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Depuzzling the confusion of America’s housing recovery

If you’ve been reading the same papers I have this week, then you’ve likely noticed a slew of housing headlines: Mortgage rates are falling. Home equity lines are booming. Hybrid loans are back. And sellers are chomping at the bit. This column is a round-up of sorts as we take a dive into each of them and explore what they mean to you.

Is it really a buyer’s market?

According to a new Lending Tree survey, 71% of homeowners are contemplating selling in the next year. Blame that high number on pent-up demand, says Greg McBride, senior analyst at “As a result of the rebound in home prices, a lot of people tied down since the recession are just now able to consider putting their homes on the market,” he says, noting that prices have recovered about half of what was lost when the bubble burst.

Does that make it a buyer’s market? Not yet. Limited inventory has helped push prices higher. “But it could become a buyer’s market if we see inventory pressures continue to ease, if the rebound in home prices stabilizes, and the pullback in mortgage rates (more on that in a moment) holds.

Should I sell?

Look at your personal situation. If you want to get moved and settled before the school year, then price your place aggressively, he says. If you’ve been tied to the home and are just now seeing equity but you’ve got more flexibility, you can set your sights a little higher. One thing to consider: Set a deadline. As the Wall Street Journal reported last week, it helps push prices up and days on the market down.

Will mortgage rates keep falling?

The average rate on the 30-year fell to 4.12% this week according to Fannie Mae, the average on the 15-year to 3.25%. This is one-third of a point lower than the highs hit late last summer, but also about a point higher than the lows of recent years. “This is confounding expectations,” says Tim Manni of, the mortgage information website. Rates tend to fall when data is released showing that the economy is slowing–and rise when we get reports that it’s improving. They’re not. Consumer confidence is up according to The Conference Board. Durable goods orders are rising. And, according to a recent Gallup Survey, the amount consumers are spending on a daily basis–at $98–a six-year high and $10 over the April average.

How do you play this? First, keep your eyes peeled for Friday’s unemployment report. “If we see a strong number, that could push rates higher,” says Manni. “If it comes in low, it could provide even more momentum for rates to fall.” Meanwhile, rates are still low by longer-term historical standards. If you’re buying a home, you could certainly do a lot worse than with a 30-year fixed. And you may be able to do a little bit better by looking into the …

Hybrids. Should you consider them?

At today’s rates–short-term adjustable rate loans make just about no sense. But some newer hybrids might, and depending on your time horizon they can save you some decent money. For example, PenFed Credit Union has rolled out a 15/15. It’s fixed for the first 15 years, then adjusts a single time. Right now the starting interest rate is 3.65%. On a $400,000 loan, that’ll save you about $20,000 over the first 15 years. There’s also something called a 5/5, which adjusts every five years. (After the initial fixed rate period, other ARMs typically adjust annually, which can be tough on a budget.) PenFed is offering this product at a rate of 3.0%, which drops the payment for the first 60 months to $1,686 on the same loan–a five-year savings of roughly $15,000.

Should you consider them? They’re not for everyone, cautions Greg McBride, Bankrate senior financial analyst. “These are products that warrant consideration for people who are not using them as a crutch of affordability,” he says, noting that using an adjustable to buy more home than you could really afford was a big problem when the housing market collapsed. “They’re for people who have plenty of cash flow to make the payments, but are disciplined enough to put the savings into other investments.”

Are HELOCs a good idea?

The other side effect of rising home prices combined with low interest rates? Home equity lending was up 8% in the first quarter from a year ago. That’s sizable, Manni says, though nowhere near the levels we saw during the boom.

Still, it begs the question: When is a HELOC a good idea? During the housing boom, we used our homes as ATMs to disastrous effect. About one-third of HELOCs were taken out to consolidate credit card debt–a smart move financially, until 40% of those borrowers went out and charged their plastic right back up.

That’s why McBride says applying for a HELOC requires you to take a good hard look in the mirror. Realize, that if you use home equity to pay for credit card debt you’re making out on the interest rate, but you’ve traded an unsecured debt for a secured one. That’s no longer an obligation you can walk away from. As far as applying for one “just in case” as a back-pocket emergency cushion? It’s not a terrible idea. But it’s also not a substitute for a real emergency cushion. McBride notes: “There’s no substitute for money in the bank.”