This year has seen a turning point in the US mortgage market. Home sales were up at the start of the year, but house prices have been on the increase too with the National Association of Realtors reporting that the average price is up 12.5% on last year. As a result, sales have tapered off towards the end of the year as limited stock pushes prices higher. Mortgage rates have stayed relatively low, encouraging increased activity for real estate agents, but a slight rise this week could be the signal that the tide is turning. If you’re thinking about buying – or moving – it could be best to apply for a mortgage sooner rather than later as no-one can predict what will happen to house prices, and mortgage rates, next year.
Mortgage rates slowly climbing
The US mortgage market this year has remained strong for homebuyers. But while potential homebuyers breathed a sigh of relief at the end of October when Freddie Mac, the government’s guaranteed mortgage buyer, reported that the US fixed mortgage rate was down for the second consecutive week, this could be about to change. Instead, this week (November 7), Freddie Mac announced the first rate rise in three weeks, which could signal the start of an upward trend for next year. It said the higher results of its Primary Mortgage Market Survey were caused by positive economic signs. It meant that the average fixed rate on a 30-year mortgage stood at 4.16%, up from 4.10 the week before, and up from 3.4% compared to the same week in 2012. Meanwhile a 15-year mortgage stood at an average fixed rate of 3.27%, also up from 2.69% last year. If this trend keeps moving, homebuyers at the start of 2014 could be facing higher rates, and – if the economy continues to show signs of a recovery – the average percentage on a fixed rate mortgage this time next year could be much higher. However, the mortgage market is generally stable as a result of the US Federal Reserve announcement in September that it will continue to buy $85 billion in bonds every month in a bid to keep long-term interest rates affordable. This has kept the rates steady following a two-year high over the summer, which resulted from rumors that the Federal Reserve was thinking about reducing bond purchases.
How the UK is copying the government-backed mortgage model
While Freddie Mac and Fannie Mae prop up homes across the USA by supporting home-owner mortgages, other world governments have begun to follow suit by giving more support to those struggling to afford a home. However, its long-term steady backing (Fannie Mae was set up in 1938 after the Great Depression) has been used as something of a warning to the UK government. The UK coalition government launched a ‘Help to Buy’ scheme at the start of October in a bid to boost its struggling property market. While house prices are on the rise across the pond, fewer first-time buyers in Britain can afford to buy, creating a European-style rental market that is at odds with the traditional UK model of home-ownership. The Help to Buy scheme means that hard-up savers only have to provide 5% of their home’s value as a deposit, while the government and lender then jointly guarantees up to 15% of the property’s value. This means that many more people are expected to be able to get onto the housing ladder. Money.co.uk advises that there are thousands of mortgages on the market in the UK and the vast majority of residential mortgages will fall into one of three categories, fixed rate mortgages, tracker mortgages and discount mortgages; whereas in the USA the vast majority of mortgages are fixed rate. Uptake of the government-backed scheme in the UK has been strong already. But some analysts fear this will fuel an artificial property boom, similar to the catastrophic bust back in 2007-8 which left thousands of homeowners in negative equity. These fears have led the UK Council of Mortgage Lenders (CML) chairman Martijn Van der Heijden to say this week: “It’s important that Help to Buy doesn’t morph into the US scheme, Fannie Mae. It should be a time-limited intervention to correct what is seen by the government as a temporary failure in the market to provide high loan-to-value mortgages in quantity. It must be a temporary fix, not a permanent feature.”
What the future could hold for Fannie Mae
So why does the UK government want to avoid being sucked into a cycle of lending to homeowners? Fannie Mae is a good thing, right? Well one think tank has argued this month that subsidizing the US housing market with federal money has cost the taxpayer billions of dollars. When the housing bubble bursts or there’s a financial crisis, bailing out the mortgage backers costs the US Treasury dear. The report also argues that Fannie Mae and Freddie Mac have done little to increase homeownership and it even calls on Congress to shut the two organizations down! While this is unlikely to happen it is important to consider that the majority of homeowner mortgages are backed the US government. This is a novel concept for those taking part in the UK’s new scheme, but has come to be the norm for us in the US. What this means is that the US economy, taxpayers, the government and the housing market are inextricably linked. If one goes, they all fall – as demonstrated in the market crash in 2008. However, the housing market and economy are now on the rise; this is good for sellers as house prices are up, but buyers are continuing to be cautious as mortgage rates slowly creep up.
What this will mean in 2014
If Fannie Mae can continue to keep mortgage rates steady, as promised, and sellers are prompted to put their houses on the market by higher house prices, the market could see a fuller recovery in 2014 than it saw at the start of this year. Buyers won’t have to fight competitively for a smaller number of houses on the market and they will be able to apply for mortgages at low rates. In theory, this should mean that house prices will level out and the market should stabilize. However, when looking at the stats over the past 12 months, it’s clear that in the US housing sector, it could go either way.
New York Attorney General Eric Schneiderman sued units of HSBC Holdings HSBA.LN +1.89% PLC on Tuesday, alleging the bank put mortgage borrowers at greater risk of losing their homes by repeatedly delaying the filing of paperwork that could have helped homeowners stave off foreclosure. HSBC Bank USA and HSBC Mortgage Corp. violated state law by failing [...]
Brooklyn-born Joe Gross, 41, knows the home mortgage game. Ever since graduating from Touro College in New York with a degree in accounting in 1999 he has immersed himself in one end of the business or another. He’s worked for somebody else, he’s worked for himself, he was there when the subprime lending craze surged, [...]
Struggling homeowners will get more time to take advantage of a federal consumer-mortgage modification initiative. The White House announced Thursday the extension of The Making Home Affordable Program, which includes the Home Affordable Modification Program (HAMP), until 2015. The program was set to expire at the end of this year, and aims to help lower [...]
The myths about mortgages are out there, and they’re keeping some buyers from taking advantage of the greatest buyers’ market in decades. For full article, click here
People’s needs have changed and so has the bank’s role. Today, it’s about lending a lot more than money. For full article, click here
Next to filing for bankruptcy, nothing wrecks your chances of qualifying for a home loan like a foreclosure. And if you got out from under an oppressive mortgage through a short sale, in which the bank agreed to accept less than you owed, future lenders may look upon you just as unfavorably. For full article, [...]
Borrowers whose homes were subjected to a foreclosure action in 2009 or 2010 are entitled to request an independent review to determine if those actions were done appropriately. For full article, click here
Some of the nation’s biggest banks are starting to pay homeowners to move out. It’s the latest strategy by the country’s largest lenders to avoid the long and costly foreclosure process. For full article, click here
You’re not aiming to build a huge credit limit that you can max out. Instead, you’re trying to develop a track record of responsibility and reliability that will lead to better rates on mortgages, insurance, and other lines of credit over time. For full article, click here
The recession — and subsequent slow recovery — has caused millions of Americans to focus even more closely on living within their means. If you are ready to face up to your own financial realities, one crucial step is to set up a plan of action. For full article, click here