The strong real estate markets are reflected in recent research performed by the National Association of Realtors (NAR), which found that the median price of existing homes is 14.7 percent higher, at $219,000, than a year ago. Additionally, sales in the past year set records, with rises in 44 states. Nearly 70 percent of families own homes, a greater percentage than ever before, which means that more people than ever are buying and selling real estate.


A recent Parade magazine article looks at the details of the current real estate market, including markets that are very hot and markets that are considerably cooler. It also examines the pluses and minuses of buying or selling a home in the current market.


In the current climate, the longer you can stay in your home, the more it pays off. Even in Utah, a state with low price growth over the last five years, experienced a rise of 17.5 percent in home values. Nationwide, the median home price has gained a whopping 55 percent over the past five years.


Although this indicates quite a healthy market overall, some states’ housing markets are not as vigorous as others. Western states have experienced the most activity this year, with a 17.4 percent increase in existing home prices since last year. On the other end of the scale, Southern states posted only a 9 percent increase in home prices. Therefore, the old real estate mantra “location, location, location” still holds true when determining how “hot” your local market is.


If you do live in a healthy market and are considering buying a home, it is important to remember that any boom market brings plenty of speculators. Now more than ever, there are many options for loans that give homebuyers lower monthly payments, including interest-only loans and adjustable rate mortgages (ARMs). An interest-only loan is just that: at first, you are only paying the interest on the loan, not the equity. Therefore, if the hot market cools off, you will have no gain at all. ARMs are also a gamble. Low interest rates are offered only for three to 10 years. If interest rates continue to rise, you may be saddled with sharply increasing payments after the initial period is over.


For instance, in one of the biggest boom markets, California, home prices are so high that “only 18 percent of Californians are able to use a 30-year, fixed-rate loan to afford even a median-priced house.” Additionally, 61 percent of buyers have had to resort to interest-only loans, which means that very few homeowners are building equity in their homes.


Home buyers who are planning to stay in a home for more than five years are better off, if they can afford it, to get a fixed-rate mortgage that allows them to build equity by paying down the principal. With interest rates steadily increasing, it makes sense to lock into a good rate now and stick with a new home or your current home for a longer period of time, making gradual home improvements to raise your home value even more.