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Near Record Low Mortgage Rates Sends Pending Home Sales Surging

Near Record Low Mortgage Rates Sends Pending Home Sales Surging

Low current mortgage rates combined with improving credit conditions, and other factors sent pending home sales surging in January. While today's mortgage rates are slightly higher than a month ago rates are only about 50 basis points from record lows set in May 2013.

Mortgage Rates Near Record Lows30 year mortgage rates today are averaging 3.92 percent, down from last week's average of 3.97 percent. The all-time record low for average 30 year rates was 3.35 percent set in the first week of 2013.

The National Association of Realtors' Pending Home Sales Index rose 1.7 percent in January, to a 104.2 reading, 8.4 percent above levels from a year ago. The strong number is surprising considering the bad winter most of the Midwest and Northeast had. Another factor constraining home sales is the low inventory of homes available for sale.

Lenders eased loan standards late last year helping home buyers finance purchases. Two mortgage guarantee giants, Freddie Mac and Fannie Mae, also loosed restrictions on loans. A biggest change from Freddie and Fannie was lowering down payment requirements to only 3 percent for some loans.

Easing of standards, an improving economy, higher job growth, and higher wages will also help the housing market in 2015. Working against the housing recovery is the low amount of homes available for sale. In the NAR's January National Housing Trend Report Inventory homes available for sale fell in January. The decline was rather large falling 6.7 month-over-month and 8.7 percent year-over-year.

The tight supply of homes for sale will force home buyers to compete with each other and that will send home prices higher. If you already own a home, increasing home prices is good news, but not so much if you're looking to buy a home. NAR’s chief economist, Lawrence Yun, said "home prices in metro areas throughout the country continue to show solid price growth, up 25 percent over the past three years on average.”

Home prices are moving up and mortgage rates are also forecast to increase from current levels. A double whammy to the housing market if prices and rates move up to quickly. Conventional 30 year mortgage rates are expected to be 100 basis points higher from current levels, moving as high as 5.00 percent. 15 year rates are also expected to increase 100 basis points, sending rates above 4.00 percent by the end of 2015.

The good news is the housing recovery will continue in 2015. The bad news is mortgage rates are moving higher in 2015. Higher home prices is a mixed bag, depending on if you're buying or selling a home.

If you're thinking of buying, now is the best time to so. If you're thinking of selling, you might get a better price in the future but higher mortgage rates will work against you. The average buyer can afford less home, maybe netting you a lower selling price.





Author: Brian McKay
March 4th, 2015