Home buying activity cools despite record-low mortgage rates

The unusually high level of housing activity that occurred this past winter was expected to start the spring and summer buying season off to a good pace, but a recent report from Fannie Mae indicates activity is unexpectedly starting to cool.

The unusually high level of housing activity that occurred this past winter was expected to start the spring and summer buying season off at a good pace, but a recent report from Fannie Mae indicates activity is unexpectedly starting to cool.

According to the government-sponsored enterprise, housing market activity lost momentum at the end of the first quarter, but was still considerably higher than during the same three-month period a year earlier. However, year-end forecasts are still promising.

"Despite the loss of momentum as we move through the spring months, we expect that home sales will rise slightly more than 7 percent during 2012," said Fannie Mae chief economist Doug Duncan.

Consumer sentiment picks up

A number of economic indicators, including rising consumer sentiment and an improvement in attitude toward the overall housing market are expected to contribute to future gains, Duncan noted. In addition, although the market continues to weigh heavily in favor of buyers, improved optimism among sellers may also contribute.

Previously, since real estate data indicates that property values have fallen by as much as 30 percent in some areas since the housing market's peak, many homeowners were expected to withhold from listing their homes on the market this season. However, this rise in overall seller optimism could help increase the nation's property inventory, and give prospective buyers more options to homeownership. 

Economic growth a major factor

Even though economic growth cooled during the first quarter, from an annual growth rate of 3 percent at the end of 2011 to just 2.2 percent by the end of March, the rate is much stronger than a year earlier. Since a major factor that determines economic growth is job creation and consumer spending, potential mortgage borrowers could start to find the confidence they need to apply for home loans. While economic growth is expected to cool by the end of the second quarter this year, industry experts anticipate the rate to build momentum during the latter half of 2012. 

Mortgage rates hit new lows  

In addition to affordable property values and improving economic factors, Fannie's sister company Freddie Mac recently reported that mortgage rates continued their descent into affordability. According to the GSE's Primary Mortgage Market Survey, the rate for a 30-year fixed-rate mortgage fell to just 3.79 percent during the week ending May 17. This is a decline from its previous record, set a week earlier, of 3.83 percent. Meanwhile, the rate for a 15-year FRM averaged 3.04 percent, a decline from 3.05 percent during the week before.



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