In recent weeks there has been a dramatic increase in applications for refi mortgages. One key reason is that many homeowners who have existing adjustable-rate mortgages are now experiencing the inevitable increase in rates and monthly payments. This is especially true with certain nontraditional types of ARMs.
In some cases, homeowners are facing such serious financial problems, they must either refinance their mortgage or sell their home to avoid foreclosure proceedings. And with mortgage insurance premiums being tax-deductible in 2007, refinancing will be even more appealing to some families in coming months. Also, the substantial decline in mortgage rates over the past six months has led to a significant increase in refinance activity, it was noted in a report from the Mortgage Bankers Association.
"Additionally, we are seeing a steady increase in purchase applications," said Mike Fratantoni, MBA's senior economist. Refinance applications are at the highest level since September 2005, while purchase applications are the highest since last January, MBA noted. The refinance share of mortgage activity is now up to 52.
6 percent of total applications. In addition to the need to refinance a problem ARM loan, many borrowers are applying for a refi mortgage to take advantage of today's lower interest rates. In many cases, they want a cash-out refi loan, generating cash in the refinance process that can be used to finance home improvement projects, paying off up-to-the-limit credit cards, or other financial obligations.
Q: Since mortgage rates have lowered recently, are delinquency rates also lowering? A: The delinquency rates for home mortgage loans are increasing. During the third quarter of 2006, the delinquency rate stood at 4.
67 percent for loans on one-to-four-unit properties. That's an increase of about a quarter of 1 percent over the rate for the previous quarter. And the rate is continuing to rise.
However, the housing market is continuing to normalize, according to Doug Duncan, chief economist for the Mortgage Bankers Association. "Although labor markets remain strong, the pace of job growth has slowed, as has the home price appreciation rate that has decreased in response to rising inventories of unsold homes. Some states are experiencing home price declines and a few have experienced declines over the past six months.
"Increases in delinquency rates are noticeably larger for subprime loans, particularly for subprime ARMs. This is not surprising given that subprime borrowers are more likely to be susceptible to the cumulative increases in rates we've experienced, and the slowing of home price appreciation that has resulted. "It's important to remember that delinquency and foreclosure rates have been quite low the last two years," Duncan said.
Q: Why are so many families purchasing homes is outer suburban areas? A. More working families are indeed finding and purchasing a home in outer suburbs, far from their point of employment.
The reason for selecting a home in that location is usually to benefit from lower housing costs. But, in many cases, the added cost of transportation to commute to work each day is more than the money saved in a lower home price and mortgage, according to a study conducted by the Center for Housing Policy, the research affiliate of the National Housing Conference. The study found that the combined burden of transportation and housing costs for working families was similar in all 28 of the major metropolitan areas studied.
The study focused primarily on low- to moderate-income families. "Working families are increasingly moving further from their jobs to find affordable housing," said Jeffrey Lubell, executive director of the Center for Housing Policy. "Yet, we found that many of these families end up spending more on transportation costs than they save on housing.
"Ultimately, these findings emphasize the importance of coordinating the development of housing and transportation policy as well as expanding the supply of affordable housing close to both central city and suburban job centers. Also, improving public transit in areas with lower housing costs and reducing the costs of commuting by car for working families is important." In 17 of the metro areas studied, the average transportation expenses for working families with annual incomes ranging from $20,000 to $50,000 are higher than their housing costs.
Overall, across all 28 areas, working families spend an average of 28 percent, or nearly $10,000, of their incomes on housing and nearly 30 percent, or $10,400, on transportation. Even though many baby boomers are quite wealthy, they are no more likely to purchase second homes or move from the suburbs to an urban area than the retirement-age households that preceded them, it was revealed in a study by the Research Institute for Housing America. However, sales of second homes and urban area retirement homes to boomers will grow in future months and years due to the sheer numbers of boomers who will be entering retirement age.
The future increase in the size of those markets and their associated mortgage markets will be driven by increasing numbers of older households as the population ages, it was noted in the study report. The share of population that is 45 or older will rise from almost 35 percent in 2000 to 42 percent by 2050, primarily because of the baby boomers, according to a Census Bureau report. Individuals who are 45 to 64 are considered the prime market for second and urban retirement homes.
Q: What's the projected average mortgage interest rate for 2007? A: The projected average interest rate for home mortgages in 2007 was lowered recently by Freddie Mac, a major buyer of existing mortgages. The new projected average rate is 6.
3 percent - a substantial drop from the previously forecasted 6.7 percent. Send inquiries to Jim Woodard, Copley News Service, P.
O. Box 120190, San Diego, CA 92112-0190. Questions may be used in future columns; personal responses should not be expected.
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