Expect Home Prices to Keep Rising, but Not So Fast
Home prices increased 12.2 percent from February 2013 to February 2014, marking the 24th consecutive month of year-over-year growth, according to the most recent CoreLogic Home Price Index Report. That trend is expected to continue, with a 10.5 percent year-over-year increase projected for March. There was also a slight month-to-month increase of 0.8 percent from January to February.
Prices in California grew the most, with a 19.8 percent year-over-year increase in February. Of the 100 metropolitan statistical areas studied by CoreLogic, 96 reported year-over-year increases in home prices. While prices across the nation have continued upward for two years, February's%VIRTUAL-pullquote-"Price increases should moderate over the next year..."% numbers remain 16.9 percent lower than the peak in April 2006. Despite that gap, the double-digit year-over-year growth will likely fade in the coming months.
In the report, Mark Fleming, chief economist at CoreLogic, puts the data in perspective: "Although prices should remain strong in the near term due to a short supply of homes on the market, price increases should moderate over the next year as home equity releases pent-up supply." Houses may be getting more expensive, but interest rates remain historically low (hovering around 4.25 percent), even though those, too, are expected to rise.
How to Get Ready: The price isn't the only thing that matters when determining whether a home is affordable. Hopeful homeowners have to look at their finances and credit standing well before the serious house hunting begins, because you don't want to find your dream home only to%VIRTUAL-pullquote-A better credit score likely means you'll have access to better interest rates on your home loan.% realize you aren't prepared to enter the mortgage process.
If you're thinking of buying a house this year, request your free annual credit report to make sure it is clear of errors, and if you find any inaccuracies, dispute them immediately.
You should also get an idea of what your credit score is. There are many scoring models out there, but you won't know which one will be used to evaluate your mortgage application. The best thing you can do is look at a score, identify the determining factors behind that score and start working to improve whatever is necessary to boost your score, because a better credit score likely means you'll have access to better interest rates on your home loan. (You can get your credit scores for free on Credit.com, plus an assessment of your credit standing so you can clearly see what you need to do to improve your scores -- for instance, lowering your debt levels or making payments on time.)
You'll also want to get an idea of your debt-to-income ratio, since mortgage lenders are required to confirm your ability to repay the loan. Even though it's tempting to get out in the nice weather and browse houses for sale, you have to prepare yourself and your finances for this investment.