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5 housing trends for fall 2014

Mortgage » 5 Housing Trends For Fall 2014

This fall's housing trends
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This fall's housing trends © Sean Locke Photography/Shutterstock.com

This fall's housing trends

It's not a bad time to be a homebuyer. Just don't think the odds will be on your side indefinitely.

Mortgage standards, such as credit score requirements, have started to loosen, and mortgage rates remain low. Although it is a seller's market in many parts of the country, many sellers realize that today's buyers are more conservative and will not overpay.

Compare today's low mortgage rates

Still, if you are planning to buy, act quickly. The housing market is expected to heat up in coming months and rates will eventually rise -- believe it or not.

Here are five housing trends you should expect to see this fall.

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Mortgages with lower credit scores

You may have heard that it's hard to get a mortgage unless you have perfect credit. But in reality, lenders seem to be loosening their credit standards.

The average credit score for mortgages that closed in August was 727, according to Ellie Mae's latest origination insight report. That's still a high score, but it's much lower than the 750 average seen a couple years ago. For mortgages that closed in August 2013, the average credit score was 734.

For loans backed by the Federal Housing Administration, or FHA loans, the average score of loans closed in August was 682. It was 697 in April 2013.

"The numbers have been going down pretty consistently through most of 2013 and the first half of 2014," says Jonathan Corr, president and chief operating officer for Ellie Mae. "We are definitely not going to go back to the '06 time frame, but we'll go back to a normal market."

That's especially true now that lenders have a much lower volume of refinance applications and have to work harder to attract borrowers.


Buyers seek more affordable markets

Places with the most affordable housing for millennials

RealtyTrac picked counties with large and growing populations of millennials (born between 1977 and 1992)

Metro areaPercent of median income spent on payment for median houseMedian home price, April 2014Median household income, 2014 (estimated)
Augusta-Richmond County, GA10.52$64,100$37,561
Fayetteville, NC13.14$97,500$45,742
Atlanta-Sandy Springs-Marietta, GA13.98$111,600$49,200
Jacksonville, FL13.99$99,000$43,621
Philadelphia, Camden-Wilmington, PA14.06$81,675$35,801
Baltimore-Towson, MD14.35$90,000$38,655
Little Rock, North Little Rock, Conway, AR14.81$122,000$50,768
Columbus, OH15.26$125,000$50,502
Omaha-Council Bluffs, NE15.35$128,000$51,392
Milwaukee-Waukesha-West Allis, WI15.62$108,000$42,611

Source: RealtyTrac: "Most Affordable Housing Markets for Millennials"

If you think buyers aren't willing to move out of their comfort zones to live in more affordable housing markets, you may want to reconsider.

Many buyers, especially the younger generation, are relocating to areas that didn't seem as appealing before, but now they are prioritizing affordability, says Daren Blomquist, vice president for RealtyTrac, a real estate data company in Irvine, California.

RealtyTrac recently compiled a list of the most affordable counties in the nation, based on median home prices and the percentage of income required for the mortgage payments.

For instance, in Fayetteville, North Carolina, buyers spend about 13 percent of their incomes on house payments for an average home, according to RealtyTrac. The millennial population there has jumped more than 20 percent since 2007.

"These may not be the first places when you think of the younger generation moving there, but many of these places have a good job picture or a job picture that is improving," Blomquist says.


More conservative buyers

Buying a home is ...

Thirty-six percent of millennials characterized homeownership as a risky investment, while 27 percent of Gen Xers and 26 percent of baby boomers thought so.

 Millennials (%)Generation X (%)Baby boomers (%)
A safe investment with a lot of potential404350
A safe investment with very little potential212720
A risky investment with very little potential151315
A risky investment with a lot of potential211411
Don't know354

Source: Fannie Mae National Housing Survey

Rising home prices and limited inventory of homes for sale in some areas may indicate you are in a seller's market. But that doesn't mean sellers will find madcap buyers willing to pay them whatever they ask for the house.

Buyers, especially millennials, have been conservative with their spending, says Pava Leyrer, director of training for Northern Mortgage Services in Grandville, Michigan. "They are sticking to their budgets," she says.

The younger generation views a house as a place to live and not the great investment that their parents once thought they had made, Blomquist says.

"Many of them have been through this cycle where home prices did not continue to appreciate and decreased dramatically over the last seven years," he says. "Millennials observed their parents go through that and it has changed their outlook in homeownership -- they are not confident that buying a home will result in appreciating value and that's leading them to be more cautious."

A survey by Fannie Mae shows that 40 percent of the millennial generation thinks buying a home is a safe investment with great potential, compared with about 50 percent of boomers. About 36 percent of millennials say buying a home is either a safe investment with very little potential or a risky investment with very little potential, according to the survey.


Rates may finally begin to climb

This may be your last chance to lock a rate while mortgage rates are at the bottom.

The Mortgage Bankers Association expects the 30-year fixed rate to climb to 4.5 percent by the fourth quarter of the year, according to the association's latest forecast. That's still an attractive rate, but if the MBA is right, the fixed rate will climb gradually, reaching 5 percent by mid-2015.

If you are still looking for a home and are not ready to lock yet, you probably have a bit of time. But if you are trying to time the market or are hoping for rates to drop further, you have very little chances of succeeding with your bet, mortgage analysts say.

" If interest rates do get better, it is because something really major changed as far as geopolitical activity," says Shaun Guerrero, a sales manager for Fairway Independent Mortgage Co. in Silverdale, Washington. " Lock now if you can."


Housing market might gain traction

Housing inventory and months' supply

The inventory of used homes for sale went up from summer 2013 to summer 2014.

YearMonthInventoryMonths' supply
2013July2,240,0005
2013August2,210,0005
2013September2,170,0005
2013October2,110,0004.9
2013November2,050,0005.1
2013December1,860,0004.6
2014January1,880,0004.9
2014February1,900,0005
2014March1,960,0005.1
2014April2,230,0005.7
2014May2,250,0005.5
2014June2,290,0005.5
2014July2,370,0005.5

Source: National Association of Realtors, existing home sales survey

Home sale activity was decent during the summer, but the market wasn't as hot as many in the industry had expected. Lack of homes for sale was to blame in many areas. But low inventory will likely begin to change this fall.

Total housing inventory fell 1.7 percent at the end of August to 2.31 million existing homes available for sale, according to the latest report by the National Association of Realtors. That represents a 5.5-month supply of homes and it's 4.5 percent higher than a year ago.

With more homes to choose from, buyers who have been shopping for a home for months but who just haven't been able to find the right home yet, will be able to close on a deal, analysts say.

Pent-up demand from potential buyers who have been sitting on the sidelines also may lead to more sales this fall.

"The housing market is going to be a function of the economy," Corr says. "I think we are going to see steady growth in the coming months."

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Mortgage trends this fall From mortgage rates to a list of must-do's for first-time homebuyers, here are the trends to watch for this season.
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Rising rates and more: 5 housing trends for fall
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