Housing and Mortgages Fueled by Euro Zone Troubles

Once again, Europe is making global headlines as Greeks, uncertain of the future, are withdrawing their money from banks. After the talks to form a coalition government fell apart and a new vote was set for June, there is increased fear that Greece will exit the European Union and its common currency. These events are having a positive affect on U.S. housing and mortgages which are being fueled by Euro zone troubles.

The National Association of Realtors Quarterly Housing Affordability Index showed that for the first time the index has climbed above 200 since 1970 when record keeping began. The index hit 205.9 with the first time home buyers index at a record 135.8%. The purchasing power of a household is measured by median home price, median family income and the average mortgage rates. While market conditions are favorable for home buyers, good credit is still necessary to obtain a mortgage. As mortgage rates have continued to fall, single family home starts were also up 2.3% in April according to the Commerce Department and the Department of Housing and Urban Development. Although this is a small percentage and does not represent what would be considered a healthy housing market, it is definitely a start in the right direction. The National Association of Builders reported that the Housing Market Index, which measures home builder confidence based on potential buyer traffic and sales, rose 5 points and hit its highest reading since April 2007.

As mortgage rates continue to fall, mortgage application activity increased especially with mortgage refinances. For the week ending May 11th, mortgage refinance activity rose 13.0% from the previous week and represented 74.9% of all applications. While government refinances were only 4%, conventional mortgage refinances were up 14%. Right now, most FHA borrowers are waiting for the updated FHA streamline refinance with no cash out which goes into effect June 11th. This program will be offering lower upfront and annual mortgage insurance premiums to existing FHA borrowers who have loans that were endorsed prior to June 1, 2009. The increase in conventional mortgage applications often happens whenever mortgage rates decrease. In many cases, a slight decrease in mortgage rates can make a borrower eligible for approval because a lower rate will reduce the corresponding debt to income ratios to an acceptable level.

HARP refinance applications fell to 28% after being just above 30 percent in April. Many borrowers are still not aware that they do not need to use their original lender or servicer in order to refinance with HARP. In many cases, those who have not received an approval from their lender go on to be approved by another lender. While many borrowers know of and understand the details of HARP, there are many more who are not even aware of its existence. Since this program was expanded for underwater borrowers, it will continue through 2013 so that everyone can be reached and given the opportunity to refinance to lower mortgage rates. Continuing efforts are being made to get the word out to homeowners giving them the opportunity to submit online inquiries for HARP without too much effort or information. This has become a very successful means for borrowers to receive what they are looking for, as well as an approval.

Europe's financial problems may continue to be an ongoing event not only with Greece, but also with Spain, Italy, Portugal and other countries that are part of the Euro zone. Just in case, the Federal Reserve policy makers suggested that they are ready to further stimulate the U.S. economy if growth stalls or other risks or threats increase, which was stated at the central bank's April 24/25 meeting. In the meantime, while Europe struggles through their problems, investors tend to reduce their risk which will keep mortgage rates low or even push them lower. At the same time, energy prices have fallen giving consumers more money to spend in other areas of the economy including housing. All of these event will help keep mortgage rates down and the housing market moving, even if at a slow pace.

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