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Homeowners Are Betting on a Housing Recovery


The other day, I got to thinking about the state of the housing market, as I often do.

The last time I discussed it, my focus was on the free-for-all taking place in some “hot” markets across the country.

In short, I expressed my discontent with some of the junky properties making their way to market, largely because the record low mortgage rates will allow them to sell to hungry buyers.

While I still believe this is true, it’s not necessarily bad news.

Sure, there’s still a ton of doubt about the future, but there’s some really good stuff happening too.

Doom and gloom and unemployment aside, many of the mortgages being originated these days are pretty darn solid, relatively speaking.

Banks and lenders are actually underwriting files again, instead of approving virtually everything under the sun. And borrowers are choosing healthier loan products over crazy programs like the now-defunct option arm.

There are also new safeguards in place to help borrowers avoid getting ripped off when taking out loans, or getting the runaround from their loan servicers.

Are We Creating a Better Housing Market?

At first glance, it appears as if we are. Yes, the government is probably way too involved than it ought to be, but over time, the private market should make their way back in.

And when they do, we should be in pretty good shape. Why? Well, just look at what existing homeowners are doing at the moment.

After all, it is these individuals that will dictate the direction of the market going forward if the mortgage crisis was any indication.

Freddie Mac released their quarterly refinance report today, which details what types of loans borrowers have been opting for.

First and foremost, 95% of borrowers went with a fixed-rate mortgage during the second quarter of 2012, which is clearly a plus.

[Facebook founder Mark Zuckerberg has an ARM]

But on top of that, nearly a third of homeowners (30%) shortened their mortgage terms.

So, many of those with 30-year or 20-year fixed mortgages now have 15-year fixed mortgages. They’re essentially doubling-down on their mortgage, for better or worse.

Now I argued the other day that this seems to be a government initiative to get homeowners more fully invested, which may not be good on an individual level.

[Should you pay your mortgage down early?]

But for the housing market as a whole, I think it will help everyone going forward.

Just look at this refinance data from Freddie Mac, which details what percentage of borrowers refinanced into what.

Previous loan: 30-year fixed

New loan:

30-year fixed: 66%
15-year fixed: 21%
20-year fixed: 12%
Hybrid-ARM: 1%

Previous loan: 20-year fixed

New loan:

30-year fixed: 29%
15-year fixed: 61%
20-year fixed: 9%
Hybrid-ARM: 1%

Previous loan: 15-year fixed

New loan:

30-year fixed: 11%
15-year fixed: 86%
20-year fixed: 1%
Hybrid-ARM: 2%

Previous loan: Hybrid-ARM

New loan:

30-year fixed: 71%
15-year fixed: 6%
20-year fixed: 4%
Hybrid-ARM: 19%

As you can see, most borrowers are investing more in their homes, despite mortgage rates already being at rock-bottom levels.

Even 25% of homeowners who took out HARP loans, many of which are underwater or lack substantial home equity, chose shorter terms!

If anything, it tells you that the vast majority of homeowners believe in the housing recovery, regardless of whether the pundits do or not.

And those who don’t own a home seem to want in immediately…

Read more: What is a cash-in refinance?

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