Freddie Mac released its Economic and Housing Outlook report for November 2011 yesterday, and according to the report, the country is right in the midst of the most affordable home-buying market in decades, though recent home sales don’t reflect that trend. Freddie Mac Vice President Frank Nothaft described in the report some of the ways the government is attempting to assist home-buyers.
Even though the housing decline has increased the affordability of many homes, consumers have not been so quick to jump into buying a house. Experts at Freddie Mac believe this is due to consumer worries about financial stability and well-being.
Thanks to the Federal Reserve’s accommodative monetary policy and initiatives such as the Maturity Extension Program – “Operation Twist” – long-term interest rates have been lowered to rates that were last seen over six decades ago. 10-year Treasury yields have been staying around 2 percent and 30-year conforming fixed-rate mortgages have been about 4 percent in the last few weeks.
In most neighborhoods, house prices have gone far below pre-recession peaks. Freddie Mac’s U.S. House Price Index recorded a 25 percent cumulative decline from mid-2006 to September of 2011. The decline from the beginning of this year to September, however, was less than 1 percent, according to the index.
Does this mean a bottom is in sight for housing-market prices? Nothaft doesn’t think so.
“A large inventory of homes with seriously delinquent mortgages, many of which will transition into real estate owned and then future sales, will likely add downward pressure on value indexes, especially during the normally weak demand over the winter months,” Nothaft said. “National indexes, like the Freddie Mac index for the U.S., will likely decline over the near term before a long-term recovery in housing begins.”
There is good news for homeowners from the Home Affordable Refinance Program (HARP). The program has been recently extended, and is now available to certain borrowers with loan-to-value ratios above 80 percent and whose loan is owned by Freddie Mac or Fannie Mae. Since its creation in April of 2009, HARP has provided refinance loans to roughly 900,000 borrowers. The HARP enhancements, which will carry through the end of 2013, include waiving certain loan seller warranties for eligible borrowers, reduction or elimination of some fees that had been previously assessed, removal of the maximum current loan-to-value limit and eliminating the need for a new property appraisal in some cases.
“HARP refinances may roughly double or more from their current amount,” read a statement from the Federal Housing Finance Agency.
Moody’s Analytics has estimated that HARP loans will reach 1.6 million more borrowers than they would have before the enhancements; if this ends up being the case, HARP will reach roughly 2.85 million loans by the end of 2013.
Freddie Mac hopes that by allowing eligible borrowers to refinance, when they otherwise may not be able to afford it, will help to cut back on the number of defaults, lower distressed sales and provide the necessary cash flow to those borrowers who qualify. The cash flow to borrowers will help not only the housing market, but the rest of the economy as well, a major plus stated by Freddie Mac’s recent report.
“The effect of the extended and enhanced HARP on single-family originations, assuming about $200,000 loan amount on average, is likely to be around $200 billion to $300 billion over 2012 and 2013, with most of the additional volume falling in the first year,” says Nothaft. “Thus, our origination projection for both years has been boosted to reflect this additional volume.”