Homebuyers May Be Poised to Pounce on Bargains

(May 7) -- If employment would only cooperate, the housing market could very well bust wide open again.

Well, maybe "bust" isn't the best choice of words in this economy, but interest rates are cooperating, home prices are as low as they've been in a decade and sellers competing with the abundance of distressed properties are motivated to make a deal.

And none of this is lost on rank-and-file consumers who appear to be champing at the bit, poised to follow big-spending investors back to market.

In both cases, their timing couldn't be better, according to two new studies.

First-quarter 2010 Internet searches for homes for sale were up 32 percent from the same quarter last year, says one study. Increased interest in browsing for housing comes at a time when the housing market has just about bottomed out and poses less risk for buyers, another study says.

Taken together, the two studies appear to indicate it's not a bad time to get down off the fence and check out the grass on the other side.

Heavier browsing for housing traffic

First, the Experian Hitwise Insight Index, released late last month, says that based on Internet search traffic, interest in mortgage money is up by 43 percent over the past year, surging even more than searches for homes to buy. This indicates that consumers are adeptly putting the hunt for home loan money ahead of the home search -- as experts advise.

Potential buyers appear to be hot on the heels of investors. A recent Move Inc. survey said interest in residential real estate investment has more than tripled in the past year (ending in March 2010).

More than 17.2 percent of all potential homebuyers today say they plan to purchase a home in the near future as an investment, compared with just 5.6 percent a year ago.

Among all potential buyers searching the Web, Experian said, the fastest-growing search terms involving real estate for sale include "homes for sale in Michigan," up 74 percent over the past year, and "homes for sale in Florida," up 73 percent. Florida and Michigan are among the states hardest hit by the housing crash, leaving behind lots of distressed and bargain-priced housing.

Consumers may be moving a little too fast in those areas, where the risk of home price decline remains among the highest in the nation. However, among the nation's 384 metro areas tracked by PMI Mortgage Insurance Co., 356 of them revealed a reduced risk of falling home prices.

Reduced price-decline risk

PMI's U.S. Market Risk Index(SM), released May 3, uses home price appreciation, employment, affordability, excess housing supply, interest rates and foreclosure activity to assess the risk of price declines. Risk scores translate into a probability (ranging from zero to 100) that the price of homes in a given area will fall in the next two years.

For example, a score of 1 means there's only a 1 percent chance home prices will fall and are most likely on the way up; a score of 100 means there's a 100 percent chance home prices will fall and are more likely on the way down. A score of 50 indicates there's an equal chance prices will rise or fall.

The score does not measure the magnitude of price change.

Comparing the fourth quarter of 2009 to the second quarter of 2010, PMI found:

• The number of metro areas in the riskiest category (90-100) fell by 26.4 percent, while those in the least risky (0-10) category increased by 79 percent.

• The number of metro areas with a risk score of less than 50, indicating better odds of price increases, increased 26.5 percent, from 147 to 186 markets. The number having a score over 50, indicating better odds of lower prices, fell by a lower margin of 16.5 percent, from 237 to 198 markets.

PMI says the trend appears to be one of moderating home price declines or a near-bottom scenario where affordability has improved.

"Housing affordability continued to climb, and in some MSAs [metropolitan statistical areas] is at or near record levels," David Berson, PMI chief economist and strategist, said in a statement. "House prices have dropped sharply relative to incomes in most areas, suggesting that prices have fully, or more than fully, adjusted for their unsustainable increases during the housing boom."

Give the renters some

Experian Hitwise's analysis reveals that while there are plenty of consumers not quite ready to take the plunge into home buying, many are looking for bargains in the rental market.

While online home searches were up 32 percent, searches in the rental market boomed 171 percent, when comparing the first quarter of 2010 with the same period last year.

Apparently, a growing number of renters are looking to rent houses at a discount.

The fastest-growing Internet search terms involving real estate for rent were "cheap homes for rent" (up 128 percent over the past year), "house for rent by owner" (up 94 percent) and "home for rent by owner" (up 84 percent).