Low Rates Alone Not Seen Reviving Housing Market

Long-term mortgage rates have dipped to near-record lows thanks to turbulence in the financial markets, but the favorable borrowing costs are not expected to invigorate the struggling housing sector.
That's because about half of all U.S. home owners do not qualify for rock-bottom financing. In order to get the best rates, Inside Mortgage Finance publisher Guy Cecala says consumers must have solid credit. They also must own a home that is valued 20 percent above what is owed on it, he says, but residential depreciation has made this an impossibility for many borrowers.
Helping homeowners like these to refinance and line their pockets with some extra cash would go a long way toward buoying the economy, according to some, but government intervention may be necessary. Columbia Business School housing economist Chris Mayer and colleague Glenn Hubbard have come up with a proposal that Mayer says would help 25 million households shave hundreds of dollars each month off their mortgage payments.
"This would be a big positive effect on the economy in terms of consumer spending," Mayer explains. "And it would reduce the incentive for people to walk away from their mortgages."
Mayer says millions of home loans already have a government guarantee because they're backed by Fannie Mae and Freddie Mac. "We should reduce the risk of those mortgages by extending a guarantee to a new mortgage that somebody would get at a lower interest rate," he suggests. Martin Barnes, chief economist at investment firm BCA Research, also likes the idea of a national refinancing initiative. "If you're going to do something about housing," he speculates, "you should make it available to everyone."
Source: Low Rates Alone Not Seen Reviving Housing Market, NPR (8/15/11)

Borrowers Opt for Shorter Loan Terms

Record-reaching low interest rates have prompted more home owners to shorten the terms of their mortgages. Thirty-four percent of refinancers changed their loan to a 20- or 15-year mortgage during the first quarter -- the highest level in seven years, Freddie Mac reports.
Mortgage companies are also reporting a higher demand for shorter-term mortgages. For example, LendingTree reports that 15-year mortgages have increased 30 percent from a year ago.
Quicken Loans recently debuted a product that allows borrowers to select the term of their mortgage. The most popular mortgage term selected is 8 years, followed by 13 years.
"Mortgage-burning parties are back," Bob Walters, chief economist for Quicken Loans, told USA Today.
Shortening the term of a mortgage can save home owners  "tens or even hundreds of thousands of dollars in interest costs," Keith Gumbinger, vice president of HSH Associates, told USA Today. Some borrowers are finding that refinancing into a shorter term may not even increase their monthly payments, since 15-year rates are so low.
However, some borrowers who want to refinance are finding they’re being shut out, experts say. Home owners who don’t have a credit score of 720 or higher or don’t have at least 20 percent in home equity may not qualify for the lowest rates. 
Source: “More Home Owners Shorten Mortgage Terms,” USA Today (Aug. 15, 2011)

Home Ownership Trumps Renting in 74% of Cities, Survey Says

Low interest rates and falling home values have made home ownership make more financial sense than renting in most major cities, according to Trulia’s Summer Rent vs. Buy Index.
Trulia found that buying a home is cheaper than renting in 74 percent of the country’s 50 largest cities. Trulia compared the cost of buying and renting a two-bedroom apartment, condo, or townhouse in the nation’s 50 largest cities.
Buying a home particularly in cities plagued by foreclosures proves to be much cheaper than renting, according to Trulia. Below are the top five places where buying beats renting by the most, as well as the few cities where renting may make more sense.
Top 5 Cities Where Buying Beats Renting
1. Las Vegas
2. Detroit
3. Mesa, Ariz.
4. Fresno, Calif.
5. Arlington, Texas
Top 5 Cities Where Renting is Cheaper Than Buying

1. New York
2. Fort Worth, Texas
3. Omaha, Neb.
4. Seattle, Wash.
5. San Francisco, Calif.
Source: “Home Ownership Beats Renting in 74 Percent of Major U.S. Cities,” Trulia (Aug. 16, 2011)
 

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