Low gas prices help the housing recovery
Falling gasoline prices is welcome news for most families. It not only generates more spending money, but also has a positive effect on our housing recovery.
At this writing, crude oil prices are trading at below $50 a barrel, resulting in steep declines in gasoline prices. As of Jan. 5, the U.S. Energy Information Administration reported the price of regular gasoline was $2.20 a gallon. This is the lowest level since gas prices peaked to about $4 a gallon in May 2011, according to the National Association of Realtors.
The EIA noted in its December Short-Term Energy Outlook Report that its 2015 forecast for gasoline prices was a $2.50 per gallon average. The EIA also forecasts savings of $550 per household in 2015.
Lower oil prices mean a lower inflation rate, which pushes down mortgage rates. Based on Freddie Mac's mortgage survey as of Jan. 8, the 30-year fixed rate averaged 3.73 percent, and the 15-year fixed rate averaged 3.05 percent.
At the median home price of $205,300, a 0.75 percentage point drop in mortgage rates will yield savings of about $1,000 annually.
"The economic and housing recovery in the Midwest and South states from North Dakota to Texas has been underpinned by the boom in oil production. The steep price declines may lead to a flattening of revenues. Companies can make up for the cash requirement by (either) borrowing or issuing shares of stock as they have done since 2011," the report stated.
The decline in oil prices is generally positive to households by way of the gas savings and lower mortgage payments. That savings will boost consumer spending in other areas. But there may be some layoffs in oil-producing states, the report noted.
Q. Are mortgage rates still dropping?
A. At this point, rates have been dropping for several weeks, but now appear to be leveling off. Freddie Mac recently released the results of its Primary Mortgage Market Survey showing average fixed mortgage rates falling for the third consecutive week as bond yields continued to drop despite a strong employment report, it was reported by DS News.
Averaging 3.66 percent, the 30-year fixed-rate mortgage is at its lowest level since the week ending May 23, 2013, when it averaged 3.59 percent. This also marks the first time the 15-year fixed-rate mortgage has fallen below 3 percent since the week ending May 30, 2013.
Q. Are more homeowners opting to remodel their homes?
A. The current trend is to remodel the old homestead to meet the needs of growing families and their desired lifestyle. The National Association of Home Builders' Remodeling Market Index rose to 60 in the fourth quarter of 2014. Any reading above 50 indicates that more remodelers are reporting higher market activity than those who say they are experiencing less activity.
"The recent pace and volume of business has been a boon to our remodeler members' confidence in the recovery of the housing market," says NAHB Remodelers Chairman Paul Sullivan. "The upward trajectory of the index results over the past year has shown that homeowners are ready, willing and deciding to remodel."
All of the subcomponents measured within the index posted increases, including large additions, small remodels, and maintenance and repair.
Q. Are refinance applications increasing?
A. No, refinances are down. Mortgage refinance volumes reversed course in November, turning down as the government's refinance program continued to see its popularity dwindle.
Monthly data released by the Federal Housing Finance Agency shows Fannie Mae and Freddie Mac together reported 134,582 refinances in November 2014, down from nearly 139,000 in October, it was reported by DS News.
As overall refinancing fell, so too did the number of mortgages refinanced under the administration's Home Affordable Refinance Program, or HARP, which targets borrowers with high loan-to-value ratios. For November, the GSEs (government sponsored enterprise's) reported a combined 12,429 HARP refinances, putting demand for the program at its lowest point in years.
• Email Jim Woodward at storyjim@aol.com.
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