Housing conditions shift in favor of refinancing

September 12th, 2012

With all the attention given to low mortgage rates in the past couple years, it can be easy to forget about the other key variable in home affordability -- housing prices. After all, given the sustained slump in most real estate markets across the country, housing prices haven't been as much of a moving target as they were in the last decade. However, it may be time to start keeping a closer eye on home prices.

Impressive strength in housing prices should prompt borrowers to reassess

According to the S&P/Case-Shiller Home Price Index, national home prices have been moving upward for five straight months now. Perhaps what's more impressive is that the latest reading on home prices showed them up in 18 of 20 major markets tracked by S&P/Case-Shiller. For a market as notoriously subject to local trends as real estate, strength in 18 of 20 markets is a noteworthy degree of consistency.

So as we have seen home prices start to rise a bit, mortgage rates may have finally stopped falling. They actually rose for four straight weeks in August; and though they've slipped back a bit, they have not yet regained their former lows. This development may change the nature of the scenarios prospective home buyers need to run through their mortgage calculators.

Strategies differ for home buyers and homeowners

Both buyers and refinancers have been treated to record low mortgage rates in recent years. However, while potential buyers have hoped for home prices to continue to fall, refinancers need a stable real estate market so their home values are sufficient to support refinancing. This helps describe the basic difference in the rooting interests of buyers and refinancers.

  • Home Buyers: Use a Mortgage Calculator to Test for Affordability
    While interest rates may hold steady, would-be buyers need to test how far prices can move up before the market starts to get beyond what they can afford. After all, for several years now time has been squarely on the side of the buyer, but that may finally be starting to change.

  • Homeowners: Use a Refinance Calculator to Focus on Interest Rates
    Testing scenarios in a refinancing calculator is a little simpler than for home buyers, because home price fluctuations don't directly affect the refinancing calculation. Changes in mortgage rates are the primary concern when it comes to refinancing.

With home prices starting to rise while mortgage rates remain low, it looks as though the balance is starting to shift in favor of refinancers. In any event, using a mortgage calculator or refinance calculator can help inform you on what is the best decision in your case.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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