The mortgage industry has been slammed by the the Great Recession and the resulting credit crunch. Government programs, such as the bailout of the banks, were meant to ease the credit crunch and get money flowing to consumers again.
As unemployment rose, many homeowners found themselves unable to make their mortgage payments, especially those with adjustable interest rates. Home prices fell at the same time, which left these homeowners under water, meaning their homes were worth less than their mortgage balances. With no way to sell, foreclosures exploded. The Federal Reserve and the housing industry continued to tweak things and for a while interest rates dropped and have remained low.
Even with continued low mortgage interest rates, as of the first half of 2011 the economy isn’t showing much improvement. In spite of reports that the numbers of jobs are increasing, the unemployment rate remains around 9 percent. Meanwhile the Fed’s interest policy has begun to tighten up. The economy is still spooked by the federal debt, especially with the media coverage of the debt ceiling problem. Politics as usual makes consumer nervous as well.
In light of all that has happened, an increase in interest rates for home loans for the rest of 2011 is predicted by many experts. Some analysts are focusing on trends to expect as the year progresses. For example, they forecast that:
- Mortgage rates will rise, although perhaps slowly as the year plays out. Interest rates will reach about 5 percent, according to the Mortgage Bankers Association (MBA). Although higher than in 2010, when it was closer to 4 percent, 5 percent is still an historic low. Advice to refinance a home or purchase a home using financing at these rates is still advised for 2011.
- The sluggish economy will continue to have a negative effect as the year plays out and analysts expect that total mortgages will fall to less than $1 trillion. Because many of the homeowners who could refinance have already done so, refinance applications are expected to fall dramatically. Currently it’s estimated that 80 percent of new mortgages each year are refinances. This number is expected by the MBA to fall below 40 percent this year. That means that mortgages for the purpose of buying a home will take up a bigger share of the market. The economic stimulus plan that raised limits on jumbo loans up to $729,750 has expired. Since jumbos will be less accessible, expect rates to rise, preventing some borrowers from buying or refinancing higher end homes.
- All cash purchases of homes are expected to increase, as often happens when interest rates rise. A chief economist of the National Association of Realtors, Lawrence Yun, has said that “all-cash purchases” accounted for about 25 percent of all home purchases during the last four months of 2010. All cash home purchases are expected to continue to comprise a large portion of the residential real estate market.
Appraisal woes could also adversely affect the real estate market. The American Banker Magazine predicted late last year that many appraisers will choose to leave the industry. Fewer appraisers will likely mean reduced quality of home appraisals, increased costs and increased wait times to get a home appraised for home loans.
So, in conclusion, expect rates to go up and a longer wait for your mortgage if you decide to jump in to the market before rates rise even more.
If you want to buy a house before mortgage rates go up, take a look at these new homes in Chula Vista. Some of them are ready to go as soon as you get loan approval.
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