As with every year, income, unemployment rates and inflation will affect mortgage and housing markets in 2011. Freddie Mac analysts are looking at five features that they say should characterize the 2011 housing market.
Low mortgage rates: With Fed observers expecting the central bank to keep the federal funds rates at its current target range of 0 to .25% for most of 2011, mortgage interest rates should stay low. There will be some rise in rates, we have already seen rates increase from the low 4% range to the upper 4% range. Thirty year fixed rate loans are likely to stay below 5%, or close to 5%. The initial rates of 5/1 hybrid adjustable rates will likely remain below 4% in 2011.
Prices may have hit bottom. Usually the market is softest in the late autumn and winter months. Prices indexes for the U.S. as a whole are likely close to bottoming out. Most experts are expecting a gradual, but sustained recovery by the second half of 2011.
Housing will remain affordable. The top three items that affect buyer affordability are mortgage rates, house prices and income. With rates and home prices at near historic lows, buyer affordability is at the highest level in years. Many first time homebuyers will be attracted to the housing market in 2011, which may lead to more home sales in 2011 than in 2010.
Refinances will slow. Many borrowers have already refinanced and the federal Making Home Affordable refinance program will expire on June 30, 2011. While fixed rates will remain low, they will move up making refinancing less attractive to home owners.
Delinquency rates will decline. Based on the last several business cycles, the share of loans that are 90 or more days delinquent or in foreclosure proceedings generally crests within a year of the start of a recovery in employment. This economic recovery appears to fit within that pattern. Payrolls began to rise last January and by the spring, the seriously delinquent rate had begun to fall.
It will be interesting to see how the housing market reacts in 2011. Rates are still fantastic – up a little from our lowest in November, but still very low. That will continue to allow buyers to afford new homes. Home prices are very good which also helps buyers. As the employment situation improves, more people should be able to buy homes. For first time homebuyers, the housing market continues to be fantastic!
