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Will Home Prices Keep Dropping?

Christine DiGangi

Home sales and prices have been on a seven-week slide, most of which can be attributed to seasonal market changes. But the economic uncertainty that came with recent government shutdown and debt-ceiling debate contributed to the sharp decline in sales volume and, with the winter months approaching, home prices and sales volume are not likely to pick up now that the government has reopened.

“I would say that the overwhelming weight of it has to do with the fact that it’s seasonal, that the home-buying frenzy pretty much starts in April and it dies down in September,” said Scott Sheldon, a senior loan officer at Sonoma County Mortgages in California and a Credit.com contributor. “The shutdown certainly didn’t help.”

DataQuick updates home sales volume and prices for the previous 30 days of home sales every Thursday, and the data encompasses sales in 98 of the top 100 metropolitan statistical areas. The most recent update shows a 1.3% decline in sales volume and a 1.6% decline in median sales price just this week.

While each week’s numbers were up year-over-year from 2012, the yearly gains declined. The Sept. 19 report showed 16.6% growth from 2012 in sales volume and 14.3% growth in median sales price, while Oct. 24 posted 14.1% sales growth and 10.8% price growth.

The conclusion of the standoff in Washington coincided with the start of the slower home sales season, so Sheldon expects sales and prices to level off.

Changes to the qualified mortgage standards could interrupt the seasonal cycles in real estate. Starting Jan. 10, 2014, the debt-to-income ratio needed to attain a qualified mortgage will be 43%, meaning homebuyers may have to pay for more expensive non-qualified mortgages. Whether consumers anticipate the impact of this change remains to be seen.

For potential homebuyers with high debt loads, the final months of the year could be an opportunity to score a home. While the market is still incredibly competitive, the seasonal decline could make it easier to find a home while decent interest rates are available and current qualified mortgage standards are in place. On Tuesday, 30-year fixed mortgage rates fell to 3.98%, the first they have been lower than 4%  since June, according to Zillow Mortgage Rate Ticker.

Knowing when to shop and if you’re prepared to buy a home requires a bit of research. House hunters need to know how they’ll look to lenders, so assessing your finances and analyzing your credit profile is a crucial component of home-buying preparation. It’s easy to look into your credit history, with the availability of a free annual credit report, as well as online resources like the free Credit.com Credit Report Card.

Sheldon said those considering buying a home in the coming months should make necessary improvements to their finances, such as lowering their debt-to-income ratio by paying off credit card debt.

“Get out there and be aggressive in the market. Don’t get me wrong, there’s still competition, but there’s a lot less,” Sheldon said. “Especially if you have a high debt-to-income ratio, you’re going to be paying a lot more for the same house in January.”

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