The 30-year fixed-rate mortgage continues become more enticing to borrowers seeking a mortgage refinance. It fell to an average rate of 3.40% from 3.49%, as reported by Freddie Mac. The 15-year fixed- rate mortgage dropped from an average rate of 2.77% registered last week to a record low of 2.73%.
Homeowners looking to refinance their mortgage and potential homebuyers have reaped immediate benefits from the Federal Reserve latest monetary policy initiative.
According to Keith Gumbinger, vice president of the mortgage data and analysis firm HSH.com, "This is what the Fed wanted to see. So far, so good." Gumbinger anticipates rates falling another 0.1% in the near future once the policy goes into full force.
Record low interest rates have been one of the keys to the “improving housing market," said Frank Nothaft the chief economist at mortgage insurer Freddie Mac. Refinancing from higher interest rate mortgages to low interest rate loans reduce monthly mortgage payments puts more disposable income in the hands of homeowners. It also enables potential homebuyers to purchase higher priced homes.
Housing Market Improvements
In August, existing-home sales increased 7.8%, according to data released by the National Association of Realtors. The U.S. Department of Commerce reports new-home sales up 27.7 percent over 2011. Applications for building permits also were up for the month. Recording the largest one-month gain in prices, the median price of a new home soared 11 percent to $256,000.
All of this good news portends well for the housing market. It is finally showing signs of improvement and coming out of its malaise.
However, at an annual rate of 373,000 units, the pace falls short of being healthy. In a normal market, new-homes must sell at the equivalent of a 700,000 units a year to meet the definition of a healthy market, for most economists.
Employment Factor
The sustainability of housing market improvement depends on other dynamics in the economy and the news has not been encouraging. The Commerce Department recently revised down economic growth in the second quarter, from 1.7% from 1.3% -- a big change. Consumers spent less than initially thought. Consumers make up 70 percent of the spending in the domestic economy.
The state of the job market also limits the housing industry recovery. The unemployment rate has been above 8%, where it remained for more almost four years. From March 2011 to March 2012, the unemployment rate fell from 8.9% to 8.2%.
During this period, U.S. companies created an average of 194,000 jobs each month, according to revised numbers released by the Labor Department. Since April 2012, employers have created an average of 87,000 jobs per month.
Foreclosure and Credit
Some areas of the country have an excessive number of foreclosed homes, which places a drag on the existing-home sales and stifles new construction. Despite falling mortgage interest rates, many people have a difficult time getting their mortgage refinanced or buying a new home because of their credit. Some have a default on their records or lost a job.
Many potential buyers simply do not have the motivation to purchase a home because of concerns about jobs and the number of homeowners in trouble with delinquent and/or underwater mortgages. They also have fresh in their minds the financial devastation incurred by homeowners who lost their homes during the foreclosure crisis.