Even though the Fed has cut short term rates, those in the real estate business know too well that mortgage rates are rising. What is worse, an article in Bloomberg suggests that despite price declines, housing has become less affordable. In other words, even with the drop in purchase prices, the monthly cost of mortgage payments is higher. That of course means residential real estate had to fall further to come in line with incomes.
Note also that this analysis did not factor in the impact of higher energy costs on home ownership.
Rising mortgage rates are driving up the cost of buying a house even as prices fall, making property more expensive across the U.S., according to a new study by Zillow.com, an online provider of home valuations.
Monthly payments on 30-year fixed mortgages are 6 percent to 10 percent higher in 41 of the top U.S. housing markets than they were two months ago. First-quarter prices have declined from a year earlier in 88 percent of those areas, Zillow said.
“We’re going to need about a 30 percent decline in house prices if you are going to keep payments stable,” said Morris Davis, a former senior economist with the Federal Reserve and now a real estate professor at the University of Wisconsin-Madison’s School of Business….
Rates for 30-year fixed-rate home loans were about 6.3 percent when the Fed first reduced its target federal funds rate nine months ago. They’re now just under 6.45 percent, data from Bankrate.com show.
Zillow based its calculations on almost 25,000 mortgage offers to potential homebuyers with credit ratings of at least 680 out of a possible 850…
The average monthly mortgage payment rose $131, or $1,572 a year, since the beginning of April in the 41 areas surveyed, Zillow said. The figure is controlled for population….
Mortgage payments rose the most in the California metropolitan areas of Ventura and Santa Rosa, gaining 10 percent, according to Zillow. That added $220 a month to loan payments in Ventura and $189 in Santa Rosa. Home prices in those areas fell about 20 percent in the first quarter from a year earlier, the company said…
In New York, New Jersey, Long Island and parts of Pennsylvania, where the median estimated home value is $418,500 and APRs have risen from 5.9 percent to 6.5 percent, today’s buyers can expect to pay $1,656 more a year while home values for the region have dropped about 1.4 percent….
The cost for 30-year fixed-rate jumbo mortgages has increased more than 2 percentage points since June 2003, according to data from Bankrate.com. Over the past year, the average spread between jumbo and so-called conforming mortgages has been about 93 basis points, or 0.93 percentage point. That gap is now about 111 basis points.
“While it’s a buyers market in terms of home prices, that is definitely being mitigated by the cost of financing,” said Stan Humphries, Zillow’s vice president for data and analytics.