OBJECTHome prices won’t climb as fast this fall as they had been rising. But sellers need not worry: This is still their market.
This fall brings good news for home buyers nationwide: They have been granted extra time to grab low mortgage rates. Lenders now regard buyers as their golden customers. Even people who lost their homes to foreclosure or short sale may get a second chance to get a mortgage to buy a house again.
After a strong summer, the housing market is likely to cool in coming months.
That doesn’t mean buyers will no longer face competition when bidding on homes or that prices will drop. But the end of warm weather, coupled with higher mortgage rates, probably will slow the housing frenzy, said Robert Dorsey, chief data analytics officer for FNC, a real estate valuation company.
“Price increases, which had been really robust, seem to be slowing down a little,” Mr. Dorsey said. “As we go into the fall and winter, there is a seasonal decrease in home sales. The economy has been stagnant and interest rates are increasing. I think there will be reduction in price increases and demand.”
This is good news for homebuyers. While the inventory of homes for sale remains tight, potential home buyers will have extra time to find the home they want without the pressure of watching home prices shoot up.
“We may have a period of flat prices, but they will likely continue to go up,” Mr. Dorsey says. “I don’t think home prices in general are going to go down. Plus, you will likely get a lower interest rate today than in six months.”
As mortgage rates rise, lenders no longer will see homeowners lining up to refinance their mortgages. Their golden customers now are home buyers, and they will do whatever it takes to attract as much business from home buyers as possible.
Expect underwriting standards to loosen as lenders turn attentions to buyers, said Anthony Sanders, professor of real estate and finance at George Mason University. Lenders also are likely to offer incentives and reduce loan fees to entice more buyers, he added.
“I think banks have gotten crushed because of the decline in refinancing,” Mr. Sanders said. “Now that the cash cow has been milked, they have to build up their pipelines for purchases.”
The average credit score for loans that closed in August has dropped to 734, according to data compiled by Ellie Mae, a mortgage technology firm. That’s the lowest average score since the company started tracking the data in August, 2011. About 31 percent of the mortgages closed had a score below 700. A year ago, only 15 percent of the loans fell below that threshold.
A lot of people lost their homes to foreclosure or short sale in the last few years. If these people can show that a job loss or reduction in income was responsible for losing the home, they can apply sooner for an FHA-insured mortgage.
The FHA had required a three-year wait after the foreclosure to apply for a new loan. The FHA now makes exceptions, shortening the wait time to one year for borrowers who lost their jobs or income and whose credit was tainted as a result.
“It’s not one of those programs where everyone qualifies, but it’s a really good program for people who lost their jobs because of the economy,” said Scott Schang, manager for Broadview Mortgage Katella in Orange, Calif.
To qualify, borrowers must present documentation showing they lost at least 20 percent of their income for six months and that they were able to get back on their feet and pay their bills on time for at least one year, he said.
After increasing more than a percentage point during summer, mortgage rates are likely to take a break this fall, as long as the Federal Reserve continues to cooperate with borrowers.
“This fall, I would see rates remaining fairly stable,” said Cameron Findlay, chief economist for Discover Home Loans in Orange County, Calif. “I don’t expect them to bounce out of the range of 4.3 [percent] to 4.8 [percent].”
That could change if the Federal Reserve cuts back on the $85 billion per month bond-purchasing stimulus program that has helped keep rates low for so long, Mr. Findlay says. Eventually, the Fed will slow the pace of purchases and rates will rise.
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