Many would-be homeowners are unable to take advantage of lower borrowing costs.
The costs of borrowing remain at record lows following a move by the Federal Reserve to push down long-term interest rates, but record low rates have so far failed to stimulate the depressed housing industry, while an increasing number of Americans are falling behind on their mortgage payments.
For the week ending September 29th, conventional 30-year fixed rate mortgages averaged 4.01 percent for home buyers paying an average of 0.7 percent of the loan balance towards fees, according to data released yesterday by Freddie Mac, an institution created by Congress in 1970 to provide mortgage capital to lenders. Rates for 15-year fixed-rate mortgages averaged 3.28 percent with an average 0.7 point.
Lower borrowing costs have not yet significantly boosted the real estate market slogging through a five-year slump following the housing market crash of 2006. Tighter lending standards are blocking many would-be homeowners from borrowing and creating a pent-up demand in the market, said Lawrence Yun, chief economist with the National Association of Realtors. Improving market fundamentals, including some new job creation and rent increases, should be pushing new home sales to 5.5 million this year, but Yun said he expects sales to top out at 4.9 million.
“We continue to experience a pattern in which financially qualified home buyers, willing to stay well within their means, are being denied credit - a factor in elevated levels of contract failures,” he said. “The unnecessarily restrictive mortgage underwriting standards are attenuating the housing recovery and a risk factor for the overall economy.”
A growing number of current homeowners became delinquent on their mortgages in the second half of 2011, according to a report released yesterday by the U.S. Treasury Department’s Office of the Comptroller of the Currency. The quarterly report shows that 88 percent of the 32.7 million loans serviced by large national banks and federal savings associations were current with their payments, down from 88.6 percent at the end of the first quarter. The report measured a 0.4 percent increase in early-stage delinquencies, to 3 percent, and a 0.1 percent increased in mortgages than were delinquent by 60 days or more, to 4.9 percent. The percentage of mortgages in foreclosure remained steady at 4 percent, though that percentage may increase as a large number of foreclosures work through the process and alternatives to foreclosures are exhausted.
Of the more than 2 million mortgages modified from the beginning of 2008 through the first quarter of 2011, 9.2 percent were one to two months behind in payments, 18.2 percent were seriously delinquent, more than 10 percent were in foreclosure and 5.3 percent were foreclosed.
Borrowing costs for 30-year fixed-rate mortgages briefly fell below 4 percent last week, but inched back up as concern mounted over Europe’s ability to contain the debt crises threatening the economies of Greece, Italy and several other nations. Average overnight rates quoted today by Bankratelist the 30-year fixed rate mortgage at 4.07 percent, down from 4 percent last week, and 15-year fixed-rate mortgages at 3.36 percent, down from 3.3 percent last week.
The National Association of Realtors yesterday reported that pending home sales declined in the month of August. Pending home sales reflect housing contracts that are signed but not completed. The association’s Pending Home Sales Index fell 1.2 percent dropping to 88.6 in August from 89.7 percent in July, but the pending sales are higher than a year ago, when the index stood at 82.3.