In comparing reported numbers from 2000, last year was by far the best for total job growth, this according to US Labor Department Statistics. Specific to the housing market, several key factors that demand boosting are beginning to merge. Based on those factors, home sales in 2015 are expected to experience significant growth.
One of the key factors is that interest rates for mortgage loans are close to historic lows at least for now, thanks to the reaction of the bond market to economic concerns around the world. However, in looking at the large number of new jobs, it becomes clear that the US economy’s foundation is far more solid comparatively.
Interestingly, for first-time homebuyers the primary concern has not been interest rates, which for the past few years have remained at historical lows. Rather, the bigger issues relate to lack of consumer confidence, a poor job market, challenges in qualifying for credit, and the inability to come up with the necessary down payment.
However, in 2014 a number of changes made first-time home buying a more realistic option.
- Statistics reported for December show that overall, employment has seen a dramatic improvement, especially younger households. For instance, in 2014, more civilian jobs were created for people between 25 and 34 years of age since 1987.
- Standards for credit qualification from mortgage backers, Freddie Mac and Fannie Mae, declined. Since 2009, standards were murky at best, a time when legislation was enacted in response to the housing crisis. Because of this, many people with less than perfect FICO scores, as well as somewhat higher debt-to-income ratios and loan-to-income levels will have an easier time qualifying for a mortgage loan.
This past December, both Freddie Mac and Fannie Mae announced new programs that require lower down payments on conventional mortgages. With this, a greater number of first-time homebuyers can qualify.
Significant Borrower Savings
Based on changes from the Federal Housing Authority (FHA), many borrowers will save close to $1,000 annually. Recently, the FHA announced its plans to reduce the rate for annual mortgage insurance premium on loans insured by the FHA to 0.85 percent, down from 1.35 percent. Although the decline may not seem significant, for people with FHA mortgages it will make a dramatic difference.
As reported by the National Association of Realtors, last November the median price for an existing home sold was $205,300. If an individual made a 3.5 percent down payment, the fee increased the mortgage payment $222.88 per month. By lowering the insurance premium rate that same person would pay $82.55 less, which equates to roughly $1,000 annually.
In the US, a median household difference of annual income is almost 2 percent, which for first-time homebuyers could be the difference in qualifying for a home or not. However, the change in the FHA fee reaches as high as 6 percent of annual income for certain counties within the US, proving that it is in fact a critical factor for many first-time buyers.