Refinance Now, Before Steeper Declines in Prices

New predictions by Moody's Economy.com put the pressure on homeowners to make their refinancing decisions sooner rather than later.

Television infomercials almost always urge you to "call now, before you miss out on this fabulous offer!" Of course you were intrigued by the Chia Pet, but you probably didn't leap to the telephone to place your order. If you have plans for a mortgage refinance, however, you might consider heeding that message of urgency.

Grim outlook for mortgages

Moody's Economy.com expects real estate markets throughout the country will experience pricing declines over the next few quarters. These declines aren't to be taken likely; some communities might see values dip in excess of 25 percent. The forecast sheds light on increasingly dismal fundamentals in real estate-last October, Moody's prediction for the national average decline was just 3.6 percent. In June, it jumped to 6.6 percent. This latest analysis predicts a national average decline of 7.7 percent.

Refinancing deserves immediate consideration

If you've been thinking about refinancing, you might be well served to give these plans some immediate consideration. A dip in your home's value directly affects the amount of cash available through a refinance, because lenders look to lend no more than 80 percent of that value. If a single-family home worth $300,000 loses 10 percent of its value, the funds available to the homeowner through a mortgage refinance drop by $24,000.

Moody's believes that home values in Saginaw, Mich., Punta Gorda, Fla., and Merced, Calif. will drop more than 26 percent. Metro markets like Stockton, Calif., Palm Bay-Melbourne-Titusville, Fla., Reno-Sparks, Nev., and Detroit-Livonia-Dearborn, Mich., may see home price declines in the range of 20 to 25 percent. Some of the hardest-hit markets in this down cycle will be those areas that benefitted strongly from the price run-up during the past few years.

The problems in the mortgage industry are contributing to the expected declines. A greater number of foreclosures increases the inventory of unsold homes, while tightness in the lending markets makes it harder to qualify for a mortgage. But Moody's predictions consider other factors as well, including the state of local job markets. Layoffs in the auto industry, for example, are aggravating real estate declines in Detroit and other Midwest cities.

Acting quickly, strategically

Homeowners who decide to refinance now are wise to budget and plan carefully. It isn't necessarily disastrous if the home value drops after the refinance closes-unless you need to get out of that mortgage or sell the home before prices recover. Be 100 percent sure about your ability to make those new mortgage payments. You should also plan to keep the home at least until real estate values start to climb again. Selling when the home is worth little more than your loan balance leaves you with limited resources to put towards your next home.

By:Catherine Brock