Hope for the U.S. Housing Market: Record Low Mortgage Rates
The falling rates already appear to have helped the U.S. housing market, with pending sales growing unexpectedly in July -- although that's likely also due to an extension of tax credits for home buyers. The number of U.S. homes that entered into escrow last month increased 5.2% from June, but still declined 19% from the same month a year earlier, the National Association of Realtors, or NAR, reported Wednesday. Homeowners, home buyers and real-estate industry insiders hope the rates might lead lenders to approve more loans for housing purchases and allow more cash-strapped homeowners to refinance their homes instead of having to sell them or foreclose.
Housing prices "appear to be firming," said Amy Crews Cutts, deputy chief economist at Freddie Mac, in a statement. She added that June housing prices increased in 15 of the 20 metropolitan areas that are included in a composite index for home values. Meanwhile, NAR last week reported that U.S. median home prices increased 0.7% in July from a year ago.
Growing prices may help clear up a bottleneck of sorts for lending. Approximately one of every eight NAR members has said they'd had had at least one of their prospective home sales had fallen out of escrow because the home's value was appraised at less than the negotiated price, according to NAR spokesman Walter Molony. "The appraisal situation may start to improve, but it has been constraining the market all year," Molony says.
Still, in spite of the falling mortgage rates, banks may be waiting for the economy to improve before approving more home purchases and refinances. "Banks were burned by the events of the mortgage meltdown and do not want that to happen again," says Robert Kleinhenz, deputy chief economist of the California Association of Realtors. "We don't expect to see the lax lending standards of the 2000s show up again anytime soon, but banks may be able to ease standards a bit if they sense that economic conditions for households and consumers have stabilized or begin to improve."