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  • Housing Affordability Reaches New Highs

    By Ted Ahern, Guaranteed Rate CFO
    July 13, 2009

    Conforming mortgage rates are in the low five percent range and may move lower in the coming months. The desire of policy makers to stimulate the housing market will likely ensure that the Federal Reserve will continue to buy FNMA, FHLMC, and GNMA mortgage backed securities in the open market. The Fed’s objective of driving mortgage rates lower is to stimulate both purchase and refinance activity and help the overall economy. Low rates combined with a 30+% decrease in home prices over the last two years has put housing affordability at a decade high.

    The U.S. economy is attempting to stabilize after several quarters of unprecedented volatility. Corporate earnings and home sales are beginning to show positive. Banks and financial service firms continue to clean up their balance sheets and take advantage of the multiple Treasury and Fed sponsored funding programs designed to increase lending and profitability. FNMA, FHLMC and FHA are providing much needed liquidity to credit-worthy borrowers with refinancing giving many households much needed relief.

    Lower rates and a stabilizing economy are drawing in new buyers making the spring selling market better than many had hoped. First time homebuyers are also beginning to take advantage of the $8,000 tax credit for new purchases. June homes sales will likely be stronger than the previous three month run rate as buyers find compelling sale prices. Short sales and foreclosures are still estimated to make up 30-40% of all purchase transactions currently with outstanding values and financing to be had by astute buyers. Inventory is also slowly but surely moving down with an estimated 10.4 months of home inventory currently listed.

    Leading indicators for the 2nd quarter, which include factors like stock market sentiment, interest rate spreads, factory output, and anticipated home sales, show an economy that is beginning to turn with most economists predicting positive GDP growth for the 2nd half of the year. Look for the U.S. economy to continue to slowly recover over the next 4-6 quarters. While the economy is still in a deep recession (overall GDP is expected to contract 5-6% on an annualized basis), it will ultimately end. Housing remains the most troubled sector on the horizon with a slow recovery and possible modest price drops over the next 1-2 years.

    ted ahern
    Ted holds an MBA in Finance from the University of Chicago and is also an Adjunct Professor of Economics at Lake Forest College.
    Jul 13 2009