Mortgage Rates Hit a New Low
It’s a buyer’s paradise. Home prices have never been better, and this week rates for fixed mortgages slipped to record lows, providing yet another incentive for prospective buyers to get off the fence and invest in home buying.
The average on a 30-year loan dropped to 3.62 percent, according to mortgage giant Freddie Mac. That’s the lowest on record since the inception of long-term mortgages in the 1950s. The rate on 15-year mortgages also plummeted to 2.89 percent, another historic low.
The low rates on the 30-year mortgages have been a big boon for the struggling housing market and first-time buyers. Despite a dip in employment numbers, home sales are up compared to last year, and so are prices in most markets. The drop in 15-year mortgage rates have helped consumers save money by refinancing their existing homes, thereby leaving them with more disposable income.
The only catch is that qualifying for a mortgage is still pretty tough. Banks have tightened their procedures, leaving many consumers out of the housing market. But if you are one of the lucky ones with a squeaky clean credit record and enough savings for a good down payment, now is the time to lock into the low rates.
Rents Trending Upward
Low rates and lucrative prices have been providing a healing effect on a battered market. But, the real boom is happening in the rental industry. Demand for rentals are high, driven partly by strict lending procedures, which have locked out many buyers from the market. Many potential buyers are still sitting tight waiting for the economy to improve and prices to fall further. While they are waiting, they are renting.
As demand increases so does prices. In many cities it is now cheaper to buy than rent.
According to Reuters, personal finance experts recommend spending no more than 30 percent of family income on housing. But, nearly 40 percent of Americans are paying more than a third, the wire service reported.
“We have falling incomes, rising rents and nothing but substantial upward pressure on those rents,” Chris Herbert, director of Harvard University’s Joint Center for Housing Studies told Reuters. “And nothing in the cards suggests it will turn around anytime soon.”
Trulia, a residential real estate website, says that nationwide rents increased 5.4 percent when compared to a year ago. But there are exceptions such as Las Vegas, one of the 25 largest rental markets, which did not experience an increase. Fort Worth, Texas experienced the largest increase at 15.5 percent, followed by Edison-New Brunswick, N.J. at 14.8 percent. San Francisco saw a 14.7 percent hike.
If this trend continues, we may soon see droves of buyers frustrated with rent hikes making a beeline for the market.
Putting Brakes on Foreclosures Could be Harmful
This week, California Legislature voted on a measure to delay foreclosures. Experts say such steps will not help restore the ailing housing market.
In these tough economic times, job creation and stimulating the housing market should be the top priority. But, while families need to be financially empowered so they can bear the brunt of the housing bust and economic downturn, focus should also be to clear the market of excess inventory, according to John B. Taylor, a senior fellow at the Hoover Institution and professor of economics at Stanford University, and Douglas Holtz-Eakin, president of theAmerican Action Forum and former director of the Congressional Budget Office.
Any effort at delaying the foreclosure process could be counterproductive, Taylor and Holtz-Eakin said. That would mean clogging up the market with inventory, which in turn could drag down prices and hurt the market’s recovery. Shadow inventory also creates jitters in the market, increasing the anxiety of potential buyers and discouraging them from investing in the market.
“With about 133,000 foreclosures completed in California in the past year, it is important not to clog the pipeline,” Taylor and Holtz-Eakin said. Obstructing distressed properties from clearing the market will prevent the overall market from stabilizing.