This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Mortgage and Housing Outlook at Midyear Is a Muddle

NEW YORK (TheStreet) -- No one's satisfied with the pace of the housing recovery, but there's no doubt things are getting better. Still, a quick snap back to normal is unlikely.

"While it seems we have made our way out of the turbulent times that have bounced the market around for the last few years, there is still plenty of uncertainty ahead," says Keith Gumbinger, vice president of HSH.com, the mortgage and housing research company.

In his midyear analysis, Gumbinger says rates on 30-year fixed mortgages could edge up to 5% or 5.25% by the end of the year, from today's 4.233%. With the economy improving, the Federal Reserve will continue to wind down efforts to keep long-term interest rates down, Gumbinger says. A 5% rate would still be low by historical standards. 

Also see: Your Home Investment Has Returned Zero in 10 Years

But the Fed will still strive to keep short-term rates down, he says. As a result, introductory rates on adjustable-rate mortgages will stay low. The widening gap between ARM and fixed-rate loans will make ARMs a wise choice for more borrowers. Hybrid, 5/1 ARMs, which carry a fixed rate for five years, then adjust to market conditions every 12 months, could charge initial rates of between 2.9% and 3.9%, he says.

Qualifying for a mortgage will not be as difficult as it was in the depths of the economic crisis, but will probably continue to be more difficult than in "normal" times, Gumbinger says. That's due partly to tougher federal regulations to ensure borrowers will be able to make their payments.

Still, he notes that a few lenders have been dipping their toes into the subprime mortgage market, which involves loans to applicants with less-than-stellar credit. A wave of subprime loans gone bad helped trigger the crisis, and it is not likely that the most toxic products, such as "liar loans" that required no proof of income, will return, he says.

Also see: Fewer Cash Home Sales Is a Good Sign

Today's subprime loans require that applicants have large amounts of equity in their homes, and often charge rates two or three times those available for borrowers with good credit. 

Driving this gingerly return to the subprime market is lenders' search for more borrowers, Gumbinger says. For several years, the market was shored up by the huge volume of mortgage refinancing due to record-low rates. But refinancing has fallen off a cliff in the past year or so as rates have drifted up.

"We've come through a period of time where borrowers have needed fairly pristine credentials to get access to the mortgage market, or at least access to the best possible mortgage rates," Gumbinger says. "However, that's a finite pool of potential borrowers, and a lot of them were homeowners. With refinancing falling back to more typical levels, there will be a lot of hungry mortgage lenders and investors scouring the market for business."

Gumbinger also notes that the recent rise in home prices has slowed. It is unlikely prices will rise at the double-digit pace of 2013, he says. A key reason is that tighter federal regulations will prevent the re-emergence of "affordability" products that in the past have come to market when home price gains outstripped income gains -- things such as zero-down-payment loans, interest-only loans and loans to borrowers with high debt levels.

So for the rest of this year prospective loan applicants will be wise to do all they can to polish their credit records and raise their credit scores. With home prices unlikely to rise quickly, but also unlikely to fall, neither buyers nor sellers need to rush to market.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs