Mortgage interest rates are on the rise, says Lawrence Yun, chief economist of the National Association of REALTORS, who expects them to near 5 percent by mid-2014 and higher in 2015. The increase in interest rates will neutralize the number of home buyers with sufficient annual income able to purchase a home. But in our economy, when one avenue closes, usually another one opens.
Mr.Yun says that one factor that can mitigate the negative effects of rising rates is a return to more normal underwriting standards which would increase the number of mortgage applicants that qualify for a loan. In fact, he says, in the last few months there is some evidence that mortgage lenders have eased up a bit resulting in 15-20% more households that qualify for financing. Where previously a 760-770 credit score was mandatory for conventional loans, 720 credit scores are now acceptable. And FHA loan credit score requirements are down to 660 from previous 680-700. As a real estate agent, it seemed to me that the super high credit scores were a little unrealistic, especially when you witnessed how minor events would significantly impact applicants' scores. While I understand the reason for it, I would be happy to see an easing to a more realistic number.
Sustained job growth in the country is another factor that will empower households and strengthen the housing market. In addition, as Fannie Mae and Freddie Mac's performance continues to improve, it should enable them to satisfy their obligation to repay taxpayer bail-out funds and begin to reduce the loan fees put in place to help them recover their previous losses.
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