The Real Impact of the Fed on the Housing Market

(TheNicheReport) — The September announcement of the Federal Reserve with regard to monetary policy and economic stimulus was well-received by market insiders and institutional investors, but what about the average participant of the American housing market? How much do home shoppers and borrowers benefit from the Fed’s commitment to keep mortgage interest rates low and purchase mortgage-backed securities.

For borrowers who have refinanced their mortgage in the last twelve months, the Fed’s announcement does not open a great incentive to refinance again -unless the principal amount is near the loan limit and borrowers intend to stay in their homes for the remainder of the term. Borrowers who have not been able to qualify for a refinancing or a loan modification due to negative equity should benefit from increased home values as buyers and investors feel they have more time to find good deals and lock into low rates.

Extended Relief

The Fed’s stimulus comes at a time when unemployment is still high and the economy is recovering at a pace that is slower than expected. Home sales and prices have recorded monthly increases since January 2012, but real estate investors have been behind a good portion of the purchase transactions. Now that home prices have recovered a bit, house hunters are ever more dependent on low mortgage interest rates.

For investors and home shoppers who thought the low rates would only last until the end of 2012, the Fed’s stimulus plan gives them more time to find their dream homes or investment properties. There is also a chance that mortgage interest rates could hit a new record low from now until 2015. If the benchmark 30-year fixed descends towards 3.25 percent, 20 and 15-year fixed home loans will be attractive. The same goes for adjustable rate mortgages.

This extended relief favor house hunters and investors, but should the government amend the Home Affordable Modification Program (HAMP) to include even more troubled borrowers, the recovery could be accelerated significantly.

The Right Time to Make a Move

Borrowers, home buyers and investors should not trust that the good times will last through 2015. If median home prices continue to recover, the Fed may slow down on its purchases of mortgage-backed securities and mortgage rates could climb higher. Investors are likely to continue their bidding in regional markets where home prices have rapidly appreciated, but a high number of foreclosures may cool down those markets.

One concern by some analysts and observers is that the Fed’s powerful influence could suddenly turn the market and leave some participants out. While that might be the case, the high number of pending foreclosures could have the opposite effect. Another factor to consider is optimism, which could return to the housing market, as it usually does, after the presidential election.

source: thenichereport.com

Current home prices and demand do not point to a full recovery

Median home prices in the United States have enjoyed a steady increase for all of 2012, and in some regional housing markets investors have engaged in bidding wars over some listings in the last few months. The rising prices are certainly welcome news, but many real estate observers and analysts are warning against the conflation of a housing bottom with a market recovery.

The main cause of the 2012 run-up in home prices cannot be attributed to normal demand. Real estate investors are very certainly hungry for deals found at the bottom of the barrel, and these are the type of purchase transactions that have been predominant in certain regional markets like Phoenix and South Florida. A more pressing factor in rising home prices can be traced to the waning number of listings.

Existing Home Inventories Take a Dip

The number of previously occupied residential listings is currently the lowest on record since 2004. The number of newly constructed homes is also pretty low, but this is hardly a case of insufficient supply in the face of high demand. The current real estate market conditions are anything but normal.

On one hand, too many investors are interested in the rock-bottom deals provided by Real Estate Owned (REO) portfolios and foreclosed properties. Banks started warming up to short sales in early 2012, and they are now beginning to realize that they can realize greater profits from their distressed properties. This realization has had a bit of a cooling effect on the housing market.

On the other hand, many investors have moved away from REO and distressed properties and are now looking at the low end of the price spectrum. Home sellers are now motivated to hold off for better opportunities, and investors are willing to skip over them for the time being. This low-inventory situation is not really motivating home builders since there are many foreclosures still pending.

Not Interested or Not Able to Sell

First-time homebuyers and real estate investors seem to be the only participants in today’s housing market, but this is not the way a normal market operates. The American housing market has traditionally depended on families who wish to upgrade their living situation, to move to a bigger house or a better neighborhood with improved amenities. That vital market element is currently missing as many homeowners have been left underwater on their mortgages and unable to sell their properties.

Other homeowners are simply not motivated to sell or to move. The current household mobility is concentrated on the busy rental markets, which coincidentally are the same markets that are performing better than the rest. Until a widespread economic recovery is not experienced in the U.S., the housing market will continue producing artificial statistics.

source: thenichereport.com