Slow Housing Recovery Continues Despite Historic Mortgage Rates

The direction of the housing market is determined by the various reports and numbers that are released on a monthly basis. While reports have shown both positive and negative news, the reality is that the housing recovery has been slow despite historic mortgage rates that have been in place.

Homeownership in the U.S. reached an all time high of approximately 70 percent prior to the economic crisis. Since that time, it has continued to fall back to the current level of approximately 65% and is expect to drop even further. Many factors are to blame for the lack of a strong and sustained housing recovery. With many areas still witnessing declines in home prices, consumers may be waiting for the bottom to hit before making a move to purchase a home. According to CoreLogic, there were 11.1 million underwater mortgages at the end of 2011. Underwater mortgages are not eligible for traditional mortgage refinances. Most of these loans are present in the states that were part of the extreme housing boom, Nevada, Florida, California and Arizona, and account for more than a third of underwater mortgages in the U.S. High rates of foreclosures are also present in these states, as well as shadow inventory that is being slowly added to the available supply of homes on the market. Right now, these are currently strong locations for HARP refinances which are aimed to prevent further foreclosures, defaults and short sales, all of which contribute to falling home prices. With these conditions present, existing homeowners are holding on to their homes since they cannot sell without taking a loss. One aspect of a housing recovery is the rotation of homes and the movement of consumers from one area to another which is not occurring.

Adding to the problem is the difficulties associated with credit and mortgage approvals. Although years of high unemployment hurt personal credit scores and made qualifying difficult, lenders added to the problem by setting higher standards for approval. The Federal Housing Administration offers FHA loans and has been helping consumers for many years, although now they have also added low credit score requirements to their guidelines. Contract failures continue to occur due to denied mortgage applications, appraisal values and now competition from cash buyers. While the home investor is on the increase, the homeowner is on the decrease. Renting is once again becoming normal as it was back in the 1970s and 80s. Even builders are producing single family homes with the intent of renting. According to The Joint Center for Housing Studies of Harvard University's report The State of the Nation's Housing 2012, the number of renter households increased by 1.0 million in 2011. As renters have increased, the cost of renting has also increased as the supply of low cost rentals diminished due to overwhelming demand.

Despite the facts, figures and reports, there are indeed consumers who do not fear making the move to homeownership and realize that there are no guarantees as to the sustained or increased value of a home, which is similar when purchasing stocks. Looking back to the 1980s, consumers were obtaining mortgage rates at 18% in order to purchase a home to live in. There are low priced homes available today that, when combined with record low mortgage rates, are unbelievable bargains for those who are looking to create a home, a place to live regardless of its value.

FreeRateUpdate.com surveys more than two dozen wholesale and direct lenders' rate sheets to determine the most accurate mortgage rates available to well qualified consumers at a standard 0.7 to 1% point origination fee.