Rising Home Prices Help Homeowners
Eighteen consecutive months. That’s how long national home prices have risen according to the Federal Housing Finance Agency (FHFA).
The rise in home prices could lift a new group of homeowners out of an “underwater” position on their mortgages.
Homes purchased mid-to-late last decade lost value in the housing downturn. Homeowners found it challenging to refinance even as mortgage rates were hitting 40-year-lows.
So far 2016 is providing near-perfect conditions for these homeowners. Home prices are rising as rates drop.
FHFA Reports Impressive Price Appreciation
The Federal Housing Finance Agency (FHFA) is an independent federal agency that regulates Fannie Mae and Freddie Mac, two agencies that provide mortgage approval rules for about 70% of all US home loans.
FHFA data is significant and the House Price Index is one of its most important housing market indicators.
The index is calculated using home sales price information from mortgages underwritten to Fannie Mae and Freddie Mac guidelines.
Data for the fourth quarter of 2015 indicates ongoing strength of the US housing market.
U.S. house prices rose 1.4 percent in the fourth quarter and nearly 6 percent from the same quarter of the previous year.
Homeowners in 5 States are Likely Refinance-Eligible
Every state showed year-over-year price appreciation in late 2015, but five states topped the list with double-digit gains on an annualized basis.
Five states with the highest appreciation were as follows.
- Nevada 12.7 percent
- Colorado 10.9 percent
- Idaho 10.7 percent
- Washington 10.7 percent
- Oregon 10.6 percent.
These states are no strangers to the list. Previous reports paint a similar picture, with certain states making regular appearances.
The Pacific region, which contains two of the states on the top five list, led the way in price gains, posting an 8.0 percent increase since the end of 2014.
Homeowners in the top five states and other regions are building equity quickly.
These homeowners may now be eligible for a refinance after previous years of owing more than their homes were worth.
The popular HARP refinance has helped more than 3 million underwater homeowners refinance into current rates. But the program only works for Fannie Mae- and Freddie Mac-owned homes.
Homeowners who purchased using option ARMs, Alt-A loans, and special home buying programs created by private banks are not eligible for HARP.
Now, there’s a good chance these homeowners can qualify for a standard conventional refinance using their new-found equity. In highly appreciating states, homes are gaining value at 10 percent or more per year.
A homeowner who was underwater just three years ago may now have enough equity to refinance.
Higher Home Prices assist Current Homeowners
Mortgage rates are near one-year lows just as homes are rising in value.
Low home inventory is putting upward pressure on prices. There are more home buyers than available homes.
Increased values indirectly help homeowners qualify for a refinance. Lenders must establish an estimated value on a home for which they issue a refinance approval. Higher sales prices in the immediate area support a higher theoretical value for the home being refinanced.
This higher value can help the homeowner qualify for the refinance more easily. An approval means taking advantage of today’s ultra-low mortgage rates.
What are Today’s Rates?
Homeowners with rapidly increasing equity can consider a refinance to make home improvements, reduce payments, or sometimes both.
Checking your eligibility for a refinance is the first step to reducing homeownership expense. A social security number is not needed to initiate the process and there is never obligation to continue if you discover it’s not the right time to refinance.
With today’s low rates, many homeowners will find that it is worth going forward with an interest rate reduction because of the solid monthly savings.