Seattle Real Estate Market Forecast for 2017: Leading the Pack, Again?

Back in February, I wrote about Zillow’s prediction that Seattle, Washington would be one of the hottest housing markets in 2016. Turns out they were right. Seattle has generated a slew of headlines this year, mainly due to the rapidly rising home prices in the area.

Well, here we go again. The city is now expected to be one of the hottest markets in 2017, as well.

Seattle One of the Hottest Housing Markets in 2017?

Economists and housing analysts are beginning to offer predictions for 2017, and the Seattle real estate market is once more standing out from the pack.

Veros Real Estate Solutions, a California-based company that specializes in property valuations and analytics, recently published a real estate market forecast for major metro areas across the U.S. In their view, the Seattle-Tacoma-Bellevue metropolitan area could experience the biggest home-price gains from June 2016 to June 2017 (among metro areas that were analyzed).

According to their report, published on July 11:

“The top forecast markets are showing appreciation in the 10% to 11% range with the Pacific Northwest and Colorado having a lock on 8 of the top 10 … Seattle, Wash. (+11.2%), Portland, Ore. (+11.1%), Denver, Colo. (+9.9%) and other metropolitan areas in these same vicinities appear very strong over the next year.”

This outlook is based on the company’s latest VeroFORECASTSM, a quarterly forecast for the national real estate market that covers the 12-month period ending June 1, 2017.

Home Prices Now Higher Than Ever

In June, house values in Seattle rose to a new all-time high. According to a recent report from ATTOM Data Solutions (the parent company of RealtyTrac), the median home price in Seattle rose to $385,500 in June of this year — the highest it has ever been.

“Home prices in the greater Seattle area continue to appreciate above average rates,” said Matthew Gardner, chief economist at Windermere Real Estate. “This is clearly an indication of not only continued faith in the housing market, but also the buoyancy of the regional economy.”

Population growth has a lot to do with this. Seattle’s bustling job market — and its booming tech industry in particular — are luring the young and upwardly mobile from elsewhere in the country. This increases demand for housing, at a time when supply is limited. Home prices tend to rise under such conditions.

According to a recent article published by Sammamish Mortgage, a Bellevue, Washington-based mortgage company: “Despite a recent uptick in construction activity, there just aren’t enough homes on the market [in Seattle] to satisfy the current level of demand.”

It’s that supply and demand thing again.

Zillow’s Forecast for 2017: Additional Gains

The real estate information company Zillow has offered another prediction for the Seattle housing market in 2017. But it’s a bit more modest than the double-digit price projection made by Veros (above).

In August 2016, the company published this statement on its website: “Seattle home values have gone up 16.7% over the past year and Zillow predicts they will rise 8.1% within the next year.” This is based on the company’s “Zestimate,” an estimate of current market value.

Here’s the bottom line to all of these stats and projections: Seattle, one of the hottest real estate markets in 2016, is expected to continue sizzling in 2017.

Disclaimer: This story contains predictions and forecasts for the Seattle housing market in 2017. Those forward-looking statements were provided by third parties not associated with our company. As a rule, the Home Buying Institute does not make claims or assertions about future housing conditions.

Chicago Housing Market Forecast for 2017: More Appreciation Ahead?

Home prices in the Chicago metro area rose steadily over the last year or so. Additional, yet modest, gains are expected in 2017 as well. This is based on several forecasts and predictions for the Chicago real estate market in 2017.

Current Trends Across the Metro Area

Median home prices and sales activity both increased in June. According to the Illinois Association of Realtors, 13,620 homes were sold in the Chicago metro area this June, which is an increase of 2.1% from the same time last year.

Meanwhile, the median price paid for a home in the Chicago area rose 4.6% in June, compared to last year. The median sales price rose to $242,500 in June 2016. Again, that’s for the entire metro area.

Currently, the Chicago housing market favors sellers over buyers. According to Mike Drews, president of Illinois REALTORS: “Sellers continue to reap the rewards of a summer market where buyers are choosing from a greatly diminished pool of properties.” He added that housing supply is struggling to “keep pace with buyer demand.”

These trends no doubt fuel the Chicago housing market predictions for 2017, some of which call for additional price gains over the next year or so.

Zillow Forecast for Chicago Housing Market, Through July 2017

Zillow has forecast additional home-price gains for the Chicago housing market, between now and the summer of 2017. By their estimation, house values within the city will rise by 1.7% over the next 12 months (roughly, July 2016 – July 2017).

That’s for the city itself. Their one-year forecast for the broader metro area calls for a gain of 2.5%, during the same 12-month time frame. On July 27, 2016, the company issued this statement on its website: “Chicago Metro home values have gone up 3.3% over the past year and Zillow predicts they will rise 2.5% within the next year.”

That’s one positive real estate market forecast for Chicago in 2017. Here’s another that comes out of the University of Illinois:

Short-Range Prediction for Chicago Home Prices

In July 2016, the Illinois Association of Realtors published a short-range housing market forecast for the Chicago metro area, looking out over the next few months. It was based on data and analysis provided by Geoffrey Hewings, director of the Regional Economics Applications Laboratory (REAL) at the University of Illinois.

In the Chicago metro area, median home prices are expected to rise 7.1% in August 2016, compared to the same time last year. In September, prices are expected to be up 5.2% year over year.

The REAL housing price index (HPI) predicts even stronger growth in the coming months. According to the report: “The REAL HPI [for the Chicago metro area] is forecast to rise by 8.2% in July, 10.3% in August and 10.3% in September [2016].”

So we have positive real estate market predictions in both the short and long-term, from two different sources. While no one can predict what the housing market will do with complete accuracy, the general consensus appears to be that Chicago metro-area home prices will continue to rise in 2017, but a modest pace.

Case-Shiller Index: 3.7% Annual Gain in May 2016

According to the latest S&P/Case-Shiller Home Price Index, published on July 26, house values in Chicago rose 3.7% from May 2015 to May 2016. They rose 1.8% from April to May alone.

The fact that the one-month gain from April – May 2016 is nearly half of the annual gain suggests that home-price appreciation accelerated in the spring of this year. That would jive with Zillow’s forecast for the city of Chicago, which calls for larger gains between now and July 2017, compared to the last 12 months.

No matter how you measure it, the Chicago real estate market has experienced home-price appreciation in recent months. And the trend is expected to continue, to some degree, through the end of this year and into 2017.

Freddie Mac Outlook: Mortgage Rates Rising in 2017

Mortgage rates are also expected to rise in 2017. That’s the latest forecast offered by the economists at Freddie Mac, the government-controlled buyer of mortgage loans.

Here is their forecast for 30-year loan rates between now and the end of 2017. These are the average rates they expect to see during each quarter.

  • Q2, 2016: 3.9%
  • Q3, 2016: 4.2%
  • Q4, 2016: 4.4%
  • Q1, 2017: 4.5%
  • Q2, 2017: 4.7%
  • Q3, 2017: 4.9%
  • Q4, 2017: 5.1%

As shown here, the economists at Freddie Mac feel that 30-year mortgage rates will rise steadily later this year and into 2017.

When this article was published, in July 2016, the average rate for a 30-year mortgage was 3.48%, according to the Freddie Mac weekly market survey.

Granted, this outlook is the equivalent of an educated guess. So you probably shouldn’t “bank” on it. The key takeaway here is that the company’s economists expect rates to rise gradually over the coming months.

Disclaimer: This article includes forward-looking statements (forecasts and predictions) relating to the Chicago real estate market. Such statements were provided by third-party sources not associated with our company. As a general rule, the Home Buying Institute does not make assertions or guarantees about future housing conditions.

Some Housing Markets Are Getting Too Expensive for FHA Loans

FHA loans are one of the most popular mortgage financing products for home buyers these days. They’re especially popular among first-time buyers, who often lack the funds for a large down payment. (FHA allows for a down payment as low as 3.5%.)

But with home prices rising steadily across the country, some housing markets are becoming too expensive for a Federal Housing Administration-insured home loan. In such markets, buyers often have a hard time finding a house that falls within FHA loan limits. This makes the program less viable for borrowers in cities like San Jose, Seattle and Manhattan.

FHA Loan Limits Max Out at $625,500

FHA loans are insured by the federal government. The program is managed by the Department of Housing and Urban Development (HUD). That department is also responsible for establishing loan limits for borrowers. These limits vary by county and are based on home prices in the area.

In 2016, FHA loan limits range from $271,050 to $625,500, depending on location.

But in some U.S. cities, average and median home prices have risen well above the loan limits for the surrounding county. In such areas, borrowers could have a harder time finding a suitable property within the FHA’s lending limits.

Expensive Housing Markets Reduce Loan Options

Take the San Francisco Bay Area for example. A recent blog post by Bay Area-based Bridgepoint Funding noted that the median home price in Alameda County is more than $100,000 above the FHA loan limit for that county.

As the author stated: “home buyers in the county might have a harder time finding a suitable property within FHA limits, when compared to borrowers in neighboring Contra Costa County [where average home prices are lower].”

This is true for an ever-growing list of cities in America, and it’s a direct result of rising home prices. Over the last few years, house values have risen sharply in some parts of the country. And while the median price in most counties is still below FHA loan limits, there are a number of counties where prices have climbed above those limits.

It’s not limited to the notoriously high-priced California housing markets either. In Seattle, Washington, for example, home prices have skyrocketed over the last few years. Zillow reports a 17% jump in the last year alone, with additional gains expected over the next 12 months. As a result, median house values in the Seattle metro area are now well above the FHA loan limits for surrounding King County. The county’s loan limits were increased from $517,500 in 2015 to $540,500 in 2016, in response to rising house values. But the higher limit is still well below median home prices in Seattle.

According to a March 2016 article in The Seattle Times: “Single-family home prices in the city … jumped 24 percent over the year to a median $644,950.” That’s about $100,000 higher than the loan limit for this area. Seattle is now on a growing list of cities where FHA loans are become harder to work with.

This doesn’t mean home buyers in places like Seattle and the Bay Area can’t use FHA loans to purchase a home. It just means they’ll have to cast the net wider to find a property that meets their needs and falls within FHA limits. Or else they’ll have to use a jumbo loan.

Higher Caps Possible in 2017

According to HUD, the Federal Housing Administration loan limits are based on the “median sale price value for each jurisdiction.” In some cases, HUD will increase the limit for a particular county from one year to the next, in response to rapidly rising home values. They did this for 188 counties from 2015 to 2016, while all other counties were unaffected.

There’s a chance they will announce another round of loan limit increases in December 2016, resulting in higher caps for some counties in 2017. This would make the program more appealing to a larger number of home buyers, especially in those areas where house values currently exceed FHA loan limits.

Sorry Manhattan, San Francisco and San Jose … you’ll probably never be FHA-friendly.

Denver Real Estate Market One of 10 Most Stable in U.S. in 2016

The Denver, Colorado real estate market is currently one of the most stable in the nation, according to a recent ranking by SmartAsset. Boulder and Fort Collins were ranked #1 and #6, respectively.

We’ve written about the Denver housing market a lot in 2016, mainly for its inclusion in top-10 lists. For instance, back in February, the real estate information company Zillow included the Mile-High City in a list of the top 10 housing markets to watch in 2016. Denver has appeared in similar lists measuring home-price gains.

Denver Real Estate Market Among the Most Stable in U.S.

And now, here comes another top-10 list featuring the Denver real estate market. In June, the New York City-based personal finance company SmartAsset created a list of the ten best housing markets for growth and stability.

To create its list, the company “relied on two factors: the overall home price growth rate since 1991 (our growth factor) and the average odds that a homeowner in a particular market would have experienced significant price declines within the decade after buying a home (our stability factor).”

In other words, they looked backward as well as forward — as much as possible without a crystal ball, anyway. Based on their analysis, the Denver housing market was ranked as one of the most stable in the nation in 2016, and poised for continued growth.

Boulder, Colorado also made the list, appearing at #1. Fort Collins appeared at #6.

Here are the ten most stable housing markets, according to SmartAsset:

  1. Boulder, Colorado
  2. Austin-Round, Rock Texas
  3. Casper, Wyoming
  4. Bismarck, North Dakota
  5. Midland, Texas
  6. Fort Collins, Colorado
  7. Billings, Montana
  8. Missoula, Montana
  9. Denver-Aurora-Lakewood, Colorado
  10. Grand Forks, North Dakota

But Denver has had its share of ups and downs, where home prices are concerned. As the authors of the SmartAsset study pointed out: “While there has been a 270% total growth rate since 1991, the Denver-Aurora-Lakewood housing market … has seen home prices drop significantly at times during that period.”

Strong Housing Demand Lifting Home Prices

In recent years, home prices have risen steadily in the Denver real estate market. According to Zillow, the home value index for the city rose by around 10% over the last year or so, and the company’s 12-month forecast calls for another 5% growth.

Home prices tend to rise whenever there’s strong demand for housing, especially when inventory is limited by comparison. That’s exactly what we are seeing in the Mile-High City. A recent report by CoreLogic showed that the median sales price for houses and condos in the Denver real estate market rose 10.3% in May 2016, compared to the same time last year. That was the highest year-over-year increase among the nation’s largest cities, according to CoreLogic.

Population growth has a lot to do with these steady home-price gains. A lot of folks want to live in the Denver area, but there’s only so much real estate to go around (especially close to the city’s core). This creates a supply-and-demand imbalance and pushes home prices north.

According to a recent analysis by the U.S. Census Bureau, Colorado is the second-fastest growing state in the country, for population. And Denver is one of the ten fastest growing metro areas in the U.S., according to Forbes. (Chalk up another top-10 ranking.)

And what’s not to love about the Mile-High City. It has jobs, natural beauty, plenty of outdoor activities and nightlife, and recreational marijuana. No wonder it’s a mecca for the young and upwardly mobile.

Disclaimer: This story includes third-party data and assessments that are deemed reliable but not guaranteed. As a general rule, the Home Buying Institute does not make predictions or forecasts relating to the real estate market.

Austin, Texas Housing Market Named Second Most Stable in the U.S.

According to a recent analysis by the finance website SmartAsset, Austin, Texas is the second most stable housing market in the United States. Boulder, Colorado was ranked first. Home prices in Austin have risen more or less steadily for many years, while avoiding the extremes of other real estate markets across the country.

Austin Housing Market #2 in the Nation for Stability

This isn’t particularly surprising, when you look at the history of this housing market. Like most metro areas in Texas, the real estate scene in Austin was relatively stable during the housing crisis that began around 2008. Home values in the area dipped slightly during those years, but it was nothing like the price plummet seen elsewhere across the country.

But what is a “stable” real estate market exactly? According to SmartAsset, these are cities and metro areas with a steady upward trend in home prices and (perhaps more importantly) a low probability of depreciation in the near future.

As the company explained on its website:

“In order to complete our analysis, we relied on two factors: the overall home price growth rate since 1991 (our growth factor) and the average odds that a homeowner in a particular market would have experienced significant price declines within the decade after buying a home (our stability factor). In order for a price decline to be significant, home prices in any quarter within 10 years had to fall by at least 5% relative to the original home price.”

Since 1991, home prices in Austin’s housing market have risen by a whopping 271%, according to the study. More to the point, homeowners haven’t suffered any major price declines in that time.

Boulder, Colorado topped the list with the most stable growth over the past 25 years. House values in that city have risen more than 300% since 1991, again without any major declines.

Here’s a complete list of the top-ten most stable housing markets:

  1. Boulder, Colorado
  2. Austin-Round, Rock Texas
  3. Casper, Wyoming
  4. Bismarck, North Dakota
  5. Midland, Texas
  6. Fort Collins, Colorado
  7. Billings, Montana
  8. Missoula, Montana
  9. Denver-Aurora-Lakewood, Colorado
  10. Grand Forks, North Dakota

Supply and Demand Driving Home-Price Growth

You might have noticed a common trend in this list, in terms of geography. These cities are mostly located in the Midwest, while the east and west coasts are not represented at all. That’s no coincidence, but rather a direct result of supply and demand.

According to Daren Blomquist, the vice president of RealtyTrac: “In the middle-America markets there is more room to create more supply than in the coastal markets, which are often constrained geographically as well as by more regulation.”

As the report’s authors pointed out, strong demand continues to drive price growth in the Austin real estate market. The city has much to offer young people in particular, which helps fuel the local housing market. Austin has been ranked as one of the best cities for college graduates, partly due to the strong job market and vibrant nightlife. This brings more upwardly mobile residents into the market, boosting demand for homes.

But housing supply is not as constrained in Austin, as it is in places like San Francisco and New York City. There’s plenty of room to build around the city, and land is relatively cheap (especially when you get further out from downtown). So while housing demand continues to lift home prices in Austin, it does so at a more sustainable pace than many metro areas.

Disclaimer: This story includes third-party data and assessments that are deemed reliable but not guarantee. As a general rule, the Home Buying Institute does not make predictions or forecasts relating to the real estate market.

Wells Fargo 3% Down Payment Mortgage Gives FHA Run for Its Money

Not to be outdone by its competitor Bank of America, which announced a 3% down payment mortgage program earlier this year, Wells Fargo recently stated that it too would offer fixed-rate mortgages for first-time buyers with down payments as low as 3%.

This is significant for two reasons: (1) Wells Fargo is the largest mortgage lender in the United States, by volume. So this new program could be extended to a significant number of home buyers nationwide. (2) The 3% down payment falls below the FHA’s minimum requirement of 3.5%.

The fact that this program undercuts FHA is not a matter of chance or coincidence. Bank of America, Wells Fargo, and other lenders with similar offerings are essentially luring business away from the Federal Housing Administration. They’re doing this by offering an attractive and potentially cheaper alternative to the government-insured FHA loans.

The Wells Fargo 3% down payment mortgage has a nifty name too. They call it yourFirst MortgageSM (the italics are theirs). From here on out, I’ll refer to it as “the loan program” for simplicity.

Wells Fargo 3% Down Payment Mortgage

So what does this sexy new loan program offer for qualified first-time home buyers? Here are the specific features and requirements, adapted from a May 26 news release:

Smaller down payment means less money out of pocket.
Borrowers who qualify for the program could obtain a conventional (non-FHA) fixed-rate mortgage loan with a down payment as low as 3%. But borrowers don’t necessarily have to pay it out of their own pockets. According to the Wells Fargo program announcement, the down payment and closing costs “can come from gifts and down payment assistance programs.”

Educational incentives give home buyers a reason to learn.
Wells Fargo wants first-time home buyers to make smart, well-informed decisions about their purchases. To that end, they are offering an education-based incentive. Customers who complete an approved home buyer education course could earn a 1/8-percent interest rate reduction on their loans. The course must be provided by a HUD-approved counselor.

Broader credit and income requirements mean less hurdles for borrowers.
The Wells Fargo 3% down payment program also features “expanded credit criteria.” This means first-time home buyers with limited credit histories (that might have disqualified them in the past) could still qualify for the loan. The company will expand its credit history requirements to include “nontraditional sources, like tuition, rent, or utility bill payments.” Additionally, Wells Fargo said it will consider the income of others who will live in the home, such as family members or renters.

Borrowers must be able to repay the loan, with documents to prove it.
In keeping with the federal government’s fairly new (and sensible) Ability-to-Repay rule, first-time home buyers who use the Wells Fargo 3% down payment mortgage program must be able to demonstrate their ability to repay the debt. This is typically done with bank statements, pay stubs, and other documents that show income and assets. Additionally, the loan must be “fully documented and underwritten,” according to Wells Fargo.

Fewer Barriers for First-Time Home Buyers

These are noteworthy changes to the company’s lending policy, and they could affect a large number of first-time home buyers who otherwise might not qualify for a mortgage loan. The 3% down payment program reduces the upfront expenses associated with a home loan, and it offers broader qualification criteria to bring more borrowers into the program.

According to Brad Blackwell, Executive Vice President of Wells Fargo Home Lending:

“[W]e wanted to provide access to credit and simplify the experience while maintaining responsible lending practices. We partnered with credit experts such as Fannie Mae and Self-Help, an affiliate of the Center for Responsible Lending, to develop an easy-to-understand affordable loan option that gives homebuyers the best offering in the market.”

Forecast for San Diego Housing Market: Strong Gains Through 2020?

How’s this for a favorable forecast? The San Diego housing market could experience steady home-price appreciation from 2016 to 2020, with prices rising by around 3% – 6% annually for each of those years.

That’s the general consensus among the housing economists at Moody’s Analytics. They recently gave MONEY magazine (part of Time) their home-price forecasts through 2020, for 20 of the biggest metro areas in the United States.

The San Diego real estate market was included in the report. And while home prices in the area might not rise as much as they have in recent years, the company’s economists are still calling for steady gains through 2020. And that’s not surprising when you look at the current supply and demand situation.

Read: San Diego a “market to watch” in 2016

Home Price Forecast for San Diego Housing Market

The bar chart below shows the Moody’s Analytics home price predictions for San Diego’s housing market, over the next five years. As you can see, local house values are predicted to continue rising through 2020 (and possibly beyond that, though the team didn’t forecast that far).

san-diego-forecast
San Diego home price forecast. Source: Time.com.

This puts the San Diego real estate market on a short list of metro areas that are expected to outperform national housing trends over the coming years.

Homeowners across the metro area have enjoyed steady appreciation over the last couple of years, and it’s a trend that could continue for the foreseeable future.

Many home buyers, on the other hand, are being squeezed out of the real estate market by ever-rising house values. The housing affordability issue in San Diego has been well documented, and it could worsen over the coming years as home price appreciation outpaces income growth.

Inventory Shortage Driving Appreciation

Inventory has a lot to do with the recent rise in San Diego home prices, and the positive pricing forecast through 2020. There just aren’t enough homes for sale to meet the current level of demand, and it’s lifting house values across the metro area.

In January 2016, San Diego experienced the biggest drop in homes for sale, in the entire nation. This is according to a recent report by Zillow, the real estate information company. The San Diego housing market had a 30.2% decline in housing inventory (including both new and existing homes, as well as condos) during the 12-month period from January 2015 to January 2016. That was the largest decrease in the country, followed by Charlotte, N.C. at 27.1%.

It’s no coincidence that home prices rose steadily during that period as well. According to the most recent S&P/Case-Shiller Home Price Index (published on March 29, 2016), house values in the San Diego metro-area housing market rose 6.9% from January 2015 – January 2016. That was higher than the national average for the same period, and a direct result of the inventory reduction mentioned above.

According to Aaron Terrazas, a senior economist at Zillow, the inventory shortage in San Diego’s real estate market is partly the result of homeowners who are reluctant to sell:

“People in these expensive places who own homes are a little bit reluctant to go out and search for a new home,” he said. “They’re worried they won’t find anything comparable to what they have.”

It’s a valid concern, and it’s keeping a lot of would-be sellers off the market for now.

Disclaimer: This story contains long-range home price and housing market forecasts for the San Diego metro area. Such forward-looking statements were provided by third parties not associated with this website. As a matter of policy, the Home Buying Institute makes no predictions or claims about future real estate conditions. We merely gather and report the forecasts made by other expert sources, as a service to our readers.

Trend Watch: Conventional Mortgage Loans With 3% Down Payment

In the years following the housing crisis, there weren’t very many lenders offering conventional mortgage loans with 3% down payments. But that has changed. Today, an increasing number of lenders are peddling loans with down payments as low as 3%.

This is largely the result of recent changes within the secondary mortgage market. Fannie Mae and Freddie Mac will now purchase conventional mortgages with loan-to-value ratios as high as 97%. Conversely, that means the home buyer / borrower can make a down payment as low as 3% on such a loan.

Conventional Mortgages With 3% Down: Two New Programs

Toward the end of 2015, Freddie Mac (one of the two “government-sponsored enterprises,” or GSEs, that buy and sell mortgage loans) announced it would begin purchasing conventional mortgage products with a loan-to-value ratio up to 97%. In the past, it was rare for the company to acquire such loans.

This is a major shift since Freddie Mac’s guidelines tend to “trickle down” to the primary mortgage market in general. Lenders tend to originate mortgage loans that fall within the purchasing parameters of Freddie Mac and/or Fannie Mae, so that they can turn around and sell their loans to the GSEs.

According to a company bulletin that announced the change, Freddie Mac is broadening its parameters in order to “help expand access to mortgage credit.” That’s mighty benevolent of them. But it doesn’t hurt that they’ll be making a lot more money this way, by expanding their asset pool.

The Freddie Mac product is called Home Possible Advantage. It will be available for home loans with settlement dates on or after March 23, 2016. Borrowers who use this program could qualify for a conventional mortgage loan with a 3% down payment. Manually underwritten borrowers need to have a credit score of 660 or higher and participate in a homeowner education program. Additionally, the borrower’s “annual qualifying income must not exceed 100% of the area median income or the income multipliers in the designated high-cost areas.”

Not to be outdone by (or to lose business to) its GSE counterpart, Fannie Mae also announced it will acquire conventional mortgage loans with down payments of 3%. In a product fact sheet published in November of last year, Fannie Mae outlined the requirements for 97% LTV mortgages. Many of the high-LTV loans the GSE purchases will fall under its HomeReadyTM product umbrella. The requirements for HomeReady include income limits similar to Freddie Mac’s parameters, as well as homeowner education and counseling.

As a result of these ongoing changes within the mortgage market, we expect to see expanded opportunities for borrowers seeking a conventional home loan with a 3% down payment. Just realize that most of these loans require additional insurance, and the cost of this insurance is borne by the borrower. So let’s talk about that next.

PMI Is Required in Most Cases, Unless…

Borrowers seeking a low-down-payment home loan must consider the added cost of mortgage insurance. If you make a down payment of 3% on a conventional home loan, there’s a good chance you will have to pay for private mortgage insurance, or PMI. This insurance protects the lender who makes the loan, but it is paid for by the borrower. Thus, PMI can increase the size of a borrower’s monthly payments.

The Freddie Mac and Fannie Mae 97% LTV products mentioned above require some level of PMI. (You’ll find those insurance requirements in the fact sheet and bulletin hyperlinked above.)

Generally speaking, a loan-to-value ratio above 80% requires PMI. This means that most borrowers who take out a conventional mortgage loan with a 3% down payment will end up paying PMI — at least in most cases. But there are a few programs out there that allow home buyers to sidestep the added cost of PMI, even with a down payment as low as 3%.

We have previously reported on such programs, including some offered by credit unions. But even the “big banks” are getting in on the game. Bank of America is the most recent (and newsworthy) entrant into the 3% down payment market. The company recently positioned itself as an attractive alternative to FHA financing by offering a 3% down payment without PMI, for qualified borrowers. A credit score of 680 or higher is required, according to the company.

According to American Banker magazine, Bank of American will turn around and “sell the loans and servicing rights to Self-Help Federal Credit Union, a Durham, N.C., community development lender…”

The bottom line is that home buyers seeking a conventional mortgage with a 3% down payment have a lot more options these days. And some are available without PMI. This is certainly a trend we will be monitoring in 2016, as it could affect a large number of home buyers.

California Real Estate Markets Dominate Realtor.com ‘Hot’ List, Again

Last week, Realtor.com updated its list of the 20 hottest housing markets in the U.S. This popular, recurring series looks at housing conditions in medium to large metropolitan areas across the country, and then ranks the hottest markets based on local supply and demand factors.

California once again dominated the company’s hot list. Twelve of the 20 hottest housing markets for February are located in the Golden State. The top-10 list has an even higher percentage, with a total of eight California housing markets making the cut (80%). Again, this is among medium to large metro areas.

This coincides with a November 2015 forecast, which predicted that most of the hottest markets of 2016 would be located in California. As it was predicted, so it has become.

12 California Housing Markets Ranked Among “Hottest”

Here are the top 20 hottest housing markets for February, by Realtor.com’s estimation:

  1. San Francisco, CA
  2. San Jose, CA
  3. Dallas, TX
  4. Denver, CO
  5. Vallejo, CA
  6. San Diego, CA
  7. Santa Cruz, CA
  8. Santa Rosa, CA
  9. Stockton, CA
  10. Oxnard, CA
  11. Sacramento, CA
  12. Los Angeles, CA
  13. Boulder, CO
  14. Modesto, CA
  15. Eureka, CA
  16. Portland, OR
  17. Nashville, TN
  18. Colorado Springs, CO
  19. Palm Bay, FL
  20. Tampa, FL

Methodology for Measuring the Hot Factor

The economic team at Realtor.com created this list by determining which U.S. housing markets had the best availability (good for home buyers) along with the highest level of demand (good for sellers).

To measure housing demand, they looked at the total number of real estate listing views for each metro area, on the Realtor.com website. To measure supply, they used the median number of days on market, primarily. This led to the creation of the hottest housing markets list, a list that gets updated each month as local market conditions change.

In the California (and other) housing markets shown above, real estate listings are viewed two to five times more often than the national average, according to a company representative. Homes are currently selling faster in these hot markets as well — as much as 78 days faster than the national average. This is often the result of limited inventory, which forces buyers to compete fiercely with one another for available homes.

San Francisco Still #1, With San Jose Rising

There are some familiar names on this list. For instance, the San Francisco, California housing market has been ranked #1 on the hot list for four months in a row. San Jose has been climbing steadily through the rankings and could eventually take the top spot, partly a result of tech money and demand in the Silicon Valley real estate market.

“These are the places that are head and shoulders hotter than the rest of the country,” said Jonathan Smoke, chief economist at Realtor.com, “and they’re also accelerating.”

Chart: Mortgage Rates Have Dropped Steadily Since 2016 Began

At the end of 2015, we reported that many economists and housing analysts were predicting a gradual rise in mortgage rates during 2016. This was partly because of the Federal Reserve’s decision to raise the short-term federal funds rate, after holding it near zero for years (along with other factors).

But so far in 2016, mortgage rates have been dropping steadily. For instance, the average rate for a 30-year fixed mortgage has either dropped or remained unchanged every week since the beginning of the year. You can see this trend clearly in the mortgage rate chart below, obtained courtesy of Freddie Mac.

This downward trend contradicts the “conventional wisdom” we reported a few months ago, and it’s good news for anyone who is in the market to buy or refinance a home.

Here’s an updated look at mortgage rates in 2016, including the drops we’ve seen in recent weeks:

Chart: Watch Mortgage Rates Drop in 2016

The chart below accompanied Freddie Mac’s latest weekly survey of the primary mortgage market, published earlier today. On the right (and more recent) side of the chart, you’ll see the downward trend mentioned above. If you were to draw a vertical line upward from the December 31 marker, you’d end up with a nice down slope to the right of that line.

PMMS chart Feb 25
Freddie Mac’s mortgage survey chart, as of February 25, 2016

The average rates assigned to other mortgage products — including the 15-year fixed mortgage and the 5/1 ARM — have followed this downward trend as well. We have now hit a one-year low point in the 30-year fixed category.

It’s Official: 30-Year Rates Fall to a 12-Month Low

The average rate assigned to a 30-year fixed mortgage (FRM) has dropped by 39 basis points, or 0.39%, since the start of 2016. When 2015 came to a close, the average rate for a 30-year loan was 4.01%. As of the latest rate survey taken this week, that average had fallen to 3.62%. That’s the lowest it has been since early February of last year.

It bears repeating: today’s 30-year mortgage rate average has dropped to a 12-month low.

This should come as welcome news to home buyers in the market to purchase a house, and homeowners looking to refinance. Declining rates will improve housing affordability for buyers, and lessen the blow of rising home prices. Dropping mortgage rates will also put more homeowners in a position to refinance their existing loans and save money over the long term.

Other Loan Products Are More Affordable as Well

The 15-year mortgage rates average has also dropped steadily since the start of 2016. During the first week of this year, the 15-year average was 3.26%, according to Freddie Mac’s weekly survey. This week it fell to 2.93% — its lowest level since April of last year.

The average rate for a 5-year adjustable-rate mortgage (ARM) also dropped this week, landing at 2.79%.

Perhaps those upward predictions will eventually pan out. Perhaps we will end 2016 with rates being higher than they were at the end of last year. But right now, it’s just not happening. So much for forecasts.

Disclaimer: This story mentions forecasts and predictions offered by third parties not associated with the Home Buying Institute. The publishers of this website make no claims or guarantees about future interest rates or trends within the mortgage market.