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Wells Fargo Not So Sure About the Recent Housing Boom

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There’s been plenty to be happy about in housing lately. Home prices seem to have bottomed, and there is talk about double-digit appreciation over the next five years.

Mortgage delinquencies continue to march lower and distressed inventories keep shrinking.

Additionally, purchase mortgage applications increased to the highest level since May of 2010, per the Mortgage Bankers Association.

However, as I noted in a recent post, all this “good news” has made it less attractive to buy a house at the moment, despite the low rates and reduced home prices.

Why? Well, for one, sellers are upping their asking price, and many of the homes that festered on the market for months are appearing again. The scary part is that this time they’ll probably sell, and at a premium!

Top Mortgage Lender Not Enthused

I’m not the only one that feels this way. The top mortgage lender in the United States, Wells Fargo, seems to think the recent run up in home prices isn’t sustainable.

In fact, economists at the San Francisco-based bank and lender noted in a special commentary that the housing market is experiencing a “bubble within a bust.”

What they mean is that there is a “temporary spike in home prices,” which will pop once conditions deteriorate.

In other words, it’s not going to be a straight line onward and upward – there will be plenty of ups and downs as the market attempts to find its “new normal.”

And there are already signs of a slowdown, with unemployment festering, economic activity cooling, and the spring home selling season off to what they call a “mediocre start.”

Additionally, homebuilder confidence took a turn for the worse recently thanks to higher construction costs, along with a shortage of developed lots and skilled workers.

On top of that, the economists believe investors will stop converting single-family homes to rentals once interest rates increase, as the returns offered for such ventures will diminish.

There’s also fear that higher mortgage rates will slow home price appreciation. Though higher rates could also push more would-be buyers to pull the trigger…

Housing Recovery Still on Track

While the headline and opening paragraph of the economists’ commentary seemed bleak, the underlying message is positive.

They still believe housing is on track to make a recovery, just at a more modest and reasonable pace. Darn.

We can’t simply erase the housing crisis in five years – it takes time to right the many wrongs that occurred, especially when we’re using artificially low mortgage rates as the solve-all.

Yes, you can snag a low mortgage payment thanks to those low rates, but don’t expect your home to double in value anytime soon.

Put simply, we got a little ahead of ourselves, as we often do with just about everything.

This is the bubble mentality in a nutshell – everyone believes at the same exact time that something is destined for greatness.

And then the crash comes…

Be Reasonable About Your Home Purchase

What this all means is that you should be prudent in your decision to purchase a home, as always.

First and foremost, a home is a shelter, not an investment. Regardless of that fact, there are still good times to buy, and bad times to buy.

If you have flexibility, it may be wise to wait it out a little longer. At the moment, the inventory is poor at best, and the competition is fierce.

As noted earlier in the post, lots of dodgy homes are making their way back to market, and the worry here is that overzealous home buyers will overlook the reasons the properties didn’t sell the first time around.

Don’t be one of those people who makes the decision to purchase a home for the sole reason that it’s the greatest time in history to buy.

That mentality often leads to disappointment once the enthusiasm wanes. Yes, housing is on the road to recovery, but don’t buy all the hype.

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