Tom Kelly: Consistent, low rates lifted housing market
Mortgage lenders are moaning that the refinance boom is over and the only way to make a profit in 2014 is to be successful in the new purchase business.
I prefer to look at what transpired in 2013 in a different light. I believe the housing industry was fortunate to have mortgage interest rates remain as low as they did for as long as they did.
Homeowners with positive home equity finally became more common than those “underwater” borrowers who owed more on their loans than the value of their homes.
Consistent interest rates clearly emerged as the top story on the 2013 real estate landscape. Rates continued to be a critical component in helping consumers see that property could again be a viable, reliable alternative to the conventional financial markets.
National home values rose 5.2 percent in 2013 and are expected to climb 3.7 percent in 2014. Imagine where we would be if 30-year, fixed-rate loans were hovering at 7 percent and not 4.5 percent.
Not only did a constant low-rate picture allow first-time buyers to continue a realistic search for homeownership, but the rates also became the solid base for cash-strapped families to tap into home equity.
In fact, the national negative equity rate fell at its fastest pace ever in the third quarter, dropping to 21 percent of all homeowners with a mortgage, according to Zillow, an online real estate marketplace. While approximately 10.8 million homeowners remain underwater (down more than 4.9 million from the peak in the first quarter of 2012), the picture could be much worse.
“Rising home prices and a greater willingness among lenders to engage in short sales have both contributed substantially to the significant decline in negative equity this quarter,” said Stan Humphries, Zillow’s chief economist. “We should feel good that we’re moving in the right direction and at a fast clip. But negative equity will remain a factor for years to come and must be considered part of the new normal in the housing market. Short sales will remain a persistent feature of the market as many homeowners remain too far underwater for reasonable price appreciation alone to help.”
It’s helpful to remember that housing is the most rate-sensitive industry in our economy. If interest rates go up, there are going to be fewer buyers in the marketplace. Analysts estimate that a full percentage point affects approximately 250,000 new buyers.
Another big story in 2013, and greatly underplayed, was the recent announcement by the Federal Housing Finance Agency that the 2014 maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac will remain at $417,000 for one-unit properties in most areas of the country. Amounts greater than $417,000 are known as jumbo mortgages.
The FHFA announced in late summer that it would consider rolling back the limits to a lower level for the coming year as another step in reducing Fannie and Freddie’s influence in the mortgage market and encouraging greater participation by the private sector.
The proposed move was met with protest from industry groups and others who sent letters both to FHFA and to Congress protesting any downward revisions as potentially harmful to homebuyers, refinancers and the housing market recovery.
Loan limits are changed each year according to a formula that takes into account median prices in local areas. The limits have been unchanged for several years because of emergency regulations put in place in response to the housing crisis.
A third story that hit the 2013 big-time story list was the news that reverse mortgage borrowers are now further limited in how much equity they can pull out of their homes, particularly in the first year of the loan.
New rules governing the Home Equity Conversion Mortgage insured by the Federal Housing Administration – the nation’s most popular reverse mortgage program – specify that the maximum disbursement allowed at loan closing and during the first 12 months of the loan is approximately 60 percent of the available proceeds.
And, as of Jan. 13, 2014, anyone over the age of 62 who wishes to tap the equity in their home without making a payment to repay the debt via a reverse mortgage will now have to show the ability to pay the property taxes and homeowners insurance needed to stay in the home. Hopefully, 2014 will bring positive changes, more options and a brighter outlook for seniors and reverse mortgages.