Posted December 26, 2012

Great Deals “Slip Away” For 2013 First-Time Home Buyers

Case-Shiller Index shows rising home values in many U.S. markets -- Phoenix is up more than 20% year-to-year

Case-Shiller Index shows rising home values in many U.S. markets -- Phoenix is up more than 20% year-to-year

With mortgage rate low and demand for home high, home values are rising nationwide. According to the most recent Case-Shiller Index, the 2012 housing market was a strong one, and the market for 2013 figures to be stronger.

Housing continues to pull the broader U.S. economy ahead.

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Home Values Up 4.3% Since Last Year

Standard & Poors released its October 2012 Case-Shiller Index earlier this week. The Case-Shiller Index is a home-valuation tracker. It measures monthly and annual home price changes in 20 U.S. cities.

According to its most recent release, the Case-Shiller Index shows home values rising 4.3% nationwide on an annual basis. It marks the largest year-over-year home valuation gain since May 2010 -- the month after that year's federal home buyer tax credit program's expiration.

18 of the index's 20 tracked markets posted annual price gains in the period ending October 2012. Only Chicago, Illinois and New York City, New York showed declines, easing -1.3% and -1.2%, respectively. Both markets, not coincidentally, are condo- and co-op heavy.

As compared to one year ago, Phoenix, Arizona has experienced the largest home valuation gains.

Home values in Phoenix and its surrounding cities of Mesa, Scottsdale and Tempe, posting a 22 percent year-over-year gain. Second-ranked Detroit, Michigan gained less than half of that.

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First-Time Home Buyers See "Deals" Slip Away

The interesting thing about rising home prices is that they're often self-reinforcing.

As home prices rise, home prices rise more. It's a cycle that worsens home affordability for all buyer types -- move-up buyers, real estate investors, and first-time home buyers.

For example, at today's mortgage rates, for each $10,000 increase to your mortgage loan size, your monthly mortgage payment rises by $45. This may not seem like a lot of money, but for first-time buyers trying to make a Rent vs Own comparison; or for buyers keeping a budget, rising home prices can be a deal-breaker.

The pain worsens as mortgage rates rise.

Assuming that rising home values force your loan size higher by $10,000; and assuming that mortgage rates climb 1 percentage point to 4.4% in 2013 as predicted by the Mortgage Bankers Association (MBA), home affordability may take it on the chin next year.

  • Larger loan size by $10,000 : Monthly payment rises $45
  • Larger loan size by $10,000 and 1-point increase to 4.4% : Monthly payment rises $109

Paying $109 extra per month adds up. It's more than thirteen hundred per year, and nearly $40,000 over the life of a loan.

Thankfully, low downpayment and no-downpayment mortgages remain available.

First time-time home buyers can use the FHA's 3.5% downpayment program to minimize their downpayment. Or, for eligible borrowers, the VA 100% mortgage is an option, as is the USDA Rural Development loan.

Click here to get today's mortgage rates.

How Much Home Can You Afford?

As home values and mortgage rate rise into 2013, the question of "How much home can I afford?" is less simple to answer.

The hallmarks of a housing market recovery are here -- buyer demand is rising, home supply is shrinking, and valuations are returning to post-recession levels. If you're shopping for a home, therefore, and want to build your budget, get started with today's mortgage rates.

See how your payments will look for a given home or price range. Plan ahead for your personal budget.

Click here to get today's mortgage rates.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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