And it applies as much to the real-estate market as to other areas of the economy. On Jan. 22, The Wall Street Journal ran an article under the headline The Year Everyone Was Wrong (Again) About Home Prices. Of a panel of 94 "experts" polled at the start of 2012, close to half thought that house prices would decline. Nearly all the others expected them either to remain flat or to inch up only very slightly. Yet, as was recently reported on this website, the latest CoreLogic Home Price Index showed that average house prices across the country jumped by 7.4 percent between Nov. 2011 and the same month last year.
Signs House Prices Have Finally Bottomed OutAmong the reasons behind this rise in prices are an increase in sales and a reduction in the "total housing inventory," which means the number of homes available on the market. On the same day the Journal ran its piece, the Mortgage Bankers Association (MBA) published some interesting figures in a bulletin, Lowest Housing Inventory Since 2001 (PDF):
- The National Association of Realtors expects total existing home sales in 2012 to have topped 4.65 million units when the data are finalized. That's 9.2 percent up on 2011, and the highest number since 2007, which was effectively a pre-credit crunch year.
- December saw yet another decline in the total housing inventory: an 8.5 percent drop compared with November. It was at its lowest level since January 2001.
We still expect that existing home sales will see a gradual increase through 2013, but with such low inventory, there is more upward pressure on home prices and we may see a more significant increase in prices over the next couple of quarters.
Rising Prices + Lower Housing Stock = Easier RefinancingAnd, in spite of John Kenneth Galbraith's warning about economic forecasting, that does make sense. If 2012's trends continue, we should expect to see home prices rise as supply (the total housing inventory) increasingly dries up.
This may be bad news for those first-time buyers -- and existing owners wishing to trade up to a bigger home -- who wait too long before making their move. They could soon find themselves facing higher house prices and possibly higher mortgage rates, a toxic combination.
But it would be excellent news for one group: those whose mortgages are currently underwater (a.k.a. "upside down" or "in negative equity," meaning they owe more on their mortgage than the market value of their home). As prices rise, the equity they have in their homes should sooner or later switch from negative to positive, making it much easier for them to refinance -- and, indeed, to access the best refinance rates.
This is no future pipe dream. It's a phenomenon that's been happening for some time now. On Jan. 17, CoreLogic reported that the mortgages of 1.4 million homeowners went from negative- to positive-equity positions during the 12-month period ending in the third quarter of 2012.
Why Refinance?Of course, the federal HARP and HAMP programs have for some time made it possible for certain people with negative equity to remortgage. However, it's much easier -- and potentially more financially advantageous -- to do so when your home loan is not underwater.
You already know the answer to the question "Why refinance?" It's because you can almost certainly make significant savings on your monthly payments and potentially reduce the lifetime cost of your mortgage by huge amounts.
Just how much more of your money you stand to keep is likely to depend on a range of personal circumstances, including the amount you owe, the time left before your mortgage is due to be paid off, and your credit score. But you can get a good idea of your potential savings by using LendingTree's Will you save money by refinancing your current loan? calculator. And that's a lot more reliable than either economic forecasters or astrologers.