Uncertainty Remains in Housing Market Despite Stabilized Rates

Older homeowner concern
Non-existent or minimal changes for mortgage interest rates created some stability in the housing market this week.

Both fixed rates remained the same. For the week ending on Nov. 21, 2013, the 30-year fixed-rate mortgage flatlined at last week’s rate of 4.17 percent.

The 15-year FRM remained stable at 3.15 percent this week.

The only mortgage interest rate to change was the 5/1 adjustable-rate which increased minimally from 2.76 percent to 2.78 percent.

The recent stabilization of mortgage interest rates is positive according to Ted Ahern, CFO at Guaranteed Rate.

“When rates remain stable over a couple weeks or months, it’s a positive thing in that households and businesses can make sound decisions based on fundamentals and not have to be overly concerned with the future directions of interest rates,” he said.

Ahern said that homeowners and businesses are simply looking for stability in the fixed-income market. But it has been absent in the past six months due to mixed signals from the Federal Reserve Bank of New York. A Fed decision about reducing quantitative easing will not occur until the beginning of 2014 — creating a long-term period of uncertainty.

“People are trying to figure it out and how it applies,” Ahern said.

Other experts are worried about consistency outside of the housing market. Mike Arman, a retired mortgage broker, is concerned about the current employment rates.

“Unless people have jobs and income, they won’t be buying anything,” he said.

On a more localized scale, Arman is increasingly worried about a looming cost increase of flood insurance in Florida.

The state holds 60 percent of flood policies yet it only gets back about $4 for every $15 in premiums, Arman said. In order to make up for the loss, the cost of flood insurance in more vulnerable areas will greatly increase due to the Biggert-Waters Flood Insurance Reform Act of 2012. This Act requires that the National Flood Insurance Program (NFIP) increases rates to reflect the actual flood risk.

For homeowners in certain flood-prone areas of Florida, it will have a devastating impact on the area. Owners who are paying $300 a year will soon pay $4,000 to $5,000 per year in required flood insurance costs.

And this is not just happening in expensive areas. Arman explained that the homes most affected are older homes in the sub-$100,000 to $150,000 range. The areas labeled as flood zones will become unsellable.

A lawsuit has halted this Act, but Arman is worried it will continue in upcoming years with a vengeance.

“That’s gonna kill the housing market because nobody can afford that kind of an increase,” he said, explaining that for homes affected, they will become “unfinanceable, unsellable and unaffordable.”