Mortgage Climate Does Not Bode Well for Housing Market

CNBC housing reporter, Diana Olick, says that the mortgage market is “choking” the recovery. A new report on apartment vacancies in Q1 2011 shows that apartment vacancy rates are in steep decline and apartment prices are beginning to go up dramatically.  Because there is very little new supply the net absorptions reached record levels and vacancies fell to 6.2%.

Labor markets are easing and are starting to hire again, so young people who have been bunking at home are coming into the rental markets again.  Those who have lost their homes in foreclosure are surging into this market as well.

In times past this younger workforce in the 24 to 34 age range might start looking for their first home buying experience.  With low interest rates one might expect that again—but not now.  The only truly good deals are in FHA loans where buyers can get in at under 10% down payment.  In addition, with the threat of continued home devaluation in many markets, there is little incentive for new buyers to jump in just now.  Olick notes that there was a weekly surge in FHA applications, but that is just because the FHA insurance rates were expected to go up Friday. Buyers are hoping to beat the price hikes.

The surge in employment will continue to bring interest in home sales, however home devaluation and stringent down payment and credit score requirements in order to get a loan will continue to hamper the recovery in the housing market.