2013-02-13 — ml-implode.com
While rising home prices may be a good thing to happen in the housing market, the reason it is happening may not be so positive. According to reports, low inventory is causing the increase in home prices.
Several recent reports show that home prices are on the rise. According to CoreLogic, a data analysis firm, home prices increased for the tenth straight month in December. Including distressed sales, prices across the nation rose on a year over year basis by 8.3% as compared to December 2011. This was the largest increase since May 2006. The National Association of Realtors reported that the fourth quarter of 2012 home appreciation was the best since 2005. Compared to the same time 2011, the median home price for existing single family home closings in the fourth quarter increased in 133 out of 152 metropolitan areas. Only 19 areas had home price decreases. The national median home price for existing single family homes was $178,000 during the fourth quarter of 2012, an increase of 10% from the same time 2011. According to the National Association of Home Builders (NAHB) and First American Title Insurance's Improving Markets Index (IMI) for February, improving markets have expanded across the country and now include every state. These markets are those that have shown six consecutive months of improvement from home prices provided by Freddie Mac, Bureau of Labor Statistics employment data and construction activity from Census Bureau building permit data. The IMI now includes a total of 259 metropolitan areas with the addition of 20 cities.
Low inventory is to blame for the rapid rise in home prices to the extreme that multiple offers are being made for homes. According to DataQuick, a real estate information service, during 2012 a record number of California homes were purchased with cash. In fact, 32.4% of all home sales in California were cash deals with Orange County having 31.4% cash transactions. More than half the buyers are absentee owners which are usually investors. According to DataQuick, the all time high of homes purchased with cash in California in 2012 is the result of high investor interest, a difficult mortgage environment and perceived higher returns on investment. In addition, 55% of all homes purchased with cash last year were done by investors and vacation home buyers. Multi-home buyers, those who purchased two or more properties, accounted for approximately 28% of last year's cash sales, up from around 24% in 2011 (according to an analysis of buyer names in the public record by DataQuick).
For many consumers, the rise of home prices will make it impossible for them to purchase a home even with today's low mortgage rates. While many homeowners use FHA mortgages for financing, the April increase in FHA mortgage insurance premium fees will make it more difficult for some first time home buyers to qualify for the loan. The debt to income ratio for automatic FHA underwriting is 43%; anything higher will require manual underwriting and compensating factors.
At this point, the best thing for existing homeowners to do is to stay where they are as prices increase and possibly refinance to better rates in order to make their mortgage payments lower. FHA mortgage holders can do so through the easy FHA streamline program which also offers lower upfront and annual MIP for loans that were endorsed prior to June 1, 2009. FHA streamline refinance do not allow for cash out, but also do not require an appraisal or other documentation.
There is a need to expand refinancing to everyone so that homeowners are able to stay in and afford their homes at this time. The legislation for the refinancing bill was reintroduced again by Senators Robert Menendez (D-NJ) and Barbara Boxer (D-CA). This bill, if passed, would help millions of homeowners refinance which could save them thousands of dollars each year. It is called The Responsible Homeowners Act of 2013 and would improve the current HARP refinance program by providing equal access to refinancing options for all borrowers. According to Menendez, "We need to do this before interest rates go up again. It's time that Congress finally put families first and give homeowners who have played by the rules a fair chance to refinance at today's low rates."
As investors continue to purchase homes, more consumers are destined to become renters as homeownership becomes further out of reach. At this time, keeping existing homeowners in their homes and making it possible through affordable refinancing is something that the current Administration is pushing to become a reality.
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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