Mortgage Report - Mortgage Rates Stable In 2006
In previous decades people with high risk mortgage loans often
left financial companies holding the keys when rates started to
go up.
But according to a recent study by First American Real Estate
Solutions, even if rates do start to climb this year, the number
of defaults this time around is not likely to go much higher
than $110 billion.
The study estimated 1.4 million of 7.7 million adjustable rate
mortgages sold in 2004 and 2005 would be at risk of default. But
even if that many households were to default, the financial
fallout would be limited.
The reason: the US economy is so strong this time around, and so
diversified that this amount represents only about one percent
of total national homeowners' equity, and it would be spread out
over two or three years. So the economy would be more than able
to absorb the losses.
**Factors driving continued Real Estate boom
While many real estate experts predict a slight slowdown in real
estate and mortgage activity during 2006, most also see steady
gains, with continued economic growth and well-balanced
supply/demand ratio in the housing market.
Some of the factors driving the real estate market:
+ Continued low interest rates - Although rates climbed slightly
in 2005, they are still at historic lows. Homes that were
purchased over the last few years with interest-only and
adjustable-rate mortgages will enter the refinancing market.
Homeowners will refinance to take advantage of increased equity
values, and to convert to fixed-rate mortgages as rates start to
climb.
+ Internet Effect - The internet gives buyers the opportunity to
search MLS listings without going through an agent or broker.
Not only have consumers become better informed and better
educated about opportunities, but the entire home-buying process
now takes less time than just four or five years ago. This trend
will continue to accelerate.
+ Healthy economy leads to more relocation - A vibrant economy
and strong residential real estate activity drives commercial
activity as well. And that usually leads to corporate
relocations as people follow business and employment
opportunities. That means increased real estate activity.
+ Generation X effect - As baby boomers begin retiring and
moving out of the real estate buy and sell cycle, Generation
Xers have taken their place with a vengeance. The incomes of Gen
Xers are generally higher than the previous generation, and
financing is easier to get, so they have been able to buy more
expensive homes sooner than boomers did. Gen Xers now make up
47% of the total homeownership segment in the U.S., and have an
especially large impact on downtown and suburban communities.
**Many UK mortgages not covered by life insurance
A recent report by Sainsbury's Bank estimates that as many as
4.2 million people in the UK have mortgages that are not covered
by life insurance. That means that as much as GBP217 billion
worth of mortgages are open to be passed on to loved ones. This
number has grown significantly over the last few years as the
number of new mortgage approvals has grown.
Of course inheriting the debt associated with a property would
be accompanied by ownership of the property itself. And with
current prices on the rise, most people, even if forced to sell
a property because they could not pay the mortgage, would not be
as badly off as the report might suggest.
**UK borrowers opt for 2 year fixed mortgages
According to a recent survey of mortgage purchases in the UK,
there was a significant shift in January towards 2 year fixed
mortgages. In January 39 percent of borrowers chose this option
compared to 27 per cent in December.
Interestingly enough, only 9 percent of buyers opted for a
longer term fixed mortgage in January, compared to 16 percent in
December. This was in spite of longer term mortgages (up to 10
years fixed rate) at less than 5 percent.
The popularity of a 2 year fixed mortgages suggests that buyers
assume rates have bottomed out, at least in the medium term, but
are not convinced they may not go down further two or three
years from now.