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Cheap Home Prices and Low Mortgage Rates Present Buying Opportunity

Written By:
May 09, 2012 at 12:53 PM

In many regions of the country, it seems all the indicators point to home prices starting to stabilize. Many housing market economists believe that homes prices have reached the bottom in most regions of the country. Homes prices have dropped an average of 34 percent since July 2006. In addition, homebuyers can obtain interest rates on home mortgages at extraordinary low rates. Many housing analysts have signaled that 2012 may present the best opportunity for homebuyers to purchase the home they want at cheap prices.

CoreLogic’s home price index showed an increase of 0.7 percent from January to February. Jed Kolko, of states that home prices will accelerate beyond the 1.2 percent average increase registered for January through March 2012 compared to the same period in 2011. Kolko said that home price indexes, such as the S&P/Case Shiller index should start to show price increase “this summer.”

The head economist for PNC Financial Services Stuart Hoffman expects home prices to find a bottom sometime in the third quarter of 2012 and to begin trending up beginning next year. He attributes factors, such as more job gains and a drop in the foreclosure rate, as reasons homes prices to increase.

Hoffman anticipates a price increase of 2 percent in 2013. Fiserv’s chief economist David Stiff believes home prices will turn up by September 2012. By September 2012, he believes prices will improve by 4.2 percent.

Clear Capital reports an 8.4 percent increase of home prices in Phoenix, AZ for the three-month period ending April 30, 2012, compared to the three months ending January 31, 2012. Prices in Tampa and Miami climbed 4.4 percent and 4.6 percent, respectively. In contrast, Atlanta’s home prices dropped to 1996 price levels, with a 17.3 percent decline on a year-over-year basis.

In most housing markets, homeowners who have not have to rush into a decision to buy now. In the initial stage of rising prices, home values will climb gradually.

Foreclosed Homes to Decline

Although foreclosure filings have increased on a yearly basis, the overall rate of foreclosures has declined. According to Zillow’s chief economist Stan Humphries, the percentage of severely delinquent mortgages payments has fallen dramatically. The Mortgage Banker’s Association (MBA) findings support the contention regarding the rapid drop in the number of mortgage payments 90 days or more in arrear.

MBA reports a 15 percent drop in delinquent mortgage payments-- to 3.1 percent at the end of last year. Seventy percent of the decline in delinquent mortgage payments occurred in the final quarter of 2011.

Homebuyers should understand that a spike in the number of foreclosures must take place because of the backlog of delinquent borrowers who have just entered the foreclosure pipeline after a self-imposed moratorium by many mortgage lenders after the “robo-signing broke in the fall of 2010. Beginning in late 2011, banks return to filing foreclosure paperwork and it has accelerated the process after reaching a settlement over the “robo-signing” fiasco, which include new procedures for working with delinquent homeowners trying to avoid foreclosure.

Mortgage Rates Can Also Increase

Potential homebuyers should not only monitor home price increases, but mortgage rates are also primed for an increase. The MBA reports that the benchmark 30-year fixed rate mortgage fell to a new low of 3.84 percent. Nonetheless, the market cannot go much lower, and will likely start to trend up, says Lending Tree CEO Doug Lebda. He expects mortgage rates to remain “reasonable.” The MBA predicts the 30-year fixed rate mortgage will climb to 4.5 percent by the close of 2012.

Mortgage rates have been at or near historic lows for much of the past six months. The average interest rate for a 30-year, fixed-rate mortgage has not topped 4.5% since July 2011 and this week, it hit 3.84%, a new low.

But rates aren't expected to remain at these record-low levels much longer. As the economy continues to recover, rates will move higher, said Doug Lebda, CEO of LendingTree, the online lending site. Although, he said, they will "stay very reasonable."

The Mortgage Bankers Association is forecasting that the 30-year fixed will hit 4.5% by the end of the year.

Greater demand for loans will help fuel the increase, according to Lebda.

6 Ways to get a great mortgage deal

Even though mortgage rates have been cheap, borrowing for home purchases has been sluggish. The Mortgage Bankers Association estimates that homebuyers will take out mortgage loans totaling about $415 billion this year, an increase of less than 3% compared with 2011. Next year, however, it forecasts that amount will almost double to $706 billion.

As housing markets stabilize and prices stop falling, homebuyers will be even more confident about buying, said Humphries.

"People can now see the light at the end of the tunnel," he said. "And that can be enough to get them off the fence."





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