Mortgage Rates Expected to Remain Low While Home Prices Forecasted to Increase 4 Percent in 2013
Fannie Mae is forecasting a rosy housing picture for 2013 with home prices and home sales both increasing. After several years of the drastic home price declines, prices are finally moving higher again and at a fast clip. Low mortgage rates today and low home prices are finally having an effect as buyers are coming back into the market in full force.
For 2013 Fannie Mae is predicting home prices will increase 4 percent and existing home sales will increase 10.5 percent. Fannie Mae is also predicting home sales will increase another 6.5 percent in 2014. Fannie Mae is also forecasting current mortgage rates will remain low for the next several years.
Today's mortgage rates on 30 year conforming loans are averaging 3.69 percent and are expected to remain under 4.00 percent for all of 2013. For the next year, 30 year conforming rates are expected to remain under 4.50 percent. While mortgage rates are moving higher, rates are still very low historically speaking.
Another factor driving home prices higher rather quickly is the number of homes for sale. The amount of homes available for sale has also declined this spring to the lowest point since the housing bubble back in the mid 2000's. The National Association of Realtors reported there is only a 4 month inventory supply of existing homes for sale, down from a 12 month supply just a few years ago.
The NAR also reported the total number of homes available for sale is also at a multi-year low. In 2005 the monthly supply of homes for sale was just above 1 million, at the height of the housing bubble, that monthly number ballooned to over 3 million. Now the monthly number of homes available for sale is just above 1 million again.
A tight supply of existing homes for sale will contribute to higher home prices as home buyers compete for homes, just like during the housing bubble. Shannon Drury, a Prudential Real Estate agent in Connecticut said, "Homes that are moving quickly now are priced right and usually have multiple offers."
Since the housing bust, home builders have also pulled back considerably on building new single family homes. At the height of the housing bust in 2009, builders broke ground on only 554,000 new homes. In 2012 new home starts were 780,000 and Fannie Mae forecasts builders to start on 990,000 new homes. In 2014 the forecast is for 1,320,000 new homes, the highest number since 2007.
While the number of existing homes and new homes for sale is expected to increase in the coming years, the supply won't dampen the rate of home price appreciation. The nation added 1.15 million households in the 12 months that ended in September, according to the most recent Census Bureau data. The number of households increased dramatically in 2012 over the prior 4 years when the number of new households formed averaged only 650,000 annually.
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