Are buyers emerging from ‘frugality fatigue’?

Stocks, interest rates, housing prices…who has been able to time the true bottom?

Paul Muolo and Evan Nemeroff of the National Mortgage News made an example of Denver this week. Apartment vacancies there are now at a 10-year low. They wrote:
“…Something is going on in housing/mortgages that could spell boom times ahead. Builders aren’t building, and existing home sales are tepid but stable.

“As long as the overall U.S. economy doesn’t crater in the months ahead it’s possible that as long as mortgage rates stay low, housing will find a floor this year and start to turn upward. After all, it’s all about supply and demand…when it becomes cheaper to own than to rent the tide will have turned.”

Talk about not building…most Puget Sound builders are skittish and there are now new condominium buildings on the books in downtown Seattle. Rental rates are on the rise in most local neighborhoods.

There is recent anecdotal evidence that people have begun to take a swing at properties they’ve always wanted – or ones they may never get a chance to buy again, according to John Burns, president of John Burns Real Estate Consulting Inc. in Irvine, California. Some targets are waterfront homes, downtown penthouses and ranches – but it’s not just about high-end inventory.

“People have frugality fatigue,” said Burns, who, along with his associates, have been guests on KIRO-FM’s “Real Estate Today.”

Burns says potential home buyers are focused on the wrong metric. They are overly focused on home price because of the tremendous correction that has occurred.
“What consumers and the media are ignoring is the monthly payment, which is absolutely fantastic right now and highly unlikely to get much better,” Burns said. “Everyone is just assuming that mortgages rates will stay low forever.”

According to Burns, if prices stayed flat and mortgage rates inched up 1 percentage point from 4.5 percent to 5.5 percent, the same house would cost you 12 percent more per month to buy. A movement from 4.5 percent to 6.5 percent would increase your mortgage payment by 25 percent. Needless to say, the impact of mortgage rates is tremendous.

So, what if you bought one step from the bottom yet got the best interest in recent memory on the place you always wanted to buy? Five years down the road, would you kick yourself for not doing it?