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Home Ownership Rate Hits 20 Year Low Despite Low Mortgage Rates

U.S. homeownership rate has just hit a 20 year low despite near record low current mortgage rates. The U.S. Department of Commerce reported the homeownership rate fell to 64.3 percent in the 4th quarter of 2014. This is the lowest level since the 3rd quarter of 1994.

The all-time high rate for homeownership was during the housing bubble when ownership hit a high of 69.4 percent in 2004. Although homeownership recently hit a 20 year low, the outlook for housing in the future is positive. A stronger economy, lower unemployment, and other contributing factors will increase the ownership rate in the coming years.

A significant change that will promote homeownership is downpayment requirements by Freddie Mac and Fannie Mae. Starting last week, first time homebuyers can put down as little as 3 percent whereas the prior minimum was 5 percent.

Other changes include the FHA lowering insurance premiums by 0.05 percent, which will save 2 million homeowners $900 a year. This change is also expected to entice 250,000 new homebuyers to purchase their first home within the next three years.

Freddie Mac also announced their Home Possible Mortgages, which are designed to help low and moderate income borrowers. These borrowers will have more options for low down payment mortgages. All of these changes are designed to help the housing market recover from the worst bust since the Great Depression.

Mortgage rates are expected to increase in 2015 but will still be low, historically speaking. Current 30 year mortgage rates are averaging 3.80 percent, a decline from last week's average 30 year rate of 3.85 percent. By the end of 2015, average 30 year rates are expected to be near 5.00 percent, which is still low considering the double digit rates we saw in the 1970s and early 1980s.

Mortgage rates today on 15 year conforming loans are averaging 2.98 percent, a slight increase from the prior week's average of 2.97 percent. By the end of 2015, average 15 year rates are expected to rise to 4.00 percent, which is still a historically low rate.

Average 30 year jumbo mortgage rates are at 4.29 percent, up 1 basis point from last week's average of 4.28 percent. 30 year rates on average will also be near 5.00 percent by the end of this year.

Today's 15 year jumbo rates are averaging 4.10 percent, up from the previous week's average rate of 4.07 percent. Forecasts for 15 year rates by the end of this year are around 5.00 percent.

If you're thinking about buying a home, now is probably one of the best times over the past decade. Interest rates are still low and home prices are still lower than the peak bubble prices in many areas of the United States.

If you already own a home and are thinking about refinancing, now is the time. If you can refinance to a shorter term loan such as a 15 year instead of a 30 year loan, you will save tens of thousands or even hundreds of thousands of dollars in interest payments.
Author: Brian McKay
February 4th, 2015