As Investors Snap up Homes, Pending Home Sales Decline but Still Above Sales a Year Ago
Pending home sales declined in December 2012 but stayed above year ago levels for twenty consecutive months as near-record low current mortgage rates spurred home buying. The lowest mortgage rates in a generation are bring homebuyers back into the market but they are not the only factor driving home sales.
Investors have come back to the market in a big way and are snapping up single family homes across the country. A recent CNN Money article showed hedge funds and private equity firms are actively buying into real estate. The big money is investing in home building companies, buying raw land and single family homes. The Blackstone Group has purchased 17,000 foreclosed single-family homes.
Although pending home sales declined 4.3 percent in December, the National Association of Realtors' Pending Home Sales Index will be higher in 2013. Shannon Drury, a real estate agent with Maher-Drury Associates Prudential Real Estate in Connecticut, said "homes are selling faster the past couple of months due to low inventory and more buyers coming back into the market, taking advantage of low mortgage rates and high home affordability."
Home prices are also moving higher the past year and should continue for the next several years, after many years of declines. Mortgage rates today have moved higher over the past month should stabilize around current levels. 30 year mortgage interest rates are averaging 3.59 percent, a slight increase from last week's average of 3.54 percent. Based on the Federal Reserve's actions, we believe 30 year mortgage rates will stay in a range of 3.25 percent to 4.00 percent for 2013.
Low refinance rates have also spurred demand for refinance loans as homeowners take advantage of low rates to lower their mortgage payments. A recent analysis on homeowners refinancing loans released by Freddie Mac showed 84 percent of those refinancing either maintained or reduced their mortgage principal.
The average mortgage refinance rate reduction in the analysis was 1.8 percent. On a percentage basis, the savings was 33 percent, which was the largest percent reduction recorded in the 27 years of analysis. Homeowners refinancing to a rate 1.8 percent lower than their old rate saved tens of thousands or hundreds of thousands of dollars in mortgage interest over the life of the loan.
Refinance rates are just above record lows if you haven't been able to refinance in the past, you should look into it again. Over the past several years, millions of homeowners were unable to refinance because they didn't have enough equity in their home. These days lenders will finance only up to 80 percent of a home's value, 80 percent loan-to-value (LTV).
Since home prices have risen the past 12 months, you may now have enough equity in your home to refinance. The only cost to find out is by having an appraisal done, which can cost anywhere from $200 to $500. If you are able to refinance, the savings in interest payments will far outweigh the upfront cost of an appraisal.
You can watch the NAR Chief Economist, Lawarnce Yun, discuss pending home sales in this video:
RatesORama.com Average Mortgage Rates