11 reasons to get a mortgage now
Nothing lasts forever
The economic recovery seems finally to be moving steadily in a positive direction, and real estate is a large driver of that momentum. Current market conditions--low mortgage rates, stabilized or increasing home prices, the spring homebuying season--favor a stronger housing sector than we’ve seen since the recession began.
However, before too long, we will no longer have the extraordinary supports for the mortgage market that currently exist. Tomorrow’s market might be a different story, as mortgage rates may rise and the housing supply will dwindle which will ratchet up prices.
But that’s more tomorrow’s market, not today’s. For the moment, we still have fantastic interest rates plus a well-functioning mortgage market, thanks to Fannie, Freddie and the FHA. We should enjoy the “good old days” while they last. Here are 11 reasons mortgage borrowers should act now.
Mortgage rates will rise
What more can we say about mortgage rates that hasn’t already been said? Despite some minor increases in recent weeks, mortgage rates still remain at historic lows. Extraordinary supports from the Federal Reserve, only moderate economic growth here and economic uncertainty abroad are all factors currently keeping interest rates low. Mortgage rates certainly haven’t risen enough to crash the refinance or purchase market, and even if they do continue to show upward movement, there just isn’t enough market pressure at the moment to move them upward.
Federal Reserve supports will end
Speaking of supports in place to keep rates low, the Federal Reserve has several programs currently in place to keep downward pressure on mortgage rates. The Federal Reserve replaced its Operation Twist policy of selling short-term debt and buying long-term debt -- a kind of money recycling program -- with one of outright purchases of Treasuries of up to $45 billion per month. Combined with the Fed's mortgage-backed securities purchasing program of $40 billion per month, the central bank should be able to manipulate interest rates as it sees fit for at least a while. How long the Fed will manage rates is an open question, with some FOMC members pushing for less support as early as summer 2013.
Home prices are rising
With a seller’s market forming in many areas of the country, homebuyers should act now before prices rise even further. As mortgage rates and home prices move off the rock bottom, you might miss your best chance to get a cheap home at a historically low rate. According to the National Association of Realtors, median existing-home prices rose in more metros during the fourth quarter, producing the strongest year-over-year increase in seven years. Continuing low mortgage rates help foster demand, serving to inflate home prices. Consumers should consider moving off the sidelines before prices increase even more.
Home sales are increasing
According to the NAR, total sales in 2012 were at their highest level in five years. While existing-home sales did move downward in December 2012, they are nearly 13 percent above where they were in 2011. Increased homes sales have brought down inventory levels to the point where many homebuyers are struggling to find the perfect home. If strong sales patterns persist, you might find that there are not many suitable homes to choose from.
FHA increasing costs
In order to boost its reserve fund, which was depleted after the housing crash, the FHA has raised costs several times. Most recently, the FHA announced increases to mortgage insurance premiums, raised credit score requirements for certain borrowers and even proposed down payment increases on jumbo loans. Lawmakers like Sen. Bob Corker (R-Tenn.) praise the increases and feel that even more changes are needed. Mortgage lenders are urging borrowers to act before the FHA price increases take effect April 1. After that date, getting an FHA-backed mortgage, one with higher premiums, will permanently increase the overall cost of your FHA-backed mortgage.
HARP 2.0 will expire
Even though the Home Affordable Refinance Program was expanded and extended at the end of 2011, some say more changes could be on the way. Currently, homeowners can apply for this federal refinance program no matter how far underwater their home is. HARP 2.0 gives homeowners the ability to refinance into today's low mortgage rates without private mortgage insurance, exorbitant closing costs and fees, and or even an appraisal in most cases. The program is currently slated to expire at the end of 2013 so move quickly.
Rents rose for the third consecutive year in 2012, and are expected to continue the upward trend in 2013, according to MPF Research. The pace of rent growth was up 3 percent in 2012 and analysts believe 2013 will see similar growth. Rising rents are another motivation for buyers to take advantage of affordable home prices and historically low mortgage rates.
Mortgage interest deduction
The mortgage interest deduction has been on the Congressional chopping block for some time now. Certain lawmakers have proposed reducing the deduction or doing away with it altogether as a means to shore up the Federal budget. The good news is that it’s still in play and hasn’t yet been scaled back. The bad news: the decision to reduce the deduction will likely come up again before too long.
Last year was a record year in terms of affordability, according to the NAR’s National Housing Affordability Index. The index, based on the relationship between median home price, income and mortgage rates, hit 193.5 last year, up from 186.4 in 2011. The NAR predicts that the Index will fall to an average of 161 in 2013, the third highest reading on record. Rising home prices and higher mortgage rates will adversely affect affordability to some degree, making 2013 a great time to buy or refinance.
Delinquencies have begun to wane
According to Lender Processing Services (LPS), despite the fact that the mortgage delinquency rate remains high, delinquencies have improved, finishing 2012 32 percent lower than the peak in January 2010. The continued decline of mortgage delinquencies will help to firm home prices even more and increase homebuyer confidence. Fewer delinquencies mean fewer cheap properties coming on the market.
Desirability is back
Opportunism and desirability play huge roles in the mortgage and housing markets. Just a few years ago, there was very little news to get homebuyers excited about the prospect of ownership. Today, people are less worried about losing their jobs, prices have stopped falling in many areas, home sales have picked up, and consumers are seeing fewer foreclosures and more signs of construction. All these market signals reveal that other consumers are interested in buying again.
A great time to buy or refinance
Despite all the positives in the market right now, we’re certainly not out of the woods yet. The recent deal on the fiscal cliff will slow consumer spending somewhat, and slow economic growth overall means the economy can only improve at a moderate pace.
But the bottom line is that now is a great time to buy or refinance, and this prime window of opportunity won’t be open forever. Eventually, Federal Reserve programs will expire, the economy will get back on its feet, mortgage rates will rise substantially and home prices will increase even more.
Act now before these extraordinary market supports and programs expire.
More help from HSH.com
HSH.com on the latest move by the Federal ReserveThe Federal Reserve concluded a meeting today, raising the federal funds rate; the target range for the key policy tool is now 1.5 to 1.75 percent.
Home price recovery index: Which metros have improved the most, least?Have home prices in your area fully recovered from the declines suffered during the Great Recession, or are they still struggling to make it back to the peak it reached before the crisis?
How long do I have to own or live in my home to qualify for the capital gains tax exclusion when I sell?You can exclude capital gains on the sale of your primary residence if you meet the IRS's ownership and use requirements.
10 metros where a home costs about $1,000/monthHSH.com identifies 10 metro areas where you can afford the principal, interest, taxes and insurance payments on a median-priced home for only around $1,000 per month.
Metropolitan area definitionsMetro area definitions for the 50 metropolitan areas in "The salary you must earn to buy a home in 50 metros"