Will Fed's Buying of Mortgages
Published: Friday, Sep 14, 2012 By: Gene Wright
Give Housing Recovery a Shot?
Home prices have been stabilizing, while new construction is on it's way back, although Federal Reserve apparently isn't buying into a bullish housing resurgence.
the Fed announced on Thursday that it was going to buy as much as $40 billion of agency backed mortgage securities monthly, with no clear completion, makes a loud and clear statement that the Fed believes housing requires more stimulus.
Already mortgage rates are hovering around record lows, however mortgage applications,
particularly for purchasing a home, have continued to be low. So many have already refinanced at lower rates, while many more cannot refinance due to lack of equity in their home or high fees.
The actual growth in home buying for the year has been amongst the low end investors, pretty much paying all cash.
Foreclosed property inventories have been dramatically shrinking, as investors are swarming auctions and bidding on bulk purchases
The on fire and still heating up rental market presents potentially greater rewards than any unpredictable stock market.
In turn, the immense activity on the distraught end of the market is pushing up prices of homes. Meanwhile overall foreclosure movement is declining, we could see increased volumes of properties owned by banks coming on the market during the next several months, as banks seek to benefit from increasing prices and overall demand.
Spikes of foreclosure activity is already occurring in states where foreclosure cases had been back logged in the courts.
Going against the nation wide trend, deferred foreclosure movement is alrerady boiling over in a number of states since August," stated RealtyTrac vice president Daren Blomquist,. "In judicial states like Illinois,, Florida, New York, and New Jersey which was a continuance of a trend that's now been going on for several months. The increases in Illinois and Florida pushed up foreclosure activity within those states, making them the most in the U.S. superseding those non-judicial California, Arizona, Nevada and Georgia states. Prior to August, the two state with the highest foreclosure rates in the nation have been among those top non-judicial four states each and every month begining in December 2010.
As increased amounts of these REO properties are put on the market, investors will most likely have the winning bid, despite numerous potential owner occupants attempting to find foreclosure deals. because investors will always have a cash advantage. Even low mortgage interest rates won't be of help many potential buyers, as Fannie and Freddie are still raising their guarantee fees, with the effect of pushing rates higher. However, they could mitigate some of their fee increases.
"For everyday homebuyers, QE3 will work to smother mortgage interest rates during a period when they're increasing artificially. QE3 will act to offset the vast majority of FHFA's newest g-fees, while helping to continue keeping FHA loans affordable in spite of increasing mortgage insurance premiums," Dan Green with Waterstone Mortgage argued.
However there's also lots of uncertainty about mortgage financing in the future, depending upon the results of the election in November , not to mention the action our present administration is persuing to reduce the size of Fannie and Freddie.
"A new recent announcement is that both Fannie and Freddie are going to be obligated to reduce their self retained MBS portfolios quicker than expected," Guy Cecala with Inside Mortgage Finance noted. "This could somewhat dilute the effect of the action by the Fed as its increased purchases could be offset by fewer GSE purchases."
To see the low interest rates are not the housing cure-all, one need look no further than weekly mortgage applications numbers, which have been lackluster of late to say the least. The one benefit could be in the refinance segment of the market, especially as there is a new push to broaden the administration's current refinance program for underwater borrowers. More refinances mean more money in consumers' pockets. Unfortunately the Democrat-led effort is unlikely to make its way into reality, given the rising Republican opposition as election day nears.
There's no question that increasing numbers of Americans will be looking at the housing market during this coming fall, as the cost of home ownership has become less than renting in each of the 100 biggest markets in the U.S., "by a big margin," in looking at a recent report by Trulia.com. All that remains is to see how many potential homebuyers will have the
ability to gain benefits of these low interest rates, given the continued taut lending standards that control today's market.
Real Estate Finance