After what was a soft 2011, the year 2012 turned out to be a move towards the right direction for housing. Many areas of the market showed improvement which pushed this sector towards a recovery, although a slow one, which was helped along by continuous and historic low mortgage rates that remained intact for the entire year.

At this point, it appears that the free fall of home prices has stopped, the bottom was reached, and in 2012 home prices actually started to increase slowly. This turn of events has helped the market and has taken out some of the fear that both homeowners and potential home buyers faced. According to the S&P/Case-Shiller Home Prices Indices (HPI) for the twelve months ending in October, the 10 City Composite Index rose 3.4% on an annual basis and the 20 City Composite rose 4.3%. The October 2012 levels for both Indices are approximately 8.4 to 9% above early 2012 levels. The increase in short sales resulted in a decrease of defaults, both of which contributed to reducing inventory and stabilizing home prices.

The high priced home market also saw improvements in 2012, in part due to the availability of record low jumbo mortgage rates. According to DataQuick, a real estate data firm, sales of homes priced at $1 million and over increased by 9% during the first nine months of 2012 as compared to 2011 and was the highest level in four years. In California, that increase was at 14.8% and at the highest level since 2007 during the first nine months of 2012.

Last year, construction of new homes improved after taking a plunge for several years prior. The most recent report from the Department of Housing and Urban Development and the U.S. Census Bureau shows that sales of newly constructed single family homes increased 4.4% in November which was 15.3% higher than November 2011 and the highest level since April of 2010. Builders are also going forward into 2013 with more confidence in the industry. The National Association of Home Builders/Wells Fargo Housing Market Index increased 2 points in December for the eighth consecutive month and is at the highest reading since April of 2006.

The expansion of government programs were a major contributor to stabilizing the housing market in 2012. The HARP program (Home Affordable Refinance Program) was expanded and eliminated loan to value caps so that extremely underwater homeowners, those with loan to values above 125%, could refinance to low mortgage rates. With this change, HARP became a successful program in 2012 and has brought a significant savings to almost one million homeowners. Homeowners who have loans that were sold to Fannie Mae or Freddie Mac prior to June 1, 2009 can still obtain a HARP loan since the program will be available until the end of 2013.

Updates to the FHA streamline refinance brought this program back to life in 2012. Although the FHA streamline with no cash out is a quick and easy refinance, many FHA borrowers did not use it because of the required mortgage insurance premiums. When FHA drastically reduced the upfront and annual mortgage insurance premiums for homeowners who have loans that were endorsed prior to June 1, 2009, this refinance program took off and became as popular as the HARP refinance product. The FHA streamline is also available throughout 2013 giving homeowners more time to move to lower mortgage rates while they are available.

All of these changes may not have happened if it were not for mortgage rates falling to historic lows during 2012. With the help of the Feds and QE3, these low mortgage rates should continue into 2013. Low mortgage rates have kept home affordability high which has further enticed potential home buyers. According to the National Association of Realtors, pending home sales increased 1.7% in November and was 9.8% above November of 2011.

Low mortgage rates have also made it possible for many homeowners to refinance to better mortgages in order to save a significant amount of money. These savings are usually put back into the economy in other areas which, in turn, helps economic growth. It is the Feds intention, through the purchase of mortgage backed securities, to keep mortgage rates low in order to keep the housing market recovery moving forward. It is hoped that these steps will lead to more jobs in this industry in the near future.

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 about a 1 point origination fee.

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