When Should You Get Excited About the Housing Market?

Real estate agents know that most consumers tune out housing statistics and market news until they're actually buying or selling a home. So it makes sense that many people find the forces behind the market a bit mysterious. What makes a market favor buyers or sellers? What drives home prices up or down?

The answers can be complex, but paying attention to them matters if you want to keep more of your money when the time comes to buy or sell property.

Believe it or not, even in the bleakest-looking real estate market, there's usually a bright spot for someone.

Keep an Eye on Interest Rates

It's no secret that a lower mortgage rate usually means a smaller monthly payment. So low rates naturally make buying a home more appealing—and even talk of a rate increase can push people to start shopping.

For example, by the end of 2015 the U.S. recorded 5.26 million home sales—the strongest housing market since 2006. Lawrence Yun, chief economist for the National Association of REALTORS^® (NAR), credited part of that strength to the mere “prospect of higher mortgage rates in coming months.”

And rise they did over the next year. In fact, late in 2016 mortgage rates climbed eight times in nine weeks, according to bankrate.com. That sounds gloomy—until you realize that even after the increases, rates remained at historic lows.

The takeaway: if you're shopping for a home and rates drop or stay attractively low, that's a good reason to feel optimistic about the housing market.

How the Economy Fits In

Today's economy is a major force on real estate. “Broadly speaking, when the economy is sluggish, so is real estate,” says Joseph Nguyen at Investopedia. Rather than see the glass as half-empty, we take the opposite view—when the economy is humming, the housing market looks its best.

When job growth is strong, consumer confidence climbs and people are more willing to spend on big-ticket items like cars, appliances, vacations—and homes.

When the Market Favors Sellers

An old real estate saying advises homeowners that the best time to sell is when you need to sell. We know that isn't much help. If you're lucky enough to have no pressing reason to sell (like a job offer in another town or a divorce), you can choose when to list your home.

Take heart when agents talk about a “sellers' market.” That's a stretch when few homes are for sale but buyer demand is strong. In sellers' markets, prices usually climb quickly and homes sell at or above the asking price.

One of the biggest mistakes we see in sellers' markets is a homeowner who assumes the market alone will fetch top dollar, no matter the home's condition. Keep in mind that homes in good condition sell fastest and for the most money. Even when conditions favor sellers, a home that isn't move-in ready may be skipped over by buyers.

Planning to Buy a Home This Year?

A buyers' market—when lots of homes are for sale and few other buyers are shopping—is a great time to purchase. Unlike a sellers' market, prices aren't rising fast and you won't be up against a crowd of competing buyers. These markets feel more relaxed, so buyers can take their time deciding.

In a sellers' market, though, it's more important than ever to have everything in order before you make an offer. Know exactly how much you can spend and make sure you have a preapproval letter from your lender. Stand out from other offers by keeping yours lean, with the shortest contingency periods possible. And come in with your highest and best offer—a sellers' market moves too fast to assume the owner will negotiate on price.

While the type of market may shape when to jump in, interest rates can also spark excitement, as noted earlier. Low rates and looser lending guidelines, like those seen in 2015 and 2016, created a prime opportunity for many would-be buyers who previously couldn't afford to purchase.

Lower mortgage rates mean a smaller monthly payment, which gives you more purchasing power—and that extra power can "mean the difference between buying a 2-bedroom home versus a 3-bedroom one; between buying a home with large closets versus small closets; and, between buying an upgraded home versus a dated one," according to Dan Green at The Mortgage Reports.

No matter how the media portrays the housing market, there's always a mix of good and bad news depending on whether you're buying or selling. Team up with a professional real estate agent who can give you current, local market information (news reports are often stale and based on nationwide statistics). Follow that guidance, and buying or selling a home in any market can be an exciting experience.