Conditions prime for home buying in 2012
Source: Courant HomeFinder Digest
With the housing market and mortgage industry gearing up for their peak season in home buying activity, a number of indications from both sectors could mean the most successful season in years.
Mortgage application activity on the rise
According to a recent report from the Mortgage Bankers Association, home loan activity rose 1.4 percent during the week ending May 4. This overall increase was spurred by an upswing of purchase requests, as the refinancing share of the index declined.
Refinancing requests fell marginally to 72.1 percent from 72.6 percent a week earlier, the report found. In addition, government initiatives such as the Home Affordable Refinance Program and Home Affordable requests from distressed borrowers as the Government Refinance Index fell 2.3 percent from the previous week.
These trends of rising purchase applications and decreasing refinance activity could be an indicator that the housing market is growing stronger. The fact that the refinance share of mortgage application activity has trended lower during recent weeks could be a result of more current homeowners choosing to keep their home loans under the same structure as they gear up to sell their properties.
Home loan delinquencies declining
The mortgage delinquency rate of borrowers who were more than 60 days late on their home loan payments was down during the first quarter this year to a rate of just 5.78 percent. This marks both an annual and month-over-month decline, according to a report from TransUnion. This is the lowest the rate has been since the beginning of 2009. As a potential result, this could give lenders the confidence they need to extend more lines of credit to prospective borrowers in the coming months.
“To see that quarter-over-quarter, and year-over-year, more homeowners were able to make their mortgage payments is certainly welcome news, “said TransUnion U.S. housing financial services business unit Vice President Tim Martin. “Before this, we saw two quarters of delinquency increases and while we are still about three times above the pre-recession norm, this should mark the start of consistent improvement each quarter.”
Prior to this decline, the delinquency rate had fallen for six straight quarters until climbing during the final six months of 2011.
Housing affordability reaches 40-year high
Due to recent changes in mortgage rates, median housing incomes and property values, a report from Fisery and Care-Shiller found that housing affordability is currently at the highest level seen in nearly four decades. Home prices have fallen by as much as 35 percent since the housing market’s peak, according to the report. Property values are now at the same level they were in 1998.
“The precipitous drop in home prices was an immediate cause of the last recession and the financial crises. Falling home equity has cut into household consumption and has further constrained the economic recovery,” said Fisery Chief Economist David Stiff.
Nowadays, at the current median household income, the average American family that purchases a home will only need to allocate 12 percent of their annual income to the investment. Typically, experts advise not pulling more than 30 percent of annual income toward housing, which makes 12 percent a real bargain.
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