Beauty of Mortgage News Is in the Eye of the Beholder
Mortgage rates edged lower this week, as the prevailing drift of housing news could be seen as good or bad, depending on the perspective.
- Home prices in the first quarter of 2008 were reported to have fallen by 7.7% from the same period a year ago
- Foreclosures for the month of April were reported to be up 65% from one year earlier
- Inflation for April came in at a relatively mild 0.2%
In other words, more bad news for homeowners — at least some of them — but good news for potential home buyers.
Who Is Affected By the Housing Slump?
The news of continued price declines and rising foreclosures demonstrates that the housing slump is dragging on. One noteworthy feature of the latest price data: median home prices for the first quarter of 2008 dropped in 100 out of 149 metropolitan areas. This is evidence of how widespread the housing slump is. The 67% of metropolitan areas showing a decline in prices is the highest such percentage in nearly 30 years of this data.
While the housing slump has been especially acute in a handful of boom-to-bust areas, the widespread nature of price declines shows that many parts of the country have now been affected. Even so, the impact on the average homeowner has probably been overstated by the media. Housing price declines only have a direct impact on those homeowners who plan to sell in the near future, or who need a home equity loan and have been in their homes a relatively short period of time (so that they have not built up a cushion of equity).
The foreclosure data is probably a better measure of the pain of U.S. homeowners. What affects the ability of people to stay in their homes is not so much the value of the home, but their ability to make the monthly mortgage payment.
Buyers See the Other Side of the Story
For home buyers though, the slump in housing prices represents an opportunity to get into the market at discounted prices. In some markets, housing prices a few years ago had moved beyond the means of the average family. Having prices come back to earth reopens the housing market to those Americans. For potential buyers, the only challenge is to see the opportunity of the current situation, rather than being scared off by the negative coverage of the housing market.
Some Positives for Both Sides
Both home buyers and home owners can benefit from moderating inflation and reasonable mortgage rates. The two are related — inflation concerns have been putting upward pressure on mortgage rates, so April’s reasonable Consumer Price Index reading was something of a relief. Month-to-month inflation readings are notoriously volatile, but looking at the first four months of 2008 shows that inflation is tracking at a 2.95% annual rate — about the historical average.
Obviously, lower housing prices and reasonable mortgage rates represent the best of both worlds for buyers, but this is also good news for home owners. If inflation continues to moderate, it will take some pressure of monthly budgets, while affordable mortgage rates will help build some support for housing prices. Those rates also give home owners a better climate in which to refinance.
Tags: 2008, foreclosure, housing prices, mortgage, mortgage rates, refinance
