director at Fitch Ratings, cautions against making a blanket statement about
whether or not we're in the midst of another bubble.
But price gains in certain markets, especially in some areas of California, are a potential cause for concern as some "fundamentals" aren't keeping pace with gains, he says.
"Still-high unemployment is our biggest concern," he says.
Plus, some institutional investors are already starting to sell their properties.
Institutional investors will eventually sell the homes they've purchased at bargain prices and rented out but they're unlikely to dump homes onto the market en masse, says Jed Kolko, chief economist at Trulia, a real-estate website. "They don't want to trigger a price drop either," he says.
Mr. Kolko adds that buyers in markets where inventory is very tight would be "thrilled" if investors decided to put some of their homes up for sale.
Even though prices have risen sharply in the past year, they're still relatively low. Home prices are still down by 28% from their 2006 peak--about where they were in 2003.
These low prices coupled with still-low mortgage rates makes buying more affordable today than it's likely to be six or 12 months from now, Mr. Kolko says.
And with about 26% of all homeowners nationwide underwater in their mortgage and another 850,000 actively in the foreclosure process, according to RealtyTrac, there's plenty of shadow inventory to keep a lid on prices.
"Do not rush into it and stretch yourself financially to buy based on an irrational fear that if you don't buy now you will miss out on the opportunity to buy ever," warns RealtyTrac vice president Daren Blomquist.
He anticipates more homes becoming available as early as this fall in the form of shadow foreclosure inventory in some markets as well as in the form of nondistressed sellers who decide to list their properties because prices have risen enough for them to justify doing so.
No matter what the market conditions, the purchase of a house needs to be viewed primarily as a home with any investment consideration being a "distant second," says Erik Davidson, deputy chief investment officer at Wells Fargo Private Bank.
"Progress toward other financial goals--an emergency fund, retirement, college fund, etc--shouldn't be waylaid in the pursuit of the goal of owning a house," he says.
It's wise to have a down payment of 20%--to avoid paying for private mortgage insurance--and plan to live in the home for at least five years, says Stan Humphries, chief economist at Zillow, a real-estate listings company.
First-time buyers should also explore how much it will really cost to own, says Edward Kohlhepp Jr., a financial planner in Doylestown, Pa.: "They often forget about the costs of things like insurance, maintenance and renovations."
He also advises people who know they're going to buy within a year to keep their down payment out of the stock market. "There's no place for risk with your home's down payment," he says.
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