mort.detribpas.com – Lenders predict that mortgage demand in the UK will continue to fall in the coming quarter. A recent study by the Bank of England showed that mortgage lending fell by a third in the fourth quarter of 2010 from 35.5 to 34.8. Lenders expect mortgage demand to fall to 28.5 over the next three months pointing to a further slowdown in the housing market. The decline in mortgage lending was mainly due to the end of the stamp duty exemption period to stimulate the property market. The three-month tapering period for home buying has now ended and the housing market is expected to slow further due to the holiday season.
The run in Northern Rock is due in large part to problems in global credit markets which will continue to have a negative impact on the UK housing market. Mortgage lenders in the US were too willing to lend risky amounts to subprime borrowers which ultimately led to a crash in the housing market.
Many mortgage companies have gone bankrupt in the US. As a result banks and other financial institutions have been cautious about subsidizing mortgages. This means that riskier non-traditional mortgages are harder to come by. Also demand from first-time buyers is likely to decrease.
Mortgage Demand Will Fall Further, Say Lenders
Despite the looming rate hike the Fed will act soon. The National Association of Realtors predicts that national home prices will increase by 5.7% percent annually through 2022. Despite these risks mortgage demand is currently low and will remain low until confidence in the housing market improves. The economic impact of this risk will depend on whether the Fed decides to act on the issue. It is possible that interest rates will remain at historically low levels for the next decade and then rise.
The Fed is preparing to wind down its asset purchase program and has said it wants to raise the federal funds rate. Both policy measures will raise interest rates relative to other measures. If rates rise the Fed will raise rates further and we could see a rise to 3.4% over the next year or so. For now we will see modest increases in house prices which should bring some comfort to those who have missed out on market rates. Moderate growth will not lead to a mortgage underpayment situation in the near future.
But mortgage demand is still growing even as it slows. The market may improve in the coming months but this is largely due to low inventory and new construction. The government can help stabilize housing prices especially in the US. A recovery is unlikely as home prices are at an all-time high. Even if a buyer has a bad credit score they still qualify for the best loan for their needs.
Rising interest rates could mean that housing affordability has dropped significantly over the past three years. However the lower end of the market will continue to struggle as rising costs of living push low-income households out of the market. However if the price continues to rise the price will remain stable. Ultimately demand remains constant and the domestic price rises by 3 percents. Some of the factors are the same as in the first quarter of this year.
The LMBA also released a separate study last week. The number of homeowners who were late on their mortgages fell by 3.25% last week. This suggests that interest rates will remain low for some time. This is a sign that the housing market is still strong and home values will continue to rise over the next few years. While the MBA does not expect the number of U.S. home sales to increase they do expect it to continue to decline over the next few months.
A major concern for the future of housing is the ever-increasing supply of available housing. This could eventually lead to falling house prices. A shortage of construction materials will increase the cost of construction materials and reduce labor. At the same time rising house prices affect the economy. The lack of supply will lead to depressed demand for mortgage loans. According to MBAs latest forecasts housing supply will shrink further in the coming years.