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Will slowing sales bring lower home prices?

May 08, 2014

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

current mortgage rates

Q: I just heard on the news that new home sales are slowing down. I'm ready to buy a house, but would I be better off waiting till later in the year in case prices go down?

A: As a rule of thumb, if buying a house makes sense for your personal and financial situation now, it is better to not wait because there are as many things that can move against you as there are those that can move in your favor.

You are correct that new home sales have slumped recently. A joint report by the Census Bureau and the Department of Housing and Urban Development showed the volume of new home sales fell by 14.5 percent in March, and is down by 13.3 percent over the past year.

Still, despite the slump in new home sales, it does not necessarily follow that buying will be more attractive later in the year. Here are some points to consider:

  1. Current mortgage rates are still low. One reason the housing market may have cooled off is that current mortgage rates are about a full percentage point higher than they were a year ago. And yet, at just over 4 percent, rates are about half the historical level of 30-year fixed rates. The conclusion? Mortgage rates have much more room to rise than to fall.
  2. Better weather may bolster the market. The new home sales figures you mention are seasonally adjusted, but this was an unusually harsh winter. There may be more than the usual amount of pent-up demand for housing as the weather improves.
  3. Slowing volume does not necessarily mean lower prices. One of the oddities of the recent report on new home sales was that while the number of sales declined, the median and average prices of completed sales actually rose. Naturally, if sales continue to fall, prices will probably fall eventually, but in the near-term the market dynamics may not be that straightforward.
  4. Local conditions may be different. The March report showed that while new home sales fell in three out of four areas of the country, they rose in the Northeast. This is a reminder that with real estate, it is never safe to assume national trends apply to your area. Check out the specific market you are interested in to get a sense of what pricing conditions exist in that area.

Certainly, there is no reason to rush into the market at this time. If buying a home makes sense for you personally and financially at this point, get into the market at a measured pace, be selective and negotiate price when the time comes. Just don't stay on the sidelines, because the game may change faster than you expect.

Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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