Developing trends in the housing market may indicate its time to purchase a home or that investment property if you have been waiting for the “right opportunity.” Driven by historic low interest rates and low home values, many buyers have started to come into the market simply because it may make a better bargain than renting and interest rates will probably not go much lower.
Most of the good news goes to homeowners interested in mortgage refinance and underwater homeowners. Millions of borrowers will have the opportunity to mortgage refinance through two government programs that make the refinancing process affordable.
The time may be right for people living considering a purchase to buy their home. Trying to time if home values have reached bottom or if prices will continue to drop more mean risking higher interest rates or home prices.
The following marketplace dynamics might help the undecided to make their decision:
- New Construction Increase – The Census Bureau and HUD March 2012 latest report show that housing starts – ground broken for new foundations—declined compared to February. However, homebuilders received approval for 747, 000 permits, and the most since September 2008. Expect more construction of new homes over the coming months.
- More Homebuyer Enter Housing Market – Many potential homebuyers have started the process of a home purchase. Previously, these potential buyers waited for the market to bottom and the economy to improve before they bought homes. Lately, people have taken the plunge, starting in the last quarter of 2011 home sales begin an uptrend.
- Interest Rate Will Remain Low – The early year low of 3.87 percent remain a possibility. The Mortgage Refinance box shows current interest rate of an average rate of 3.88 percent as of April 17, 2012. Although analysts do not expect interest rates to accelerate in the near future, waiting to see how low rate go can work against homebuyers.
According to the Mortgage Bankers Association' estimated that the 30 year fixed rate will average 4.3% through the second quarter of 2012 compared to 4.16 percent for the first quarter of 2012. Nonetheless, interest rates at around 4.3 percent still present a good deal compared to six or seven percent mortgage interest rates.
- Increase Mortgage Refinances and Modifications - Beginning June 11, borrowers who have FHA loans that closed on or before June 2009 can refinance their mortgage through the FHA streamline refinance program. Borrowers can receive 50 percent lower loan fees. The upfront fee has drop to 0.01 percent of the loan amount for insurance fees and 0.55 percent for annual mortgage fees. Borrowers must have current mortgage payments.
With extensive revisions made to the program, the Home Affordable Refinance Program (HARP) or HARP 2.0, more homeowners, who have high loan-to-value-ratios, can refinance from high interest rate loans into low interest rate mortgages. Eligible homeowners can participate no matter how underwater the mortgage.
The Home Affordable Modification Program (HAMP) helps eligible borrowers modify mortgage terms, which pays off mortgage off sooner or lowers monthly mortgage payments. HARP and HARP 2.0 applies only to mortgages closed by June 2009 and guaranteed by the Enterprises, Fannie Mae or Freddie Mac.
- Competitive Housing Markets - As the housing market recovers, more homebuyers and investors make the housing market more competitive. Both groups scour neighborhoods looking for bargain homes. First-time homebuyers will battle with homebuyers and investors. Many investors pay cash and close quickly, which give them an advantage over homebuyers who need mortgages.
The National Association of Realtors reports that about 24 percent of homes sales in February 2012 consisted of distressed property transactions – short sales and foreclosures deals.
- Higher Mortgage Fees - Borrowers refinancing through Fannie Mae, Freddie Mac, or the FHA's will face higher loan fees, which went into effect April 1. The FHA new rules require homebuyers, who have smaller down payments, pay more in FHA mortgage insurance premiums.
Unless borrowers have high FICO scores – high 600s to low 700s-- many will end up financing their home purchases through the FHA program and pay higher fees. For example, a $175,000 FHA mortgage will now cost $3,063 compared to $1,750, with an increase in the rate from 1.0 percent to 1.75 percent.
Homeowners will also pay more for annual insurance premiums, which the bank adds to the borrower’s monthly mortgage payments. Borrowers with loans exceeding $625,500 will also pay higher monthly fees for mortgage insurance.