Surf’s up:time to ride the home-buying wave
COMMENTARY | Jumping into the housing market is a lot like trying to catch the next big wave: You never know if you’re going to be able to ride it through successfully or get caught in the undercurrent and wipe out.
These days, news of rising mortgage interest rates combined with a tight housing market and ever-increasing home prices are keeping many standing on shore, as they try to figure out the best time to take the plunge.
Rates on the rise
Let’s start with rising mortgage interest rates. They are not just up but have risen a full percentage point above recent record lows and are now in the mid-4 percent range. Although still lower than they were between 2005 and 2007, when rates were in the 6 percent range, the recent jump could slow down home sales — and with it a full housing recovery — by pricing potential homebuyers out of the market and keeping others from refinancing.
Freddie Mac has projected the average rate on a 30-year fixed mortgage to stick around the 4 percent mark during the second half of this year, but get closer to 5 percent by the end of 2014.
One of the reasons for this increase came earlier this month when Federal Reserve Chairman Ben Bernanke started talking about winding down quantative easing or, in layman’s terms, tapering off on the bond-buying program that has pumped billions of dollars into the economy in an effort to help the recovery move forward.
Washington wonks saw this as an indication that higher mortgage rates would follow and panic ensued. Although, to his credit, Bernanke did say that he wouldn’t make any moves until he felt the economy was on more steady ground, that didn’t seem to allay fears.
Tightened housing market
Higher interest rates aside, simply finding a home to purchase is a lot harder, thanks to a very tight market. The banks have continued to hold fast to their foreclosures, fearing that if they let loose it would flood the market and cause home prices to fall.
That’s not to say lenders aren’t filing foreclosures. In fact, last week RealtyTrac Inc., which keeps tabs on such things, reported that Florida had more empty properties in foreclosure than any other state. However, many of these distressed homes are simply sitting vacant and are considered “shadow inventory.”
In Florida, Gov. Rick Scott recently signed HB 87, better known as the “speedy foreclosure legislation,” designed to move the backlog of foreclosures through the pipeline at a faster rate. What kind of an impact that will have on Florida’s housing market remains to be seen. HB 87 has opened up a whole new can of worms for lenders by giving foreclosure defense attorneys more tools in their arsenal to delay foreclosures.
Rising home prices
Finally, home prices have continued to rise, which in turn very well could push some potential homebuyers back to the sidelines.
The National Association of Realtors recently said existing home prices in April were 11 percent higher than a year earlier and new home sales jumped 12 percent in May hitting a five-year high.
Whether the market will be able to sustain those prices will depend on a number of factors, including the higher mortgage interest rates and the availability of the housing stock. And whether potential homebuyers are able to “hang ten” and ride the wave or “duck dive” will depend a lot on their own personal financial situation and their tolerance for uncertainty.
Real estate and foreclosure defense attorney Roy Oppenheim is the co-founder of Oppenheim Law in Fort Lauderdale, Fla., and Weston Title. He is also creator of the South Florida Law Blog, where he frequently provides “In the Trenches” commentaries. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.