Home > Uncategorized > Stable home prices, low mortgage rates could gas economy

Stable home prices, low mortgage rates could gas economy

By Stephanie Armour, USA TODAY
Mortgage rates are hitting another record low just as home prices are firming in more parts of the country, two trends that could help boost the economy.

Potential recovery fuel:

•Rates on 30-year fixed loans averaged 4.17%, down from 4.24% a week ago, Freddie Macreported Thursday. They’ve been below 5% since early May.

•Median home prices in the third quarter were up from last year’s third period in 77 of 155 metro areas, the National Association of Realtors reports. In 2009’s third quarter, only 30 areas showed year-over-year growth.

The improvements in prices came despite a sharp drop-off in sales after the federal home buyers’ tax credit expired in the spring.

Low mortgage rates, and at least flat home prices, could give more homeowners the confidence to refinance. If they spend some of what they save on their mortgages, that strengthens the economy.

“In most markets, the crash is over and stability is beginning,” says Joel Naroff at Naroff Economic Advisors. “Realtors are saying it isn’t great, but it’s better than last year. If refinancings get going, that will help consumer confidence.”

Prices are rising in areas where foreclosures have not hit very hard, Naroff says.

Still, the housing market is a long way from easy street. Median home prices fell in almost as many metro areas as they rose in NAR’s survey. The national median, $177,900, was down 0.2% from 2009’s third quarter.

Foreclosures and short sales — where homes are sold for less than the mortgage balance — were 34% of third-quarter sales, up from 30% a year ago.

Foreclosures tapered off last month as lenders announced temporary suspensions in the face of legal challenges. But they’re likely to accelerate in the first quarter, says Rick Sharga of RealtyTrac.

Mortgage rates follow 10-year Treasury bond yields, and they’ve been falling since summer when the Federal Reserve began hinting it would buy long-term Treasury bonds to drive down long-term rates and stimulate the economy. The Fed said Nov. 3 it would buy $600 billion in Treasuries by June 30.

Mark Zandi, chief economist of Moody’s Analytics, says lower mortgage rates should increase refinancings but won’t forestall further price declines. Many homeowners still aren’t benefiting from low rates, he says, because they have spotty credit or little equity in their homes.

“The housing market is still really fragile,” Zandi says.

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