Rising Mortgage Rates Accelerates Home Purchasing; Refinancing Slows

It appears that many of the potential home buyers out there are finally reacting to changes taking place in the housing market. The most significant change is rising mortgage rates which has accelerated home purchasing. However, refinance application volume continues to slow as homeowners turn their backs on the changing mortgage environment.

According to the National Association of Realtors, existing home sales rose 6.5% for the month of July which is 17.2% above the numbers during July of 2012. Lawrence Yun, NAR chief economist, stated "The initial rise in interest rates provided strong incentive for closing deals. However, further rate increases will diminish the pool of eligible buyers." The report also indicated that inventory increased 5.6% during the month although tight inventory in certain areas means higher home prices. The national median existing home price for all housing types was $213,500, 13.7% higher than the same time a year ago and now only 7.3% below the record price seen in July 2006. Just two years ago, median home prices were 25.7% below that peak.

While first time home buyers represented 29% of purchases for the month of July, the numbers remained unchanged from June and are 34% lower than a year ago. Of these, 31% were for all cash sales, up from 27% during July 2012. Investors purchased 16% which is a decline from 22% during February. While investors are still out there purchasing, higher home prices appear to have subdued some of this activity. Single family home sales have improved and are 16.4% higher than last year at the same time.

Refinancing volume continues to suffer through rising rates with the Refinance Index down 8% for the week ending August 16th, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. Total volume was down 4.%, however, the Purchase Index rose 1% on a seasonally adjusted basis and was 5% higher than a year ago. Adjustable rate mortgage applications are making a comeback and increased 6% for the week. According to Ellie Mae's Origination Insight Report, HARP refinances rose to 11.1% during July, up from 8.0% in June. The HARP program will continue to be available for underwater borrowers until the end of 2015.

Rising mortgage rates and rising home prices are both a threat to the current housing recovery. In order to assist more consumers in the home buying process, FHA has recently revised their policy for consumers who have suffered through a bankruptcy, foreclosure or short sale in order to provide easier access to FHA mortgages for home purchases. The waiting period for purchasing a home has been reduced to one year (previously two years after a bankruptcy and three years after a foreclosure or short sale). The new guidelines require that borrowers must show that their household income was reduced by 20% or more for at least six months and was related to unemployment or other extenuating circumstances. Borrowers who are eligible must participate in at least one hour of housing counseling that is approved by FHA.

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