What to Expect in the 2011 Mortgage Market

Buying or selling in the real estate market has been a scary endeavor over the last several years. On one hand, interest rates have been historically low and refinancing has experience experienced a boon. On the other hand, with all the economic uncertainty, many sellers in certain parts of the country have had a hard time making a deal they can feel comfortable with. Financial and economic experts are predicting a more robust real estate market in many parts of the country, sweet music to many looking to make a move. While it is impossible to predict what the mortgage rates and inventory will be when you are ready to buy, market observers have pinpointed a few trends that may have an impact on the 2011 mortgage market.

Mortgage rates will rise, slowly. Mortgage rates have been unbelievable low, in the 4% range in 2010, but the Mortgage Bankers Association thinks that these rates will slowly increase from about 5% to 6% between 2011 and 2012. While no buyer wants to see more money fly out of his pockets, these rates are still historically low.

Demand for mortgages will fall. The Mortgage Bankers Association also forecasts the overall origination of mortgages in the US in 2011 will fall to driven by continued slow economic growth and general lack of consumer confidence.

Refinancing applications decrease. With increasing mortgage rates, the incentive to refinance is lessen and demand on refinancing mortgages is expected to fall. The Mortgage Bankers Association predicts this number to dip below 40% of all mortgages in 2011 and fall further to 26% in 2012.

Pool of qualified loan applicants will shrink. The number of folks who qualify for the refinance or purchase of a new home in 2011 will shrink due to home equity, credit or personal income problems.

Jumbo loans will increase. Prior to the 4th quarter of 2010, mortgage rates for jumbo loans were noticeably higher than regular loan rates. The jumbo loan typically averaged at $417,000 in most housing markets and more than $700,000 in higher-cost areas. The higher interest rates on these Jumbos prevented some potential applicants from refinancing or purchasing luxury homes. But as these rates are dropping, more activity is expected in these categories.

Cash purchases increase. Economists at the National Association of Realtors expect all-cash purchases on homes to increase above and beyond the 25% of home sales in 2010. This is often a sign that investor activity in the real estate market is picking up.

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