3 Results of Low Mortgage Rates

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Filed under: Market Comentary

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It’s a well known fact that low mortgage rates are vital to the housing market as they make purchasing a home more affordable and also make refinancing more attractive for homeowners. But did you realize that low mortgage rates have many other important benefits as well?

According to Keith Gumbinger, here are a few examples of how homeowners, the housing market, and the economy can benefit from these record low mortgage rates.

• Increased demand. The current low mortgage rates help to create demand for housing because potential buyers want to take advantage of cheap financing before the rates start increasing. According to the Commerce Department, this past March, for example, new home sales were more than 18% above levels reported a year earlier. And, according to the National Association of  Realtors, existing home sales experienced an increase, too, rising more than 10% year-over-year in March.
• Rising Prices. One of the key components to fix the housing market is rising home prices. All of the heightened housing demand currently occurring has stripped the available supply down to minimal levels. This has fueled a rapid home price increase in a variety of markets. Since March of 2012, the median existing home value was up almost 12%. And, prices for new homes rose about 3%.
• Rebuilding Equity. During the disastrous financial crisis, crashing home prices plunged millions of homeowners underwater on their mortgages. And, even though regular monthly payments will slowly rebalance the scales, homeowners trying to recover lost equity may take years. The rising home prices help fill in these equity holes more quickly. According to a recent LPS Analytics report, negative equity–owing more on your mortgage than your home is worth–dropped 41% since last March!

So, why is all of this so important?

Well, if a homeowner wants to sell his or her home and move, he or she could now do so without having to write a check to the bank at closing or being forced into a shortsale. The homeowner could also eliminate the need for an unattractive  short sale process.

And, if homeowners want to stay in their homes, there are benefits, too. With home prices rising, just like stock prices, homeowners contribute to what is known as the “wealth effect,” where they feel more confident about spending their hard earned cash. This then helps boost the economy and create jobs.

Finally, homeowners who start rebuilding their lost equity can also open up a source of low-cost credit, possibly a home equity line of credit. Rising home prices can create borrowable equity, which is valuable for everything from debt consolidation to home improvement.

If you want to take advantage of these benefits and are looking into purchasing a home or refinancing, please give me a call so we can talk about your options.

 

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