Housing 2024 - What's in store for housing's next generation

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Th e M Rep o RT | 47 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t ANALYTICS the latest americans' Financial Optimism grows; Housing Presents mixed Picture GSe economist says survey results may foreshadow a better balance of housing supply and demand. d espite growing eco- nomic confidence, Americans' housing sentiment remained mixed in October, according to survey findings from Fannie Mae. Forty percent of American consumers polled in Fannie's lat- est National Housing Survey said they believe the economy is on the right track at the moment, flat from September's survey but up 13 percentage points over the past year. Meanwhile, the share of Americans who said the economy is on the wrong track slipped to 53 percent from 54 percent. Looking at their own finances, a quarter of respondents said their household income is sig- nificantly higher than it was last year, while a rising share said their expenses are significantly lower. Predicting the next year, 45 percent expect their financial situation to improve, up from 41 percent in September. Housing attitudes were decid- edly more mixed. According to Fannie, Americans surveyed in the October poll expect home prices to rise 2.8 percent over the next year, reflecting a bounce after price expectations stagnated throughout the summer. The share of those anticipating price gains slipped a percentage point to 44 percent. At the same time, the share expecting prices to drop in the next 12 months also fell, declining to 7 percent from 9 percent as recently as August. Respondents were a little less hopeful when asked about the finance side of the housing equa- tion. Forty-eight percent of those surveyed expect mortgage rates to rise in the coming year—a given, now that the Federal Reserve has turned its attention to bringing up interest rates. With home sales already lagging despite historically low mortgage rates, any shock to home affordability could weigh activity down further. Meanwhile, half of consum- ers remain pessimistic about their odds of getting a mortgage as banks continue to show reluctance to opening up the credit box. All things considered, the share of Americans who say now is a good time to purchase a home fell, dropping to 65 percent. On the other hand, the share of con- sumers saying now is a good time to sell picked up, hitting a survey high of 44 percent. Doug Duncan, SVP and chief economist at Fannie Mae, took the latter statistic as a hopeful sign for housing. "The narrowing gap between homebuying and home selling sen- timent may foreshadow increased housing inventory levels and a bet- ter balance of housing supply and demand," Duncan said. "These results may help drive a healthier housing market in 2015." more refinancers tapping into Home equity Refinance activity overall down sharply, however, cash-outs total less than 10% of peak levels. a s home equity grows, more Americans are tapping into that equity when refinanc- ing their home loans, according to the latest quarterly refinance report from Freddie Mac. In fact, the share of borrow- ers tapping into their equity and cashing out at the time of refi- nancing has doubled from last year as house price appreciation has risen across the country. According to Freddie, home eq- uity grew by $3 trillion between the second quarters of 2012 and 2014. The GSE attributed much of this upswing to home value gains combined with shorter-term loans and faster-than amortized principal paydowns. While the share of borrowers that cashed out some equity has increased considerably over the past year, the refinance volume has fallen sharply, according to Frank Nothaft, Freddie's VP and chief economist. This, Nothaft said, has resulted in "a relatively small amount of equity cashed out, to the tune of roughly $8 billion." That figure, he said, is "less than one-tenth of what we saw at the peak in mid-2006." Freddie estimates homeown- ers who cut their payments by refinancing at a lower mortgage rate will save more than $1.5 billion in interest payments over the next year. On average, that's an interest rate reduction of about 1.3 percentage points, or $2,700, on a $200,000 loan, Nothaft said. The news is even better for homeowners who took advan- tage of HARP financing. They have seen an average interest rate reduction of 1.7 percent- age points, which means on a $200,000 loan, HARP-enrolled homeowners will save an aver- age of $3,400 in mortgage interest over the next year. That's about $280 per month. Further, 36 percent of home- owners refinanced into a shorter- term fully amortizing loan in order to pay down principal and build home equity faster, the report stated. Freddie averred that this is a sign homeowners are building wealth as the equity in their homes increases. Before the Great Recession, this segment represented be- tween 2 and 10 percent of all borrowers by year, Freddie reported. Since the recession, however, 15 to 20 percent have paid down additional principal prior to refinancing. "This could reflect the deci- sion of some borrowers to pay down their principal further to avoid paying mortgage insur- ance," Nothaft said. "The narrowing gap between homebuying and home selling sentiment may foreshadow increased housing inventory levels and a better balance of housing supply and demand." — Doug Duncan, Fannie Mae

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