Even though tougher standards drive up the cost of homeownership, with very attractive rates the number of mortgage applications are up.
Even borrowers with decent credit are beginning to feel the mortgage crisis pinch. Fannie Mae, soon to be followed by Freddie Mac, has imposed an extra 0.25 percent upfront charge on all new mortgages that it buys or guarantees.
In a statement, Fannie said the new fee is needed “to ensure that what we charge aligns with the risk we bear.” The National Association of Home Builders labeled the fee “a broad tax on homeownership” because more than 40 percent of all mortgages outstanding are owned or guaranteed by Fannie or Freddie.
Mortgage insurers have raised premiums for certain borrowers and tightened standards. PMI Group Inc. has stopped writing mortgage insurance for borrowers with credit scores below 620 who are financing more than 95 percent of their home’s value.
This week the Federal Reserve dropped the federal funds rate by one-quarter point to 4.25 percent. The Fed also lowered its lending rates to banks by one-quarter-percentage point to 4.75 percent. Both the funds rate and the prime rate are now at their lowest levels in nearly two years and are producing some very attractive rates for homebuyers.
“Economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks,” the Fed said in a statement explaining its decision to cut rates again.
Mortgage applications rose again last week, up 2.5 percent from the previous week, according to the Mortgage Bankers Association. The index used by the association was up 14.2 percent compared with the same week a year ago.
From a personal observation I am seeing some unexpected activity for the early holiday season and have noticed the rental market has gained some strength. “If you can’t sell it, rent it!” is a strategy working for a number of sellers. This is good news for our market, with prices down, rental demand growing it is only a matter of time before we see some investors re-enter the market and prices firming up as the inventory of available homes falls. As of December 10, according to HousingTracker, inventory of available homes in the greater Sacramento area was down 5.5 percent over the past month.
