Is it a good or bad time to buy a house right now? What are home prices doing? What does it take to qualify for a mortgage loan these days?
These are some of the most common questions we receive from our readers each month. We like to answers them en masse from time to time, in the form of a national housing market update. So here you have it: The Home Buying Institute’s U.S. Housing Market Update for Summer 2015.
Housing Market Update for Summer – Fall 2015
Mortgage rates rose into 4% territory last week, and they’ll probably hover in that range for a while. Home prices continue to rise in most housing markets across the country. Mortgage lending standards have eased over the last year or so, which is good news for home buyers. These are just a few of the trends we are following for summer and fall of 2015.
1. Mortgage rates could remain low, thanks to Federal Reserve status quo.
On June 16 and 17, The Federal Reserve’s Open Market Committee (FOMC) met to discuss their current fiscal policy, as well as any changes that might be needed. As it turns out, they are content to preserve the status quo for now.
This means the Fed will keep its federal funds rate in the low range of 0% – 0.25%. (The funds rate is the interest rate banks charge when transferring money among themselves.) They’re also reinvesting revenue to support the ongoing purchase of mortgage-backed securities (MBS).
Here’s where it ties into our U.S. housing market update. While the Federal Reserve does not directly control long-term mortgage rates, they can certainly influence them. According to the Fed’s Board of Governors website: “Movements in short-term interest rates [which are partly driven by the aforementioned funds rate] also influence long-term interest rates–such as corporate bonds and residential mortgages…”
Additionally, their ongoing purchase of mortgage-backed securities will affect pricing for those securities, which could slow the rise of long-term mortgage interest costs.
Here’s the bottom line. The Federal Reserve’s monetary policy has helped spur the U.S. housing market in recent years, because it has indirectly held long-term mortgage rates near record-low levels. They’ve decided to continue along this course for at least the next few months. And that’s a boon for the nation’s real estate market.
2. Home prices are still rising in most U.S. cities, but at a slower pace.
If you’re thinking of buying a home, but you’re still on the fence, you should keep a close eye on home pricing trends in your area. Home prices have been on the rise in most U.S. cities lately. And they are expected to continue rising (in most areas) through the end of 2015 and into 2016.
With that being said, we are also witnessing a general slowdown in home-price appreciation. House values are still rising across the country, but not as much as they did last year or the year before. Still, buyers who are planning to enter the housing market and make a purchase might benefit from doing it sooner rather than later.
Of course, real estate conditions vary from one area to the next. So home buyers should conduct local research to see what’s happening in their neck of the woods.
3. Lenders are offering lower down payments, as low as 3% in some cases.
When the housing market and economy crashed, mortgage lenders adopted more conservative lending standards. Among other things, this meant higher down payments for borrowers.
But we’ve seen some easing in this area over the last couple of years. We first spotted this trend in April of last year, when TD Bank began offering a 3% down-payment mortgage to borrowers within their East Coast area of operations. Since then, more and more lenders have begun offering these low-down-payment home loans.
Home buyers entering the housing market in 2015 should know there are more options out there, when it comes to mortgage financing. This applies to down payments as well.
4. Inventory shortages are easing in many areas, giving buyers more options.
Over the last few years, inventory shortages were the big story in many local real estate markets. A shortage of homes for sale led to bidding wars, above-market offers, and frustrated home buyers. While inventory is still tight in some areas (particularly in cities like San Francisco where there isn’t much construction), we are now seeing a better balance of supply and demand in most cities.
We published a housing market update just a few days ago on this very subject. Inventory rose 4% nationally from April to May of this year, according to Realtor.com.
The bottom line here is that home buyers in many real estate markets will have more homes to choose from today, compared to the last couple of years. Going forward, we will likely see fewer and fewer bidding wars.
5. FHA program is alive and well, and still popular among first-time buyers.
For a while there, things weren’t looking good for the Federal Housing Administration (FHA). The mortgage and foreclosure crisis wiped out their capital reserves, and some began to question the very existence of the historic housing agency.
But things have taken a turn for the better. The FHA increased insurance requirements to rebuild its capital reserves, and it imposed new guidelines to reduce risk across the board. As a result, the FHA is here to stay — at least for now.
Get caught up on the latest developments in the FHA world.
This loan program is well suited for home buyers with limited cash for a down payment. Borrowers with credit scores of 580 or higher can put down as little as 3.5% of the purchase price or appraised value (whichever is less). This provides a side door for borrowers who have trouble qualifying for a conventional mortgage loan with a low down payment.
Disclaimers: This housing market update contains forward-looking statements regarding mortgage rates, home prices, and other economic conditions in 2015 – 2016. Such statements are theoretical in nature and should not be considered financial advice. We make no claims or guarantees about future conditions in the U.S. real estate market or economy.