Cynthia and Gerald Matthews left a booming property market in Ottawa, the Canadian capital, to buy a home in Bloomington, Ind., where real estate prices are beginning to recover from a five-year slump.
"It was much cheaper than we thought it would be," said Cynthia Matthews, who got a 5% discount off the $196,999 asking price of the three-bedroom, brick neo-Colonial-style house, and a mortgage rate close to 4%. "To say it's a buyer's market would be an understatement."
People like the Matthewses who are able to survive the scrutiny of mortgage lenders are getting the best deals of the five-year U.S. housing bust, and perhaps the best deals of a generation, after a 31% decline in home prices since 2006. It's the bright side of an otherwise bleak real estate market: Good houses at cheap prices are plentiful, while loan rates are hovering at record lows.
"It's hard to see the possibility of losing on a home purchase right now, with these mortgage rates," said Dean Baker, an economist who in 2005 predicted a decline in the government's home-price index that now is within 2 percentage points of his forecast.
"Prices may go lower, but not by much," Baker said. "Even if they do, you're still getting a good deal."
The lowest mortgage rates on record, coupled with a new Federal Reserve program to reduce them further, are turning housing bears like Baker into optimists. Loan payments on a home financed at last week's 4.09% average 30-year U.S. rate would be lower than the bill for a property purchased next year after a 3.5% price decline and a half-percentage-point rate increase, a scenario forecast by the Mortgage Bankers Association for mid-2012.
Buying a $300,000 home at current rates means a monthly mortgage bill of about $1,158, assuming a 20% down payment. Delaying a purchase until next year would put the tab higher, at $1,186, based on the MBA forecast for prices and rates. That amounts to an $18,000 difference over a 30-year mortgage for those who wait.
Regardless of the rate, most Americans seeking to buy a house need to qualify for a loan. Mortgage applications for home purchases rose 2.6% last week, the fifth consecutive gain, the MBA reported Wednesday. Fannie Mae and Freddie Mac, which securitize about two-thirds of new U.S. mortgages, have enacted the strictest qualification standards in more than a decade as they try to improve the credit quality of their portfolios.
That makes the mortgage process a grueling experience for borrowers like Christine Trendell. She bought a house two months ago in Canton, Mass., a suburb of Boston, where real estate prices fell 25% through early this year before gaining 10% in the recent quarter, according to the National Association of Realtors.
Trendell and her husband, Ben, had to submit a pile of bank statements, retirement fund tallies and years of tax returns that stacked to almost two inches high, she said. The lender required them to fax their paystubs repeatedly near the end, she said, to make sure they hadn't lost their jobs before the closing date. They were able to get the mortgage because they have pristine credit records, she said.
"The low rates made it affordable to buy the house, but we didn't know if we were going to be able to get a loan," said Trendell, standing in her driveway this week after walking two of her three children to a nearby elementary school. "Rates don't matter if you can't get a mortgage."
Buyers are still cautious about taking advantage of deals.
Sales of previously owned homes were down 31% in August from their 2005 peak, the National Association of Realtors reported last week. Neither Baker, co-director of the Center for Economic and Policy Research, nor Karl Case, co-founder of the Case-Shiller home price index, expects property bargains to be a cure-all for the worst housing collapse on record.
"Houses are cheap right now, but a lot of people are too scared to buy, no matter what kind of deal they get," Case said from his home in Wellesley, Mass.
"We're bumping along the bottom with prices, but I don't think we're at a bottom in terms of confidence," Case said.
The Case-Shiller index of prices in 20 U.S. cities fell 4.1% in July from a year earlier, the group reported Tuesday.
