While the recession is far behind us, the wake of the downturn is still resonating in every corner of the country. Millions of homeowners are still underwater and foreclosures are still an issue. However, any way you look at it, the housing market has turned a proverbial corner. The last three years have seen historical appreciation rates. Most homes have reached their pre-recession price peaks and could continue to increase. Moreover, the direction of the housing sector will likely cause interest rates to increase. That said; there is much to expect out of the coming year. Consumers should pay close attention to the following trends:
1. Smaller Window To Refinance:
According to the Federal Reserve, patience will be exercised in the consideration of interest rate changes. In fact, board members acknowledged that interest rate hikes might not occur for some time. Janet Yellen, Chair of the Federal Reserve Board, indicated it would be early April before the board would meet again to discuss a potential increase in interest rates. Of particular interest, however, is the impact the delay may have on the housing sector. The first quarter of 2015 could very well be the end of historically low interest rates.
With the interest rate hike looming on the horizon, the window to refinance is getting smaller. In other words, those that have not yet refinanced are running out of time to receive a reduced rate. This is particularly critical for homeowners who took out an adjustable-rate mortgage. Buyers who have been on the fence since the downturn should consider how rising interest rates could impact their monthly premiums. Moreover, those looking to buy will have to settle for less house. The impending increase will also have a big impact on investors looking to secure financing outside of the traditional private loan.
2. Down Payment Assistance:
Appreciation rates over the past three years have returned a considerable amount of equity to the market. However, certain populations have found the increase in prices to be an incredibly daunting obstacle. Millennials, in particular, have found it increasingly difficult to purchase a home because of the large down payments they require.
Fortunately, new programs are being implemented to assist those that are having trouble coming up with such a lofty down payment. No more than a month ago, Fannie Mae and Freddie Mac introduced programs that allow first-time buyers with good credit to qualify for a fixed-rate mortgage. Instead of the traditional 5 percent down, new borrowers could now put 3 percent down. There are stipulations of course: Borrowers must be first-time buyers and they must reside in the home.
While the easement of mortgage practices will allow more first-time buyers to actively participate in the market, those with smaller down payments will be required to pay mortgage insurance. In a move designed to bring more first-time homebuyers into the housing market, President Barack Obama said the Federal Housing Administration (FHA) will lower its annual insurance premiums. The move hopes to bring hundreds of thousands of buyers into the market, most of which are of the millennial generation.
Both lower down payments and reduced mortgage insurance costs should facilitate the participation of first-time buyers. Many experts believe that an influx of first-time buyers will provide the stimulation the economy has been lacking. For all intents and purposes, millennial participation could help the recovery gain the traction it so desperately needs.
3. Millennial Participation:
Millennials have had a tough time adjusting to the current housing market. Owning a home is simply too difficult for the situation most of them are in. By no fault of their own, coming up with a sizable down payment isn’t feasible. Not only did they graduate from college during one of the worst recession in American history, but they are saddled with student loan debt and restricted by strict underwriting. Everything is going against them. These factors, and more, have essentially prevented millennials from buying homes.
However, with the economy heading in the right direction, millennials may find it easier to actively participate in the housing sector in 2015. Increasing rents, more housing inventory and life changes should push many millennials to purchase a home. The combination of a strengthening job sector and increasing rents makes the prospect of homeownership more appealing. In fact, it is not uncommon in most cities for rent to cost more than a mortgage payment.
4. Foreclosure Relief Is On The Horizon:
Experts have predicted an uptick in new home buying, as those that have already filed for foreclosure are now seeing past transgressions stricken from their record. Buyers interested in a more affordable conventional loan who had a foreclosure seven or more years ago will now see the default events starting to come off of their credit reports. A clean record will be enough to get some people to look into buying again.