Lennox's Real Estate Blog

sharing my passion for real estate

Transition to a Sustainable Housing Market

housing market large

The residential housing market in the United States has experienced a significant recovery after the housing bubble burst in 2006 – 2007. Leading the way to recovery were the Home Buyer Tax Credit, Residential Investors and Local Home Buyers taking advantage of the historical low interest rates, thanks to the Mortgage Bond Purchase Program by the U.S. Federal Reserve.

This now poses the question of how is the U.S. Housing Market is going to transition from the Recovery Phase to a Sustainable Housing Market. With higher prices and the Federal Reserve starting to back off of Mortgage Bond Purchase Program, (creating higher mortgage interest rates) what will it take to have a strong foundation for a healthy market?

There are many major indicators that make up the environment of a Healthy Housing Market.

RESIDENTIAL HOUSING MARKET

Indicator Condition Sales Activity
Home Prices Appreciation has spiked the last two years, price increases will start to moderate next year Lower Sales Activity
Interest Rates May 2013 appears to be the low point. Interest Rates heading higher Lower Sales Activity
Job Growth #1 Factor to Healthy/Strong Market Healthy Sales Activity
Residential Investors Sales activity headed back down toward normal level Lower Sales Activity
Household Formations Returning back up to normal after 5 Low Years Healthy Sales Activity
Down Payment Requirements #1 Factor for many Home Buyers FHA-VA-USDA-GSE’s Healthy Sales Activity
Underwater Sellers Price Appreciation unlocking many Sellers. Additional Inventory and Sales Activity Healthy Sales Activity
Homeowners who Refinanced Have very low interest rate. Restriction of Housing Supply. Lower Sales Activity
New Construction Selling out of lots. Few new condominiums. Restriction of Housing Supply

The Most Important Factor that will help Transition to a Sustainable Housing Market:

Home Financing

1)    Down Payment Requirements for Credit Worthy Home Buyers

The housing bubble was caused by lax Mortgage Underwriting Standards, not by the amount of down payment. The problem was fixed six years ago in 2007. The new vintage of loan portfolios are performing according to plan.

2) Keep FHA – 3 ½ % Down Program for Credit Worthy Borrowers

This is the #1 item for a Healthy Housing Market.

3) Need credit score requirements to return back to normal

Once QM (Qualified Mortgage) rules are implemented, credit scores should return back to normal for QM Qualified Mortgages.

4) U.S. Government backing of GSE Loans

This is the reason why we have Low Home Mortgage Interest Rates and have the availability of 30 Year Fixed Rate Mortgages. Without this backing, interest rates would fluctuate wildly and put housing on Shorter Term Mortgages. This could cause more frequent boom/bust cycles, with deeper/longer recessions.

Written by Lennox

June 24, 2013 at 2:42 pm

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