Hanson is particularly concerned about cancellations among the home builders.

(Read More: Home Builder Sales at Risk Due to Rising Mortgage Rates)

Buyers of new construction often sign contracts for homes that will not be delivered for three to nine months, and therefore the buyers do not lock in mortgage rates at the time of purchase. A buyer who signed a deal the first week in May without a mortgage is now facing a far higher potential monthly payment, perhaps an unaffordable one.

The hangover effect could be much like the drop in home sales after the expiration of the home buyer tax credit. Prices dropped as well. This, as millions more borrowers were finally coming out from underwater on their loans, thanks to increased home equity. The number of borrowers owing more on their mortgages than their homes are currently worth fell by 47 percent in the first three months of this year from a year ago, according to Lender Processing Services. Some 7.2 million mortgages are still underwater, but that’s down from a high of 17 million in 2011.

Increased home equity has helped to push mortgage delinquencies down. They dropped 15 percent in May from Jan. 1, the biggest drop in 11 years, according to LPS. If home price gains stall or if prices turn lower, that trend will reverse. Rising home equity has allowed more borrowers to sell homes they don’t want or can’t afford.

(Read More: Map: Tracking the US Real Estate Recovery)

While home sales may surge in the short term on fears of rising rates and falling affordability, the longer term may be a different story. One telling sign from the Fannie Mae survey, 56 percent of respondents expect rents to rise. That’s up 8 percentage points in one month to a survey high.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.

Questions? Comments? RealtyCheck@cnbc.com.

Article source: http://www.cnbc.com/id/100870112

Hanson is particularly concerned about cancellations among the home builders.

(Read More: Home Builder Sales at Risk Due to Rising Mortgage Rates)

Buyers of new construction often sign contracts for homes that will not be delivered for three to nine months, and therefore the buyers do not lock in mortgage rates at the time of purchase. A buyer who signed a deal the first week in May without a mortgage is now facing a far higher potential monthly payment, perhaps an unaffordable one.

The hangover effect could be much like the drop in home sales after the expiration of the home buyer tax credit. Prices dropped as well. This, as millions more borrowers were finally coming out from underwater on their loans, thanks to increased home equity. The number of borrowers owing more on their mortgages than their homes are currently worth fell by 47 percent in the first three months of this year from a year ago, according to Lender Processing Services. Some 7.2 million mortgages are still underwater, but that’s down from a high of 17 million in 2011.

Increased home equity has helped to push mortgage delinquencies down. They dropped 15 percent in May from Jan. 1, the biggest drop in 11 years, according to LPS. If home price gains stall or if prices turn lower, that trend will reverse. Rising home equity has allowed more borrowers to sell homes they don’t want or can’t afford.

(Read More: Map: Tracking the US Real Estate Recovery)

While home sales may surge in the short term on fears of rising rates and falling affordability, the longer term may be a different story. One telling sign from the Fannie Mae survey, 56 percent of respondents expect rents to rise. That’s up 8 percentage points in one month to a survey high.

—By CNBC’s Diana Olick. Follow her on Twitter @Diana_Olick or on Facebook at facebook.com/DianaOlickCNBC.

Questions? Comments? RealtyCheck@cnbc.com.

Article source: http://www.cnbc.com/id/100870112

A jump in signed contracts to buy newly built homes in September brought volumes to the highest level since April of 2010, when the home buyer tax credit temporarily infused the housing market.

The median price of a newly built home also rose nearly 12 percent from a year ago, as builders gained pricing power thanks to lessening competition from distressed properties.

Is it enough to put a period on the statement that housing is in full recovery? Perhaps, but not an exclamation point.

There is still too much uncertainty in the mortgage market to proclaim that housing is on its way back to its “frothy” days. That was abundantly clear at the Mortgage Bankers Association’s annual convention in Chicago this week, where the murmurs among the masses were all about regulation in the industry.

“I think that there is a concern that we may get tighter before we realize the balance,” said Debra Still, chairman of the MBA and CEO of Pulte Mortgage. “We certainly have to balance consumer protection with access to credit and there’s a fine balance that we have to figure out. Lenders will probably err on the side of being conservative before they will find that balance and lend to the fullest.”

(Read More: How to Play the Housing ‘Boom’)

Uncertainty over impending new regulations in the mortgage market has mortgage bankers understandably nervous. These new rules will determine risk held by lenders as well as down payments required for borrower, among other things. That uncertainty is having a direct effect on mortgage rates.

Despite the Federal Reserve’s $40 billion weekly infusion into agency mortgage backed securities, mortgage rates are just barely below where they were before the announcement of so-called QE3. Rates did fall immediately after the announcement, but with the 30-year fixed bouncing back up to 3.63 percent from mortgage applications fell dramatically, down 12 percent overall. Refinances fell the hardest last week, down 13 percent, but applications to purchase a home weren’t far behind, down just over 8 percent week-to-week.

“Wow, that was quick. Ahead of today’s 2nd day of the FOMC meeting, the MBA said both applications for refi’s and purchases are now below the levels of mid Sept when the Fed decided to further help the housing market with more QE,” writes analyst Peter Boockvar of Miller Tabak. “The costs of an eventual Fed exit will far outweigh any benefits.”

Why are mortgage rates rising again? Because even though the ten-year Treasury yield, which mortgage rates generally track, is above where it was before the Fed’s announcement of QE2, the greater demand by the Fed for MBS is being met by plenty of supply in the form of big refinance volume. The banks are not passing through the discounts they are getting to consumers due to tighter lending standards and rising fees.

(Read More: Is There a Housing Shortage?)

Tighter credit is particularly hard on first-time home buyers, who might not have strong credit scores or large down payments; this cohort usually makes up 45 percent of the overall home buying market but today are down at just 32 percent according to the National Association of Realtors.

“It’s that first time home buyer we have to be mindful of and make sure that the rules and the credit parameters don’t restrict the buyer that doesn’t have equity available in a prior home to move up or the assets in the bank yet,” adds Still.

(Read More: Property Flippers Are Back as Housing’s New Middle Men)

As we head into the historically slower months for the housing market, mortgage rates will likely play an outsized role, as today’s buyers are far more sensitive to the slightest rate moves. True, sales for the builders are up 42 percent from the trough at the beginning of 2011, but 72 percent below the latest peak, according to Boockvar. The door is open for the builders, as long as the bankers don’t slam it shut.

• New-Home Sales Jumped to 2-Year High
• Mortgage Applications Slump
• Cities With Affordable Homes
• Is There a Housing Shortage?
• Housing Momentum vs. REITs 

Click on ticker to follow real estate news:

US Home Builders

• Toll Brothers
  [TOL 
  Loading... 
   
   
  ()
   
  ]
• DR Horton
  [DHI 
  Loading... 
   
   
  ()
   
  ]
• Hovnanian Enterprises
  [HOV 
  Loading... 
   
   
  ()
   
  ]
• PulteGroup
  [PHM 
  Loading... 
   
   
  ()
   
  ]
• Ryland Group
  [RYL 
  Loading... 
   
   
  ()
   
  ]
• Lennar Corp
  [LEN 
  Loading... 
   
   
  ()
   
  ]
• Beazer Homes USA
  [BZH 
  Loading... 
   
   
  ()
   
  ]
• Meritage Homes
  [MTH 
  Loading... 
   
   
  ()
   
  ]
• KB Home
  [KBH 
  Loading... 
   
   
  ()
   
  ]

Questions?  Comments?  And follow me on Twitter @Diana_Olick