Low interest rates, housing inventory, lead to stronger housing market


After nearly 10 years of limping along toward recovery, it appears the housing market has finally hit a more comfortable stride. S&P/Case/Shiller Home Price indices released data in April 2015, indicating home prices have continued to rise across the U.S.

No one factor is responsible for the trend. Rather, a variety of factors are being credited for the recovery.

Low mortgage interest rates
Mortgage rates have remained at all-time lows. A slower-than-expected economic recovery may be partly responsible, with the Federal Reserve holding off on raising interest rates until the economy is on more solid ground. Homebuyers are taking advantage of the historically low rates while they can.

Less-stringent mortgage lending
Obtaining a mortgage has gotten easier in 2015 thanks to less-stringent lending requirements. A number of changes are being credited for making mortgage lending more readily available.

Fannie Mae and Freddie Mac lowered their down payment thresholds in December 2014 to as little as 3% of a home’s purchase price, a boon for first-time home buyers and buyers with low down payment funds available.

Also, the Federal Housing Administration (FHA) announced in January 2015, it would lower what it charges for annual mortgage insurance premiums. The 0.5% decrease, from 1.35% to 0.85%, is expected to reduce an FHA borrower’s annual mortgage payment by $900 per year, on average.

Low housing inventory
A low housing inventory frequently gives home sellers the advantage, since it often leads to an increase in housing prices. While inventory does vary by location, total unsold inventory was on the lower end, with a 4.6 month available supply* in April 2015.

Buying a home is more affordable than renting
According to Trulia’s Rent vs. Buy Index, it was cheaper to buy a home than to rent one in all of the nation’s largest 100 cities in 2014. Nationwide, owning was 38% less expensive than renting.

Millennials are entering the market
Despite living with high student debt and a tepid job market, Millennials are finally entering the real estate market. In fact, adults age 34 and younger made up the largest percentage of home buyers in 2014, accounting for 32% of all home purchases nationwide.** Of course, this doesn’t’ mean all Millennials are buying homes. Those with the highest student loan debt may have trouble meeting the debt-to-income ratios required by lenders for a mortgage. Others are postponing starting a family, which affects their urgency to purchase a home.

*Source: National Association of Realtors, News Release April 2015.

**Source: National Association of Realtors, Home Buyer and Seller Generational Trends study, 2015

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.


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