2013-05-22ml-implode.com

The latest Housing Starts data, released by the U.S. Census Bureau and the Department of Housing and Urban Development, was disappointing and showed a 17% decrease for the month of April. However, Housing Permits show hope for the future with an increase of 14.3% for the same month. Permits were 35.8% higher than a year ago at the same time. Single family housing permits represented 3% of the total amount.

Along with this, The National Association of Home Builders/Wells Fargo Building Confidence Index increased to 44 during the month of May for the first time in five months. The future outlook amongst builders for home sales during the next six months rose to the highest level in over six years. However, it was noted that builders face many challenges. "While builders today are considerably more optimistic than they have been at earlier stages of the housing recovery, numerous challenges are slowing their ability to get new projects underway," said Rick Judson, chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C. "In particular, limited access to construction credit, tough qualification standards for mortgage borrowers and rising costs for building materials, developable lots and labor are impacting the pace of construction activity."

The National Association of Realtors reported that Existing Home Sales increased in April 0.6% to a seasonally adjusted rate of 4.97 million in April. Resale activity for the month is 9.7% higher than April 2012. According to the NAR report, sales remain below demand due to limited inventory and tight credit.

Lending restrictions continue to be an issue. According to The Federal Reserve Board April 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices, "Modest to moderate net fractions of banks indicated that they were currently less likely to approve such loan applications with a FICO score of 620, depending on the down payment, though most of those were smaller banks. Willingness to approve applications for most of the other FICO score-down payment categories was reportedly about unchanged from a year ago. However, a modest net fraction of banks were more likely to approve an application with a FICO score of 720 and a 20 percent down payment. Banks were also asked to compare their bank's current likelihood of approving an application for an FHA-insured home-purchase loan with a given FICO score and the FHA minimum down payment of 3.5 percent with their likelihood a year ago. About one-third of respondents indicated that they were less likely to approve such home-purchase loan applications with FICO scores of 580 or 620."

With this in mind, it is no wonder that mortgage refinances continue to drive the market at this time even though mortgage rates are low and should be attracting home buyers. Special refinance programs have made it easier to refinance for those whose credit is not up to lender requirements. In particular, homeowners who are eligible (loans that were sold to Fannie Mae and Freddie Mac prior to June 1, 2009) for HARP loans have the added benefit of reduced documentation and no need for an appraisal. Now that the HARP refinance program has been extended to the end of 2015, many more homeowners have the chance to get their mortgage payments up to date to meet the guidelines.

FHA mortgages have always been a way for low to middle income consumers to obtaining financing to purchase a home. Changes to the FHA loan program has made guidelines stricter, although still not as strict as conventional loans. In addition, those who already have FHA loans can also refinance through the FHA streamline program which does not require any documentation, no credit history, as well as, no appraisal as long as there is no cash taken. The FHA streamline also has reduced upfront and annual insurance fees for loans that were endorsed prior to June 1, 2009.

Although housing may be doing well, there are many challenges that lay ahead. Employment remains rocky with many consumers still unable to obtain work. The latest weekly report from the Labor Department shows that unemployment claims rose by 32,000 for the week ending May 10th to a seasonally adjusted 360,000 which was the most since late March. While housing may be heading into a seller's market and mortgage rates remain low, rising home prices may become too high for consumers who are not seeing their incomes increase to meet stricter debt to income guidelines.

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