Mortgage California Blog

Households Return to Borrowing Ways

March 1st, 2013

Mortgage loan applicationHouseholds Return to Borrowing Ways

The fourth quarter of 2012 reflected that consumers are starting to feel more comfortable about borrowing after years of cutting debt. Household debt rose 0.3% to $11.34 trillion. Household debt includes credit cards, student loans, auto loans and mortgages.

New Mortgage Debt Increases

Per the Wall Street Journal:

Americans took out $553 billion in new mortgages to buy homes, and far fewer consumers fell into foreclosure. That nudged up the amount of mortgage debt. The upshot: After years of shrinking, the nation’s mortgage tab—the biggest source of consumer debt—is stabilizing and possibly poised to rise.

The report suggests Americans are recovering from their boom-era debt hangovers. If consumers shape up their finances, they might be more willing to take advantage of historically low interest rates to buy homes and spend more. That could boost hiring and revitalize growth. The economy grew at an annualized rate of only 0.1% in the fourth quarter, the Commerce Department said Thursday.

Economists at the New York Fed noted that the uptick in consumer borrowing using car loans and mortgages seems to indicate that the central bank’s low-interest-rate policies are succeeding.

We Americans still don’t have as much debt as a few years ago down from a peak of $12.7 trillion in 2008. Credit card balances also fell 4% throughout 2012 suggesting that many of us aren’t spending freely on big-ticket items either.

Still, Americans are gradually borrowing more to finance other things like homes and cars.

Overall housing-related debt, including home-equity loans—where consumers borrow against the equity in their homes—was roughly flat at $8.6 trillion late last year. But that masked considerable improvement: A combination of rising mortgage debt and a 13% fall in foreclosures offset an increase in defaults on home-equity loans.

Distressed Properties Prices On Rise As Well

Per TheStreet:

Distressed property prices are rising on the back of strong investor demand and limited inventory, RealtyTrac said in a report released Thursday.

Properties in foreclosure or owned by lenders sold for an average price of $171,704 during the fourth quarter, increasing 2% from the third quarter and a4% from the fourth quarter of 2011.

Short sales — where the borrower and bank agree to sell the property for less than the amount owed — also saw improving prices, helping to reduce lenders’ losses. Short sales in 2012 were short of the loan amount by an average of $81,621, down 7% from an average $87,809 in 2011.

Mortgage technology firm FNC measures the foreclosure discount by comparing the foreclosure sale price to the underlying market value of the property, which is the market price the seller would receive if the property were sold under normal circumstances.

FNC last week reported that the foreclosure discount had dropped to 12.2% in the fourth quarter of 2012, compared to the 25% discount seen at the peak of the credit crisis in 2008 and 2009.

According to that report, higher-priced foreclosed homes were selling for close to market value, while lower-priced homes still suffered an 18.4% discount in the fourth quarter of 2012.

According to RealtyTrac, the average price of a foreclosure sale is at a 30% discount to the average non-foreclosure sale price.

Distressed property sales still account for 43% overall existing home sales, which has the effect of depressing overall prices.

However, the number of new foreclosures have been declining, while the existing inventory of foreclosed homes has been rapidly seized by yield-hungry buyers.

So, mortgage rates are still at historic lows, but may not be for long if more people are applying for mortgages, investment mortgages, refinances, and home equity lines of credit. As we discussed in a prior post, mortgage rates vary based upon a variety of factors, including the number of people applying.

So if you’re looking into whether you should apply now, contact a reputable mortgage loan officer who works diligently to stay on top of rates and market factors that impact the mortgage market. They will be able to help you find the right options whether you’re a first time buyer or looking to pick up investment properties.

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