Home Prices Perk Up, but Is Now the Time to Sell?

Though home prices have nudged higher in recent months, many physicians are holding off on selling real estate as they wait for values to ratchet up. But with many challenges looming, the direction of the housing market is still anybody's guess.

Good news/bad news seems to be the way to sum up the nation’s housing market.

Sales of new and existing homes are up, and so are prices -- if ever so slightly. Although home prices dipped in the first quarter of this year, prices in March rose 0.3% over the previous month, according to the Federal Housing Finance Agency. Both of those factors are encouraging and point to a possible recovery.

But don’t bank on a strong upturn yet, say real estate consultants. There are a number of negatives that could push a recovery off the tracks.

One is the loss of the federal $8,000 first-time home buyer tax credit, which expired on April 30. That credit spurred many fence-sitters to buy, real-estate agents say, and as a result that may cause home sales to lag in the coming months. Sales have also been helped by lower mortgage rates: The average 30-year mortgage rate dipped to 4.8% last week, from 4.83% a week earlier, according to the Mortgage Bankers Association.

Many real-estate agents believe the days of historically low mortgage rates are coming to an end, though global events continue to influence the market. Higher mortgage rates make homes less affordable, which will further dampen demand.

Mortgage-information provider HSH Associates sees rates headed higher, but not until later in the year. “In our last forecast, we expected that the Federal Reserve would likely begin to raise the (Federal Reserve) funds rates as soon as their late-June meeting,” the company said in its latest two-month forecast. “However, given the financial turbulence overseas, that increase may not happen until the late summer or early fall.”

A quick primer: Mortgage rates aren’t tied to the Fed funds rate, they track the 10-year Treasury note. But the Fed’s outlook on the economy has a direct impact on the government bond market. If Fed policy makers keep rates steady, but make optimistic statements about economic growth, bond yields and mortgage rates typically rise even before the Fed decides to raise its short-term lending rates.

Although foreclosure filings are down, more than one out of every four borrowers owes more than their home is worth. Banks are projected to repossess more than a million homes this year -- that wave of new supply will add to the housing inventory glut.

The wild card in any prediction of a housing market recovery, industry watchers say, is the so-called “shadow inventory” of homes with delinquent mortgages that have yet to move through foreclosure. Some estimate that as many as 4.7 million homes are now in pre-foreclosure, and could take as many as four years to clear.

With housing prices stil relatively low, many physicians have been holding properties off the market as they wait for values to ratchet up. If there is a significant increase in home prices, these sideline sellers could put their properties back on the market, pushing inventory up and prices down. The result could be a bumpy road on the way to a healthy housing market.