Mortgages ain’t what they used to be

Castles in the Sand

The end of the super low mortgage interest rates has just about arrived. From a low of 3.31 percent for a fixed rate, conventional home mortgage in 2012, we are, as of this writing, up to between 4.4 percent and 4.5 percent. This also happened pretty fast considering as recently as January of this year the rates were still below 4 percent.

In addition, we’re probably not done with rate increases since the Federal Reserve has said it expects to raise short-term rates two to three more times this year and again three times next year. In real money to home buyers, this has a big effect on monthly payments. A 4 percent rate on a $250,000 loan is a monthly payment of $1,194, but at 5 percent, the monthly payment goes up to $1,342. In higher-end homes with larger loan amounts, this monthly payment figure goes up at a faster rate, potentially keeping buyers in all price ranges from qualifying.

Typically, buyers who don’t qualify for mortgage financing because of rate increases readjust their price range. However, because housing inventory all over the country is almost at an all-time low, buyers, especially in the entry-level category, have no place to go.

Meanwhile back in Manatee County, April was a much better month than March. Not really surprising since April has always been a busy month for real estate closings, so here are the numbers:

April single-family homes had a median selling price of $311,000, up 5.4 percent from last year and an average selling price of $405,020, up 11.7 percent from last year. The median time to sell was only 91 days and the median selling price was 95.8 percent of the original list price. If you recall, March’s median selling price dropped below $300,000 to $285,000, which I predicted would turn around this month.

April condo sales had a median selling price of $209,950, 23.1 percent higher than last year and an average of $256,789, 20.5 percent higher than last year. Days to sell were 80, quite a bit less than single family, and the median price to sell was 95.4 percent of the original list price, almost the same as single-family. For both single family and condos, the month’s supply of available properties were both low with single-family dropping to 3.9 percent and condos staying stable at 4.5 percent. Statistics are from the Realtor Association of Sarasota and Manatee website.

It’s always nice to have a high appreciation, but are we setting ourselves up for another bubble? Possibly, since so far this year the housing market has the strongest growth since 2005, and since mid-2012 home prices have increased 28 percent, according to data from the American Enterprise Institute.

Some of this potential bubble is being caused by lower underwriting standards by Freddie Mac and Fannie Mae, which as government agencies underwrite 80 percent of all home purchase mortgages. Both agencies are expanding their 3 percent down mortgages, and new government regulations will allow delinquent taxes to be excluded from credit scores, pushing credit scores up.

Do we really want to go through another housing crisis because of exotic mortgage products with lax underwriting? Fannie and Freddie need to re-evaluate their underwriting standards, which are the benchmark for the industry and put a lid on this before it gets out of control again.

Very little is the way it once was, and mortgage lending and rates are continually in a flux. Whatever the mortgage rates are, people always must sell and people always must buy. There just may be fewer of them for quite a while.

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