Should the Market Fear a 6% Jump in Rates?

The Federal Reserve’s decision today could potentially bring a close to a seven-year streak of very low mortgage rates. Here’s what an increase in rates could mean for the housing market.

“The potential move away from zero interest rate policy, for short-term rates, is a harbinger of higher mortgage rates ahead and the beginning of the end of this seven-year era of incredibly low mortgage rates and corresponding high affordability,” says Jonathan Smoke, realtor.com®’s chief economist.

Smoke says that mortgage rates that rise to 6 percent could have a big impact to what borrowers pay on their monthly mortgage. For example, in May, the average loan with a 30-year fixed-rate mortgage was $231,000 at a 4.03 percent average rate, which carried a monthly payment (principal and interest) of $1,107. However, that same loan amount at a 4.53 percent interest rate would jump the monthly payment to $1,175 – a 6 percent increase, according to realtor.com®’s analysis.

First-time home buyers may be particularly hard-hit, as well as high-cost areas.

Source: “Fed Decision Could Raise Mortgage Payments 6 Percent; and Out Price Potential First-Time Home Buyers in Certain Markets,” RISMedia (Sept. 16, 2015)

Survey Reveals How Buyers Size Up Homes

Two of the chief motivators in choosing the right home to the majority of buyers is its size and room layout/design, according to the American Housing Survey. The home’s price and neighborhood ranked closely behind.

But a closer look at the data reveals some slight differences in what house hunters view as the most important factors in selecting the right home.

New-home buyers were the most concerned with a home’s room layout/design, neighborhood, exterior appearance, and construction quality.

For first-time home buyers, however, the home’s price trumped everything else.

For all other buyers, the home’s layout/design, neighborhood, and price were #1.

In selecting a neighborhood, buyers reported the most important factors as being safety (71%), the look and design of the neighborhood (65%), friends/family (52%), and proximity to work (48%).

‘See Graphs’ at source: “Different Buyer Preferences? New vs. Existing Homes,” National Association of Home Builders’ Eye on Housing Blog (Aug. 4, 2015)

Better Days Ahead for First-Time Buyers

First-time home buyers have found themselves in a sellers market, faced with above-average price appreciation and bidding wars due to limited inventories of homes for-sale.

But in the second half of the year, the market is expected to shift toward more of a balance as more sellers – motivated by higher home prices – put their homes on the market, alleviating the inventory shortage. This will help provide buyers with more choices of homes to buy as well as likely soften the speed at which home prices are rising.

For potential first-time home buyers, the housing market will soon be more inviting, writes Jonathan Smoke, realtor.com®’s chief economist, in recent commentary. “Combined with a temporary reprieve from rising mortgage rates and slightly easier access to credit, buyers should find it easier to purchase a home in the months ahead,” Smoke says.

Source: “Don’t Lose Faith, Would-Be Home Buyers: It Will Get Better,” realtor.com® (July 23, 2015)

What First-Time Home Buyers Are Willing to Sacrifice

A new survey shows that consumers saving for a home are willing to forego modern conveniences in order to secure a down payment. That may even mean giving up phones, Internet, cable TV, or Starbucks, according to a newly released survey by the business advisory firm the Collingwood Group.

Potential first-time home buyers are making such sacrifices because they want to be able to make a sizable down payment on their home purchase. Nearly two-thirds recently surveyed by TD Bank say they’d like to put 20 percent down or more on their home purchase. The bank polled more than 1,000 consumers who were not home owners but intended to purchase a home within the next five years.

First-time home buyers are increasing their ranks lately, with their share in the housing market rising to 32 percent in May. That matches their highest share since September 2012, according to the National Association of REALTORS®. A year ago, first-time buyers represented 27 percent of all buyers.

Source: TD Bank First-Time Home Buyer Pulse and “Report Says More Millennials Value Home Ownership Over Conveniences,” MReport (July 14, 2015)

‘First-Time Buyers’ Fuel Latest Home Sales Boost

The market share of first-time home buyers rose to 32 percent of transactions in May, matching the highest share since September 2012. A year ago, first-time buyers represented 27 percent of all buyers, NAR reports.

“The return of first-time buyers in May is an encouraging sign and is the result of multiple factors, including strong job gains among young adults, less expensive mortgage insurance and lenders offering low down payment programs,” says Lawrence Yun, NAR’s economist. “More first-time buyers are expected to enter the market in coming months, but the overall share climbing higher will depend on how fast rates and prices rise.”

As the supply of homes remain tight, homes are selling fast and price growth in many markets continues to teeter at or near double-digit appreciation, Yun notes. “Without solid gains in new home construction, prices will likely stay elevated – even with higher mortgage rates above 4 percent,” Yun says.

Source: National Association of REALTORS®

Higher Home Prices Push Affordability Down

Nationally, the median single-family home price is $221,000, up 10 percent from April 2014, NAR reports. The Midwest has seen some of the largest increases in home prices – climbing 11.6 percent in the past year alone. The Northeast, on the other hand, is seeing the slowest price growth regionally at 4.9 percent in the past year.

Housing affordability is down in all major regions of the U.S. from a year ago, except in the Northeast, where home price growth is moderating.

But mortgage rates are on their way up. Freddie Mac reported last week that the 30-year fixed-rate mortgage set a new high for 2015, averaging above 4 percent.

“This may be a good time for return and first-time home buyers to surge back into the housing market before rates climb higher, further reducing affordability,” NAR notes.

View NAR’s latest Housing Affordability Index for a full breakdown of affordability.

Source: “Housing Affordability Index,” National Association of REALTORS® Economists’ Outlook Blog (June 12, 2015)

Good News to Buyers: ‘Affordability Improves’

Low interest rates are helping to boost housing affordability. Nearly 67 percent of new and existing homes sold between January and the end of March were affordable to families earning the U.S. median income of $65,800, according to the latest National Association of Home Builders/Wells Fargo Housing Opportunities Index.

The national median home price fell from $215,000 in the fourth quarter to $210,000 in the first quarter. Meanwhile, average mortgage rates dropped from 4.29 percent to 4.03 percent in that time period.

“Now is a great time for consumers to buy homes,” says NAHB Chairman Tom Woods. “Both first-time and move-up buyers can take advantage of these favorable market conditions and start building their American Dream.”

Source: National Association of Home Builders

High Rents, Low Rates = ‘Top Draws to Owning’

Sixty-two percent of potential home buyers say that now is a better time to purchase a home than it was a year ago, according to Chase’s new national survey, “Insights From the Mind of the Homebuyer.” The top reasons that are motivating more Americans to get off the fence are rising rental costs and historically low interest rates, the survey found.

Thirty-two percent of more than 1,000 consumers surveyed say they want to buy soon in order to take advantage of low rates. What’s more, 35 percent say that the 30-year fixed-rate mortgage rising above 4 percent would delay their decision to buy.

Twenty percent of consumers surveyed say that the rising cost of rent is making home ownership look like a better value and is the top reason why they want to buy. Also, 20 percent of those surveyed say that their desire to make an upgrade from their current home was their top motivation for buying.

Nearly 70 percent say they are worried they may have already missed the best time to buy because of rising home prices. Three out of four home buyers say they’re concerned their offer will be outbid by others, and three in five say they think they’ll need to buy a smaller home or consider other neighborhoods outside of their top choices because of rising prices, the survey finds.

Source: Chase

Closing Cost Aid to First-Time Home Buyers

Fannie Mae announced a new program that allows first-time home buyers of its properties to receive up to 3 percent of the purchase price in closing cost assistance. On a $150,000 priced home, for example, buyers could receive up to $4,500 in closing cost savings.

Fannie Mae’s HomePath Ready Buyer Program requires eligible buyers to complete an online home buyer education course as well as purchase a HomePath property – the branding that Fannie Mae uses for the foreclosed properties it owns.

The education course buyers are required to take covers the responsibilities of owning a home and the home buying process. The course includes nine, 30-minute sessions and is offered exclusively online.

Visit the Fannie Mae website for information about the HomePath Ready Buyer Program.

Source: “Fannie Mae Launches HomePath Ready Buyer Education Program for First-Time Home Buyers,” Fannie Mae (April 14, 2015)

FHA Fee Cuts Likely to Help More Home Buyers Qualify

Last week, the Federal Housing Administration announced it will cut its annual mortgage insurance premiums, likely resulting in about $900 in savings for borrowers and potentially opening the door to thousands of new buyers. But there are no further FHA fee reductions under consideration, Julian Castro, secretary of the U.S. Department of Housing & Urban Development, told a crowd at the National Press Club on Tuesday. The FHA decided to reduce its annual mortgage insurance premium fees from 1.35 percent to 0.85 percent because its Mutual Mortgage Insurance Fund for single-family programs was “back in the black.” In his speech, Castro cited National Association of REALTORS® research that estimated that nearly 400,000 creditworthy borrowers were being priced out of the housing market in 2013 due to the high premiums. “We expect our premium reduction to help more than 2 million borrowers save an average of $900 annually over the next three years,” Castro told the crowd. “It will also encourage nearly a quarter-million new borrowers to purchase their first home.” Source: “Castro: No Further FHA Fee Reductions Under Consideration,” HousingWire (Jan. 13, 2015)