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Mortgage Rates and the Housing Market: 2013 in review and a peek into 2014

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The mortgage market and the housing market end 2013 with signs of continued recovery. On the mortgage side rates have increased, although from a historical perspective they are still very affordable. On the housing side the increase in prices is good news for sellers but a sense of alarm for buyers.

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Bond purchases have kept market stable

The benchmark 30 Year Fixed Rate mortgage ends 2013 at 4.480%. For the year it averaged 3.969% resulting in a difference of a tad over 50 basis points or .5110%. The trend is what industry experts as well as consumers are closely watching. The increase in rates stem from an improved economy and the Fed’s (Federal Reserve) decision to minimize its purchase of bonds. The bond issue is what has artificially kept rates suppressed and that was great news for consumers who relied on lower rates as motivation to complete their transactions.

On the other hand, while rates ticked up 1.13 basis points or 1.125% in comparing year over year, year-end numbers; it is worth mentioning to prepare for 2014.

Lawrence Yun, NAR (National Association of Realtor's) chief economist, said the market is being squeezed. “Home sales are hurt by higher mortgage interest rates, constrained inventory and continuing tight credit,” he said. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction. As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.”

Based on the trend rates of 5.000% and above appear imminent by the 3rd quarter of 2014. Again, that will be the result of continued positive employment numbers as more consumers will be in the marketplace creating more competition for affordable mortgage money and available housing inventory. Another key factor is housing prices, which end 2013 up 13% year over year.

Movement back to urban core

Of course whether you are shopping for a mortgage or a property, it boils down to your budget and your credit. Low mortgage rates and low property prices are great, assuming you have the cash and credit. While many have recovered from the 2008 economic meltdown, a larger population has been experiencing a slower recovery. Lackluster credit guidelines was one of the blames for the housing crisis. Although that is debatable, the result is guidelines have been sharpened and those on the margins have had a tougher time qualifying, if completing a transaction at all.

In addition to tighter credit qualifying, down payment requirements were also increased. These measures were employed to correct the system. While these dynamics are not new and have always been a part of the housing sector, the crisis put a greater spotlight of how vulnerable consumers were.

No doubt the market has turned the corner and many cities are witnessing an increase in housing. New starts will remain an important metric, especially where there is land available. On the other hand, unlike their parents who moved away from the city, many are returning to ground zero; the urban core. This population has fueled major housing movement in cities such as San Francisco, Atlanta, Newark, Detroit and even Los Angeles.

Gentrification is a phenomenon which was redefined as the civil rights movement took off into the ‘50’s and ‘60’s. The basis of the civil rights struggle was to tear down racial barriers and legal measures which minimized blacks and other group’s participation in the broader economy. The nexus of civil rights was for the mainstream to integrate and share; power, resources and responsibilities. , The mainstream fought back by employing “white flight” and other tactics as they departed from the city and relocated into newly found areas known as suburbs. As they left, a major economic void was created and cities throughout the nation became blighted or otherwise undesirable. Starting into the late ‘70’s and as late as the past decade many cities are experiencing gentrification or where the majority are moving back to the cities, and bringing their resources with them.

What once were dilapidated warehouses or districts and neighborhoods which resembled third world living conditions have been reshaped to the needs of those moving back in. New industries have been developed, companies are relocating back to the city. To support the movement trendy restaurants and other eateries, boutiques, lofts and upscale housing have been the result as some cities that had been left for dead are now thriving metropolises. The explosion is not expected to end anytime soon as more cities are taking note of how this explosion fuels more tax payers. While gentrification is great for those seeking affordable communities, those who chose to stay have found themselves in a dilemma. Finding themselves priced out, their predicament is to remain or move to affordable areas. For many, that creates a huge problem due to the financial realities, or the lack thereof.

We are we headed

While rates are trending up, they surely would have gone higher as FHFA (Federal Housing Finance Association) had announced plans to increase the fees charged by Fannie Mae and Freddie Mac to their clients; local lenders. This translates into higher cost being passed to consumers. However, just last week incoming chair, Mel Watt announced he was delaying the increase until he could truly study the effects and implications. His announcement thwarted the price hike which had been announced just prior to his confirmation.

“Upon being sworn in as director of the Federal Housing Finance Agency, I intend to announce that the FHFA will delay implementation of the [guarantee] fee and risk-based pricing plan announced in the FHFA’s News Release dated December 9, 2013,” Mel Watt incoming chair of FHFA

A peek into 2014

Mortgage rates are up. Home prices are up. Wall Street is breaking records. Mortgage applications in contrast are down. These 4 factors provide a glimpse into the window as we look ahead to 2014. It is predicted prices will continue to rise because as the economy improves more and more consumers will be competing for available housing stock. This will allow for mortgage money to remain affordable but by summer 5% and beyond is projected. The last time consumers saw 5% was February 17, 2011. As a point of perspective when the housing crisis hit in 2008, rates were averaging 6.03%.



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