A combined group of more than 70 people from the Home Builders Association of Northwest Indiana (HBA), the Indiana Mortgage Bankers Association (IMBA) and the Greater Northwest Indiana Association of REALTORS® gathered at Innsbrook Country Club in Merrillville earlier this month for the annual update on housing.
The theme of the day was incredibly positive – echoing the sentiment on the recent cover of Money Magazine’s Real Estate Guide for 2013, “Housing is Back!”
“It’s just great to have these three perspectives all at once – realty, mortgage banking and building,” HBA Executive Director Vicki Gadd said. “This is the third year that we’ve done the panel discussion, and each year the information they share is more positive. There was a lot of great information with statistics on how things are progressing.”
While the housing recovery is taking hold, more buyers and sellers are realizing they are in a better place this year than last year. Super low mortgage rates are keeping home prices affordable, despite recent price gains.
On the heels of last year, when home sales rebounded better than anticipated toward the end of 2012, many people were concerned that the pace couldn’t be sustained through the early months of 2013, according to GNIAR Chief Executive Officer Pete Novak.
“We actually saw just the opposite,” he said. “Even now, appointments, which translate into transactions, remain up 50% from a year ago. Locally, our supply of homes, the number of new listings, is basically staying steady as demand is improving. The question for the rest of the year and into next year is whether prices are going to follow. There are some people predicting that shortages at certain price points, which are creating multiple offers and bidding wars, could potentially restrict sales unless builders are able to keep filling the gap.”
In the latest housing report, building permits, another indication of future demand, were up 4.6 percent to a seasonally adjusted annual rate of 946,000, the highest rate since June 2008.
Novak also pointed to the fact that distressed properties (short sales and foreclosures) accounted for 4 of 10 or 40 percent of all sales in 2010. That number was down to 25 percent at the end 2012 and is predicted to be as low as 8 percent by the end of this year.
“When you look at maintaining a steady supply, the shifting mix of distressed sales and new construction should contribute to prices rising,” Novak said. “The builders were the last to recover on the residential side, so it’s great to see new home starts keep going up.”
In 2012, applications for refinances totaled $1.2 trillion and made up 71 percent of all mortgage originations. That number is expected to drop significantly this year and next - to $818 billion or 58 percent in 2013 and $358 billion or 34 percent in 2014. In response, new mortgages for home purchases are expected to rise from $503 billion in 2012 to $592 billion in 2013 and $703 billion in 2014.
Since mortgage interest rates are typically a big component in the cost of any home, understanding where rates are headed often impacts whether people want to buy now or wait.
Recently, mortgage interest rates have been rising on signs that the overall economy is improving. Last week, the 30-year fixed rate reached the highest level in more than six months, climbing to an average of 3.63 percent, compared with 3.52 percent the previous week and 3.92 percent a year earlier. The current rate is the highest it's been since August 2012 when the 30-year fixed rate averaged 3.63 percent, according to Freddie Mac.
However, let’s be realistic. These highs are not sizeable increases, especially when compared with rates that ranged from 4.82 to 5.42 in 2009, 5.60 to 6.33 in 2005 and 7.38 to 8.52 in 2000.
According to the Mortgage Bankers Association, mortgage interest rates are expected to creep up slowly after reaching record lows in 2012. They forecast the 30-year interest rate could be around 4.3 percent by the end of this year. For every $100,000 borrowed over 30 years, you can expect to pay approximately $50 more each month for principal and interest.
“Rates are likely to continue to stay very low for the foreseeable future,” IMBA Executive Director Alan Thorup said. “Housing values are consistently rising in Indiana. We definitely benefited from not having a huge downfall like other parts of the country. Nineteen months in a row of price and production going up have made an impact. We’re also seeing more building and more permits – not at the levels of 05-06 but better than each of the last two years - which is certainly positive.”
So, in case you haven’t heard - Housing is Back!
Just ask all the potential buyers and sellers who have already moved off the fence and dove right into the market so far this year - well ahead of the industry’s traditional peak season. With the prospect of rising prices and evidence that mortgage rates are starting to creep up, waiting to buy a home no longer makes sense to them.
“The momentum of housing activity so far this year is well ahead of the anticipated pace,” Thorup added. “With housing looking up, it’s creating a greater level of confidence with the consumer that the market is once again a place to put your future into.”