Editor's note: Holden Lewis is on vacation. This blog entry was written by Bankrate Senior Editor Chris Kissell.
Thursday, April 1
Posted 11 a.m. EDT
It looks like American homebuyers finally have awoken from their long winter slumber and once again are prowling neighborhoods studded with "For Sale" signs.
Mortgage applications for new purchase rose 6.8 percent for the week ending March 26, according to the Mortgage Bankers Association. After a disappointing February, the four-week moving average is now up 5.4 percent.
Applications are at their highest levels since October, when the homebuyer tax credit originally was scheduled to expire. Undoubtedly, homebuyers are rushing to get homes under contract by the new tax-break deadline of April 30.
So, sales are likely to spike between now and the end of the month. But what will happen after that, when the tax credit -- up to $8,000 for first-time buyers and $6,500 for move-up buyers) -- disappears?
Jim Sahnger, mortgage consultant for Palm Beach Financial Network in Stuart, Fla., believes overall sales activity "will likely see a bit of a pullback" as the tax credit incentive vanishes and mortgage rates likely begin to climb.
However, his crystal ball does not include visions of a post-credit housing collapse.
"Home affordability will remain strong, which in the end will still bring buyers," he says.
David Kuiper agrees. The mortgage planner at First Place Bank in Holland, Mich., says first-time homebuyers who waited too long and "missed the boat" are sure to feel regrets about not entering the market sooner so they could qualify for the tax credit.
Nonetheless, he doesn't think that alone will keep shoppers on the sidelines.
"It is still an incredible time to buy a home," he says.
2 trends to watch
As spring turns to summer, mortgage watchers also will keep their eyes trained on a couple of other trends.Mortgage rates will be front and center, with observers watching carefully to see if rates rise now that the Federal Reserve has ended its $1.25 trillion campaign of buying up mortgage-backed securities.
The microscope also will zoom in on the Obama administration's latest effort to stabilize the housing market. Late last week, the government announced a plan to offer incentives to lenders who write down the mortgage balances of homeowners underwater on their mortgages.
A few pundits and Bankrate readers already are grumbling about the injustice of reducing the mortgage balances of some homeowners while other borrowers get no break.
However, writing down mortgages may be the best way to curb the number of strategic defaults, according to Cameron Findlay, chief economist at LendingTree in Charlotte, N.C.
A strategic default occurs when an underwater homeowner loses hope of ever breaking even on his or her home investment and intentionally walks away from the home and mortgage.
If that trend "got out of control," it could send home prices into a serious downward spiral, Findlay says.
"The idea is to avoid widespread strategic default at this point," Findlay says. "Things remain serious."
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