Consistent lack of inventory became year’s top housing story

In 2015, demand far outpaced supply.

The lack of homes for sale in many areas was compounded by potential sellers unwilling to list their homes until confident they could find a new place to land.

While recent appreciation has lifted more owners into the positive home equity category, it also has boosted the prices of potential replacement homes, creating a curious shortage of inventory that both buyers and sellers seek to resolve. This inventory logjam, along with its subsequent multiple offers, was the most important story of the year in housing.

“Today we have one of the best markets we’ve ever seen for sellers,” said Ken Anderson, managing broker at Coldwell Banker. “Buyers are still surging to the market and inventory is low. It’s a very good time to sell. Owners who are eager to make the next move don’t have to wait six months or until spring to act.”

Consistent interest rates, which did not rise to the levels predicted by many analysts for the third straight year, also became another topic shaping the 2015 real estate landscape. Rates continued to be a consistent, critical component in helping consumers to see that property could again be an alternative to the conventional financial markets.

Low interest rates allow first-time buyers to continue a realistic search for homeownership. If interest rates go up, there are definitely going to be fewer buyers in the marketplace and even fewer homes for sale. Analysts estimate that a full percentage point affects approximately 250,000 new buyers.

If you think pickings are slim with 30-year, fixed-rate loans at 4 percent, consider inventory levels if rates were at 6 percent. There would be even fewer homes for sale.

Another important story was the early year lowering of annual premiums on private mortgage insurance (PMI). The PMI premium is applied to the monthly mortgage payment of buyers who put down less than 20 percent. This additional monthly cost can play a significant role in what a buyer can afford. It does not apply to a loan’s principal or interest. For it to be removed, the buyer must build up equity equal to 20 percent of the home’s value.

For those buyers without a big lump sum to put down, the FHA update dropped PMI rates from 1.35 percent of the total loan amount to 0.85 percent. This means a more affordable monthly mortgage payment.

Wells Fargo’s Kari Kuipers, new-home finance specialist, said the savings can quickly add up for new homebuyers. For example, on a $200,000, 30-year fixed home loan with less than a 5 percent down payment, a buyer would save $818 after one year and more than $7,400 after 10 years. These substantial savings mean more purchase options for new and move-up buyers. Coupled with mortgage interest rates that remained near historic lows, the lower PMI costs created more options for buyers.

Another big story in 2015 was how the reverse mortgage industry was forced into an abrupt about face just when it seemed the highway was clear for spouses who were not part of older reverse mortgage contracts.

In late spring, the Federal Housing Administration, a section of the U.S Department of Housing and Urban Development, rescinded an option on its popular Home Equity Conversion Mortgages (HECMs) originated before August 4, 2014 that allowed “non-borrowing spouses” to stay in the home once the borrowing spouse died.

Technically, when the above situation occurred, the lender could assign the reverse mortgage to HUD under a mechanism called the Mortgagee Optional Election (MOE). For a period of five months, HUD said there would be no more MOE because the option posed too great a risk to the overall health of its mortgage insurance fund.

Then came the reverse back to the old rules: The reverse mortgage becomes due and payable once the borrowing spouse dies or moves out. If the surviving spouse does not pay off the reverse mortgage (perhaps by refinance or other assets) and the loan heads to foreclosure, lenders can extend foreclosure proceedings. For example, if heirs are actively involved attempting to refinance or sell the property, lenders have allowed three, 90-day extensions before foreclosing.

Hopefully, 2016 will bring more patience from lenders. And a greater inventory of homes for sale.