Real estate trends for spring 2013: Homeowners, borrowers have upper hand

Homeowners who endured years of declining home values will discover that the game has changed in their favor this spring. Low mortgage rates are attracting more buyers. And the inventory of homes for sale is shrinking, giving sellers less competition and more control of the situation.

Here are five additional housing trends this spring:

1. If you plan to buy a home this spring, expect competition. Demand from homebuyers is growing faster than the supply of homes for sale, according to data from the National Association of Realtors.

"It's creating a little bit of a shortage and a mismatch between supply and demand," says Jed Smith, managing director of quantitative research for the National Association of Realtors.

Buyers are encountering bidding wars in many parts of the country, Smith says. Competing offers pose a challenge for first-time homebuyers.

"Multiple offers seem to be the norm these days," says Patty Da Silva, owner of Green Realty Properties in Davie, Fla. She says she recently represented a seller who received more than 15 offers in one weekend for a house in Cooper City, Fla.

2. Homeowners who are behind on their mortgages may get a hassle-free opportunity to reduce their monthly payments.

The Federal Housing Finance Agency will require mortgage servicers to offer a streamlined modification program to borrowers with loans owned or guaranteed by Fannie Mae and Freddie Mac, starting in July. The offers will be sent to homeowners who are at least 90 days behind on their loans but no more than two years behind. To qualify, borrowers must owe at least 80 percent of the home's value.

The modification reduces the loan's interest rate and extends the loan term to 40 years.

Borrowers won't be required to submit any financial documentation to the lender to get approval. The loan modification becomes permanent after three payments are made during the three-month trial period.

3. For other borrowers, there are potential pitfalls ahead. Borrowers seeking low-payment mortgages will be charged for mortgage insurance for the life of their loans if they don't get their Federal Housing Administration mortgages by June 2.

The FHA currently requires borrowers to pay for mortgage insurance on FHA loans until the balance reaches 78 percent of the original value of the home.

Once the change goes into effect, all new FHA loans with less than a 10 percent down payment will carry mortgage insurance until the loan is refinanced or paid off. Loans with a 10 percent down payment or greater will have to pay for mortgage insurance for at least 11 years.

For borrowers who plan to stay in their homes for less than 10 years, the new rules won't make that much of a difference, says Cameron Findlay, chief economist at Discover Home Loans. That's because normally, it takes borrowers about 10 years to reach the required loan level for the insurance to cancel anyway.

"But for those who are planning (to) keep their houses for an extended period, this is a big deal," Findlay says. "They can always refinance later -- but who knows where rates are going to be 10 years from now?"

4. Cash-out refinances and home equity loans, which were popular during the housing boom, are slowly returning, along with the temptation to tap into equity.

"I'm starting to see some of that," says Michael Becker, a mortgage banker at WCS Funding in Baltimore. He recently received a couple of inquiries from parents who are thinking of using some of their equity to pay for college expenses. Another client is considering a cash-out refinance to pay off credit card debt.

5. Finally, mortgage rates are expected to creep up this spring, but not by much.

The Mortgage Bankers Association estimates the 30-year fixed rate will reach 3.9 percent by the end of the first quarter this year. That's not as good as the super low rates that borrowers got in December 2012, when the 30-year fixed hit a record low of 3.5 percent in Bankrate's weekly survey. But it's still a good deal for most buyers and refinancers, housing experts say.

Mortgage rates dipped for the seventh consecutive week during the week of May 2, 2013, as the Federal Reserve renewed its pledge to keep rates down.

The 30-year fixed-rate mortgage fell 5 basis points to 3.52 percent. A basis point is one-hundredth of 1 percentage point.

The 15-year fixed-rate mortgage fell 5 basis points to 2.75 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, fell 5 basis points to 3.93 percent.

The 5/1 adjustable-rate mortgage fell 2 basis points to 2.63 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.