Mortgage rates increase again

The average interest rate for home loans continues to increase. According to Freddie Mac's Primary Market Survey and Bankrate, interest rates affixed to mortgages for real estate ticked up recently.

These jumps in interest rates may encourage more individuals to enter the housing market and lock in a lower rate. This may bolster the continually improving real estate market.

Rates climb, but remain historically low

Freddie Mac's survey indicated the average 30-year fixed rate mortgage rose from 3.68 percent the previous week to 3.8 percent the week ending May 7. When compared to the previous year, this week's rate remained historically low. The current average interest rate is still 0.41 percentage points lower from last year at the same time. The slow increase may be the push that some individuals need who have been considering homeownership while rates have remained so low recently.

In addition, a 15-year FRM increased to 3.02 percent from 2.94 percent the previous week. The average 15-year FRM now sits 0.3 percentage points below the average interest rate affixed to a home loan at this time last year.

Bankrate also confirmed the increase in interest rates but reported slightly different average interest rates. The average 30-year FRM jumped to 4.07 percent while 15-year FRMs averaged around 3.17 percent.

Behind the rise

Bankrate and Freddie Mac also suggested that the increase in average interest rates for FRMs may have been due to currency fluctuation and a potential rise in inflation.

"Mortgage rates rose this week to the highest level since the week of March 12 as a selloff in German bunds helped drive U.S. Treasury yields above 2.2 percent," stated Len Kiefer, deputy chief economist for Freddie Mac, according to the Primary Market Survey. "The U.S. trade deficit reached $51.4 billion in March to the highest level since 2008. Also, the Institute for Supply Management's manufacturing index was unchanged in April, but manufacturing employment contracted as the index fell below 50 for the first time since May 2013."

Bankrate noted the rates jumped substantially this week and pushed the 30-year FRM rate closer to the 4 percent benchmark. In addition, mortgage rates also relate closely to bond yields and these increased recently.

The continual growth in the market largely depends on the entrance of first-time buyers. As household formations increase and interest rates continue to attract interested buyers, further strength can be expected from the housing sector.

Lower Down Payment Options May Appeal to Young Buyers

Lower down payment options are available for interested homeowners and certain regions of the country offer notably lower down payment options due to more affordable housing markets. Knowing where to find more economical housing can help those who have interest in homeownership reach their goals.

Low down payments available in certain counties

According to RealtyTrac's recent report, a number of regions have lower down payment options for standard loans that dip below 20 percent. the average down payment on homes located in the cities with the lowest median home sales price averaged $8,239. this equated to approximately 12 percent of the total value of the property.

The city of Cumberland, North Carolina had an average down payment of 9 percent, while Montgomery, Tennessee and Prince William, Virginia had average down payments of 11 percent of the total value of the purchased home. In addition, Columbia, Georgia, Polk, Iowa and Pulaski, Arkansas all had average down payments of 12 percent.

Younger buyers may find more affordable housing markets appealing

Individuals interested in purchasing their first homes might be able to get more bang for their buck if they turn to regions that do not require such high down payments to acquire real estate. Additionally, lower down payment options serve as a good indicator of the overall affordability of homes in the area.

"This analysis shows that first-time homebuyers have a better shot at buying a home in low-priced markets, not just because of the lower price point but because on average, buyers are putting down just 12% in those markets compared to 24% in high-priced markets," said RealtyTrac's vice president, Daren Blomquist.

In addition, Inman noted that those who borrow money to purchase a home might put a higher down payment on a house not only due to the more expensive real estate market, but also because they want to avoid paying private mortgage insurance.

Home Sales Jump

Total existing home sales increased substantially for the month of March, according to a report released by the National Association of Realtors. This impressive increase also reached its highest number in 18 months.

The upcoming selling season and overall housing market health will likely benefit from the heightened interest in homeownership across the U.S., reported Reuters.

Strengthening Economy Likely Boosts Demand for Homes

NAR's report suggests the drastic improvement in available employment opportunities and U.S. economy are likely behind the increased interest in buying a new home. when individuals have confidence in their personal finances they are more likely to invest in a new home. the uptick in existing home sales may potentially be a direct result of this consumer confidence.

"It's consistent with strong growth in the second quarter. We should have a solid spring selling season and should see the housing market continuing to improve through 2015," said PNC Financial Services Group's Senior Economist Gus Faucher, according to Reuters.

Housing Demand Rises

Included in NAR's report are the home sales of various types of existing residences, such as condominiums, single-family homes, townhomes and co-ops. all real estate sales jumped 6.1 percent from the previous month. the total volume of march sales increased to 5.19 million from 4.89 million in february. this is the highest increase seen since september 2013 and indicates greater interest in entering the housing market.

Sales of existing-homes have continued to increase over the course of six consecutive months when compared year over year. Presently, the total number of existing-home sales are up 10.4 percent from the previous year's volume.

First-time buying millennials, return buyers and even baby-boomers relocating after retirement have begun entering the housing market and their interest drives up the demand for housing. As young adults begin families of their own, return buyers restore their credit from the housing crisis in 2008 and baby-boomers look to downsize or move somewhere different, their shifts will boost housing activity and bolster the market. Additionally, housing accessibility has improved to accommodate the needs of these buyers.

First-time buyers certainly fueled an increase in housing activity. NAR's report showed 30 percent of buyers were purchasing their first home in March. This also marked the third time since the share of young buyers was at or above the 30% mark since the previous year.

"After a quiet start to the year, sales activity picked up greatly throughout the country in March," said Lawrence Yun, NAR's chief economist. "The combination of low interest rates and the ongoing stability in the job market is improving buyer confidence and finally releasing some of the sizable pent-up demand that accumulated in recent years."

Available Homes Must Increase to Reach Demand

Currently, the inventory has only increased at a moderate rate.

"The modest rise in housing supply at the end of the month despite the strong growth in sales is a welcoming sign," stated Yun. "For sales to build upon their current pace, homeowners will increasingly need to be confident in their ability to sell their home while having enough time and choices to upgrade or downsize. More listings and new home construction are still needed to tame price growth and provide more opportunity for first-time buyers to enter the market."

With a higher volume of individuals interested in investing in homes, the real estate industry will likely need to prepare for more jumps in total home sales and even potentially the number of new homes constructed.

The high demand may also indicate that this spring will favor those who are selling their homes.

Appealing to Milleninal Homebuyers

More young adults are becoming interested in owning real estate property. Knowing what features they want to see in homes can help drive home sales. Whether you are a real estate agent showing homes to millennials or a current homeowner looking to sell your property, having a concrete understanding of what appeals to this demographic can help improve the likelihood of selling a house.

New kitchens and bathrooms

Millennials typically have smaller budgets. Bankrate noted that young adults are drawn to homes with updated kitchens and bathrooms because they are less able to afford renovating these rooms.

"The primary reason younger buyers seek updated kitchens and baths is because they have limited budgets," Jack Curtis, a real estate agent, told Bankrate. "Most of their savings will go toward the down payment and furnishings. Kitchens and bathrooms are also the most expensive parts of a home to update, and young homeowners cannot afford to sink a lot of money into those areas."

A typical buyer, no matter the age, is likely more interested in a home with an updated kitchen and bathroom. This Old House emphasized the importance interested homebuyers place on a newly remodeled kitchen or bathroom. Outdated appliances and old tiling will probably not be overlooked, especially when interested buyers do not have the funds to invest in pricey renovations.

Homes that allow for easy entertaining

In conjunction with updated kitchens with high-quality cooking appliances, millennials are also interested in investing in a home that allows them to easily entertain their guests, according to Forbes. New kitchens, open floor plans, patios and decks are great features that help young adults visualize entertaining in a new home.

Rooms that are blocked off into separate sections are not as appealing to younger interested homebuyers. Fred Ehle, the vice president of brand management at PulteGroup, noted that millennials find it very important to invest in a home that allows them to have guests and enjoy watching movies and sports.

Proximity to entertainment and public transit systems

Younger buyers are interested in homes that are close to shops, restaurants, bars and public transportation.

"I'm a boomer and for my generation, it was a badge of honor to get your first car and drive everywhere," Sherry Chris, president and CEO of Better Homes and Gardens Real Estate, told Forbes. "Millennials are used to living in urban environments and many don't have cars."

Young adults prefer homes that allow them to easily walk or commute to their job or proximal hang-out spots. Location is especially important to millennials when they decide to purchase a new home.

Bold colors and hardwood floors

Interested home buyers who are part of the millennial generation do not mind bold and bright colors in a home. According to Forbes, they prefer a more colorful palette.

"There's been a popular belief over the years that painting your walls a neutral, off-white is the best thing to do for home buyers, but our research tells us differently," Chris told Forbes. "We find that bold colors work very well."

In addition, another feature that many young adults find appealing is the presence of hardwood floors. This type of flooring is easier to clean and maintain than carpet and homes with finished wooden floors are more visually appealing to the millennial buyer.

Energy-saving equipment

Millennials are interested in living green as well as saving some green. Energy-efficient appliances appeal to the younger buyer because of the money they can save as well as the environmentally-friendly aspect.

Energy-efficient windows, dishwashers, washing machines and other features are elements that can influence a young adult's house-buying decision. In addition, the presence of high quality insulation, especially in regions that have more extreme temperatures, can impact the money spent on heating and cooling and consequently effect whether an individual moves forward with the purchase of a home.

Additional rooms

Flexibility is another factor that many millennials look for in a new home. They enjoy houses with rooms that offer a variety of potential uses. A home office or hobby room might be more appealing than a space that is designated solely for sitting down and eating.

In addition, the National Association of Home Builders noted that young adults are more interested in homes that have laundry rooms, and homebuilders are keeping demands like this in mind when constructing new homes.

Flexibility with home features

The survey conducted by NAHB noted that some millennials are willing to negotiate or give up certain desired elements of a new home. For example, houses that are not as close to work, stores, restaurants or bars are more appealing than property that does not have energy-efficient windows, appliances or other features.

In addition, unfinished space is not a huge turn-off for younger buyers. However, needing to finish a kitchen or bathroom might not interest as many millennials due to cost.

Return of the First Time Homebuyer First-time home buyers historically drive the success of the housing market, but due to crippling student debt and recession-inspired low job growth, millennials have been resistant to entering the housing market. However, recent economic improvements, better job growth, entry-level inventory available and more lenient lending standards might be responsible for an uptick in the number of millennials who are investing in their first homes. Millennials buying new homes Young adults might finally be ready to make the big move into homes they have purchased on their own. Despite the aforementioned list of reasons why many millennials have decided not to search for houses and become homeowners, individuals from this demographic made an impressive contribution to the housing market in 2014, according to the 2015 National Association of Realtors Home Buyer and Seller Generational Trends study. In fact, this generation accounted for the most significant percentage of home buyers last year. NAR's study noted that 32 percent of all homes bought in 2014 were purchased by adults 34 and younger, and the median age for a young adult who bought a home in 2014 was 29 years old. Last year's results demonstrated for the second year in a row that individuals from the millennial generation represented the most substantial demographic among home buyers. The previous year's report indicated millennials represented 31% of total home sales. Their participation in purchasing real estate continues to help drive the housing market into recovery from the crisis experienced in 2008. These young adults will play a significant part in driving the housing market into pre-crisis health. "Even though the share of first-time buyers has fallen to its lowest level since 1987, young adults in general are more mobile than older households," said Lawrence Yun, NAR's chief economist. "The return of first-time buyers to normal levels will eventually take place in upcoming years, as those living with their parents are likely to form households of their own first as renters and then eventually as homeowners." First-time home buyers are confident in their decision to purchase a home. Consumer confidence has improved as well. Young adults are more interested in purchasing a home because it is ultimately a better financial decision. "Over 80 percent of millennial and Gen X buyers consider their home purchase a good financial investment, and the desire to own a home of their own was the top reason given by millennials for their purchase," stated Yun. "Fixed monthly payments and the long-term financial stability home ownership can provide are attractive to young adults despite them witnessing the housing downturn and subsequent slow recovery in the early years of their adulthood." New home construction anticipates more millennial buyers With young adults starting their search for their first homes, construction of new homes continues with younger buyers in mind. Home builders are constructing a higher volume of single-family homes. According to U.S News and World Report, more first-time home buyers will finally begin to emerge.The total number of newly constructed single-family homes increased in January 2015, noted the U.S. Census Bureau. With more first-time home buyers becoming interested in making the transition to owning houses of their own, the size of a typical starter home is smaller. The market is likely mostly responsible for the more petite homes constructed by builders. The average size of a single-family home built in 2014 was about 50 square feet smaller than the estimate from 2013. A stronger entry-level housing market is expected to continue throughout the rest of the year. The notable surge of first-time home buyers investing in real estate and driving the market will likely continue contingent upon employment growth, job security, home availability and whether better salaries continue for individuals across the country. Rising rental rates may influence a spike in housing market activity There are a number of U.S. cities that continue to see jumps in the average cost of renting a residential space. According to Zillow, metro areas such as Denver, Kansas City, Nashville, Portland and Charlotte have seen the most significant spikes in rental rates. These jumps can be especially frustrating for those who decide to rent instead of buy. It may influence some individuals to decide to purchase a home in lieu of continuing to spend outrageous portions of their salaries on renting property. Popular regions, like San Francisco and San Jose, have seen increases in rental rates on a year-over-year basis. San Francisco saw an increase of nearly 15 percent and San Jose followed closely behind with 13.4 percent. With rising rent, job growth, more lenient lending standards and mortgage accessibility, a high volume of inventory and stronger financial security, more young adults might consider investing in a home to save money and build home equity. The first-time home buyer is crucial to the success of real estate. The beneficial factors inspiring young adults to buy may help bolster the housing market and lead to a particularly successful upcoming home buying season.

• FHA Expresses A Desire To Expand Borrower Pool

  The Federal Housing Administration is looking to serve a wider range of borrowers, and in order to do so, it's hoping to continue refining the process by which mortgages are underwritten.

  A recent Mortgage News Daily piece detailed a number of housekeeping measures underway at the FHA, including an initiative to serve more borrowers with so-called near-miss credit profiles. Given the administration's commitment to sound underwriting for government-insured mortgages, expanding its borrowing pool poses some challenges. Lenders are often on the hook for defaulted home loans, and borrowers with lower credit scores are traditionally less likely to fulfill their mortgages. As a result, many home loan providers already strapped with post-recession compliance demands have steered clear of such offerings, but market perceptions are changing.

  Offering wider access is a delicate balance
  
  The FHA has stated an expectation that a full three-quarters of the loans it insures over the next year will be aimed at borrowers with FICO scores of 680 or lower. It's part of an ongoing effort to revitalize the housing market as a whole by responsibly lending to first-time homebuyers and other consumers whose profiles are mostly strong, if not quite in line with Qualified Mortgage standards. To stimulate sustainable residential sales activity, the FHA and associated lenders must begin widening the pool of eligible buyers - a process that may require a shift toward more case-by-case profile evaluations.

  Expanding the borrowing pool must be done carefully, given both the defect and default rates on FHA loans. The administration has publicly stated that both are too high, as too many avoidable underwriting errors occur in cases involving both highly qualified and middling borrowers. When loans are not properly underwritten, the likelihood of delinquency or default is heightened, and the notion that more modest-profile buyers should be approved loses some of its momentum.

  Adjusting terms 
  
  FHA officials have maintained mortgage insurance premium rates will not be adjusted in the near future, even though many industry analysts contend such a change would help enhance affordability. Currently, the share of FHA borrowers with credit scores between 640 and 680 - the realm of near-miss qualification - is about half the size it was in 2011, before the QM and Ability to Repay rules were introduced. It's a shift that some say represents a departure from the FHA's history and core tenets, which include providing mortgage credit access to underserved populations.

  But there's a growing sense among lenders across retail, correspondent and wholesale channels that the terms for qualification need to be altered, either by way of offering new products or reevaluating internal assessment processes. A burgeoning market exists for alternative products, but that's primarily because traditional loan offerings generally haven't been available to less-qualified prospective buyers. As the economy continues to improve, more buyers will likely make themselves eligible - or at least come a lot closer. That's part of the argument for lenders to move toward the middle, where they can meet near-miss applicants and help stimulate more consistent sales activity.

  As the weekly applications volume surveys from the Mortgage Bankers Association have revealed, demand and approval rates have been anything but consistent throughout 2014. Some of that has to do with tight housing inventory in certain local markets, as well as stagnant pay increases across many labor sectors, but an expansion of the borrowing pool could, theoretically, help mitigate those factors. That's the argument for those pushing the FHA to expand its borrowing pool: Greater chances at being approved will drum up more widespread interest, and ultimately put more first-time buyers into new homes. 

• Housing Market Predictions for 2015

   

  The new year is finally here and there are a few different trends that may impact the housing market. Job improvement, preferences of the new generation of homebuyers, changing mortgage rates, home values, housing starts and population growth may ultimately dictate the expansion of the market in 2015 according to Fortune. 

  The new generation of homebuyers
  
  Millennials are predicted to dictate the growth or decline of the housing market.The U.S. Census Bureau accounted for 73 million young adults aged 18 to 34 in the nation. This is the largest generation in three decades and Fortune believes many of these individuals making up the demographic will be ready to upgrade to new homes this year due to marriage and family planning. 

  According to Realtor.com's chief economist, Jonathan Smoke, 2015 will be the year that the presence of millennials will notably impact the housing market. Smoke predicts that in the next five years millennials will make up two-thirds of all new households.  

  An improving economy and job market also may provide benefits for this generation more than any other demographic in the U.S. According to Smoke, job growth for millennials proves to be 60 percent better than the rest of the country. An expanding job market may be the necessary ingredients to nudge this generation in the direction of homebuying. 

  Mortgage rates predicted to increase 
  
  This prediction certainly sounds familiar. Economists once again predict mortgage rates to increase in the upcoming year. While they may not have been quite so spot-on with their predictions for 2014, many insist on the inevitability of higher rates. Fortune's poll of economists indicated an anticipated average 5 percent interest rate for a 30-year fixed rate mortgage and Freddie Mac forecast a more conservative rate of 4.6 percent by the end of 2015. 

  Increased number of home starts and sales anticipated 
  
  Freddie Mac expects to see a jump in both home starts and sales in the upcoming year. A 20 percent leap in housing starts and a 5 percent increase in home sales are anticipated by the company. Single-family and rental apartment space will be the primary real estate options started and sold in 2015. 

  Fannie Mae projected a year-over-year increase of 22.2 percent in single-family home starts this year and the company anticipated single-family home sales to increase 18.7 percent year over year. These jumps are predicted due to a potential rising demand for housing brought about by aging millennials. 

  Lower oil prices may impact housing market 
  
  Oil prices have dipped impressively low toward the end of 2014. In fact, USA Today Money reported Dec. 31 as the lowest annual price drop since 2008. U.S. crude oil fell 46 percent Dec. 21 and Brent decreased 48 percent for the year. 

  DS News reported the dropping price of crude oil may lead to potential homebuyers feeling more comfortable purchasing a home due to lower energy costs. In addition, paying less at the pump provides a little extra cushion in everyone's budgets. 

  That overall savings could encourage first-time buyers to move into the market and existing homeowners to potentially upgrade. Consumers with a little extra spending money from all that savings are more likely to invest in housing. This possible increased demand could bolster the housing market in 2015. 

  Home values forecast to increase
  
  In Fortune's poll, nearly all economists agreed that home values will continue to rise but believed this would occur at a far slower pace. The rebound after the housing market crisis in 2008 propelled the rapid acceleration seen prior to 2015 and economists predict that the rebound may be losing steam.

  The anticipated increase in home values, along with predicted rising mortgage rates, may ultimately contribute to lower affordability in 2015.

Younger Buyers, Renters Express Growing Optimism About Housing Market's Future