According to Fannie Mae’s Economic & Strategic Research (ESR) Group, “Millennials’ decisions about when to form new households, whether to buy or rent, and what type of housing to occupy will help to determine residential construction levels, home sales volumes, and the distribution of construction and lending activity across the multifamily and single-family markets.”

While statistics show that fewer Millennials are buying homes than their parents and grandparents at the same age, Duncan notes that this doesn’t mean they don’t want to own homes.

“The younger population expresses a strong interest in ultimately owning a home,” he says. “That doesn’t mean today because their median income is still below the same group a decade ago, and their unemployment rate is still a little higher, so financially they’re not necessarily ready.”

In fact, according to ESR, 91 percent of 25- to 34-year-olds surveyed say they are likely to buy a home at some point.

Duncan notes that financial hardships force many in the younger generations, on average, to postpone marriage, in turn delaying the childrearing process which Duncan calls “the biggest trigger to buying a house.”

Duncan also points to modern ways of communicating and understanding the world as a defining indicator relative to the Millennial homebuying process.

“They have available to them technology-based tools for gathering and assessing information that were not available even 10 years ago, much less 20 years ago,” says Duncan. “So the fact that they use those tools, gather the information, makes it look like their behavior is different, but it’s simply a function of the fact that they have different tools—and had the previous groups 10 years ago and 20 years ago had the same tools, they would have probably done the same things the Millennials are doing.”

Here is some important information that many young potential homebuyers may already be aware of thanks to the aforementioned technology: According to Duncan, there are currently 51,000 new and finished homes for sale. For perspective, since that statistic has been tracked, the low point was 37,000 new homes for sale and the high point was 194,000. Thus, the construction of relatively inexpensive new homes—exactly what many Millennials are looking for—hasn’t been a top priority lately.

“So we’re way toward the low end of supply in terms of finished homes available,” says Duncan.

Duncan notes that many builders, feeling burned during the recent economic downturn, won’t build until they have a contract. The smaller profit margin for building homes at lower price points also prevents many affordable homes from being built.

Where to Buy

Each housing market is different. Duncan uses San Francisco as an example of a high-end urban market with very little wiggle room, where supply is low and appreciation is high. For more cost-effective options, Duncan points to the Midwest as a comparison point.

“In some of the Midwest areas where there hasn’t been as rapid economic growth, or where there’s a more stable population, prices haven’t moved dramatically in either direction,” says Duncan. “So a household that is positioned financially to be able to afford [buying a home] will probably find it pretty advantageous in some of those markets.”

Of course, there are good markets and bad markets within every larger market, because, as Duncan notes, “all real estate is ultimately local.”


Estimates, forecasts and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.




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