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Fed Stands Still – Time to Make Your Move The Federal Reserve held the line on Tuesday–leaving the Fed Funds Rate at 2.00% for the third straight meeting. The decision, however, was anything but cut-and-dry.
Earlier in the week, the Personal Consumption Expenditure data indicated that inflation climbed 0.8% overall in June, which is the highest inflation jump in 27 years. In addition, the report indicated that inflation now sits at 2.3%–above the Fed's desired range of 1-2%.
Although the Fed ultimately left interest rates unchanged, inflation obviously remains a concern and the recent rise may lead to an interest rate hike by the Fed in the near future. What Does This Mean to You?
Many experts believe the housing market is nearing the bottom and may even be set to bounce back up. For now, home prices remain low, personal incomes are high, and interest rates are still very attractive.
If you've been weighing your options and waiting to see how things shake out, this is the ideal time to act–especially when you consider the new Housing and Economic Recovery Act benefits for home buyers: Tax credits. First-time home buyers who purchase their primary residence between April 9, 2008 and July 1, 2009 are eligible for up to $7,500 in tax credit, as long as they haven't owned a home in the last three years. The credit is actually a generous interest-free loan, so we'll have to talk about some income parameters and payback terms. But if you're a new home buyer – or know someone who is renting or in the market to buy – this is a huge benefit that we should discuss. Lower rates for larger loans. In the past, mortgages of $417,000 or more have been considered "jumbo" loans that were more expensive to finance. Thanks to recent provisions, however, those jumbo loans were able to qualify for better financing rates in some parts of the country. Although those provisions were set to expire, they are being extended–with a minor change to the maximum amount eligible. This is great news that may save you a ton of cash, so call me to find out how this impacts our area, and if it could help you. Down Payment Assistance...going, going, not gone yet. Another provision of the legislation eliminates some down payment assistance programs later this year...but they are still available right now, and depending on your circumstances, we may be able to take advantage of them to double your benefit as a home buyer. Bottom line...now may be the ideal time to put together a purchase strategy based on your unique situation.
What might be the ramifications if HUD no longer had FNMA/FHLMC to manadate that X% of purchased mortgages be sub prime loans, to fufill their affordable housing thing? Who would buy these mortgages if not guaranteed by the U.S. Government or a sponsored entity?
Would FHA continue to insure without a structured secondary market?
GNMA ( the other sister) insures primarily sub prime loans; FHA and VA, and carries the full faith and credit of the U.S. Government. Congress determines an annual limit for new debt GNMA is allowed to insure to, in theory, limit the Government's exposure to mortgage delinquencies.
What if Congress said enough is enough and determined not to take on additional liability?
What would life be like without FNMA/FHLMC?
What if Congress said enough is enough and determined not to take on additional liability?
IMO, housing prices would fall, and the percentage of homeownership in this country would go back to historic levels, maybe 60% - 64%. Banks would have to carry their own portfolio, as mine does. The mortgage broker and title business would shrink even more than it has done.
After that, say 3-5 years down the road, something interesting might start to happen. As prices fall, the inventory begins to be bought up, by people who could not have afforded the home at the original hyper-inflated price. The banks that are left are stronger and more prone to scrutinize the loan application for quality before granting it. People begin to understand that they have to *gasp* actually save up for a down payment. People who can't do this remain renters, which after all has many advantages.
You know, I don't see all this as a recipe for the end of the world. Maybe a slightly lower national home ownership rate is an acceptable tradeoff for a higher savings rate, a stronger dollar, and -- maybe -- less federal debt.
Just a thought... If home ownership drops to the afore mentioned 64%, where do the remaining 36% live? They won't all be homeless.
In the past several years the number of births has reached over 4 million annually. The population is increasing at about 2 mil annually. The rate of house hold formation is above the annual rate of new supply. How long before the need for housing will out strip supply?
Oil which not more than two weeks ago was predicted by experts to reach $200 a barrel by years end, has dropped over $25 from it's high of $145. If the trend continues I know I'll start feeling a bit better. (I hope I didn't jinx things).
Just a thought... If home ownership drops to the afore mentioned 64%, where do the remaining 36% live? They won't all be homeless.
In the past several years the number of births has reached over 4 million annually. The population is increasing at about 2 mil annually. The rate of house hold formation is above the annual rate of new supply. How long before the need for housing will out strip supply?
Oil which not more than two weeks ago was predicted by experts to reach $200 a barrel by years end, has dropped over $25 from it's high of $145. If the trend continues I know I'll start feeling a bit better. (I hope I didn't jinx things).
In order of the questions:
1. Rentals (see above.)
2. Long enough for bankrupt builders to get out of rehab, move to another state, and get a new license
From some folks' perspective, falling home prices are a very, very good thing. After all, who wants to end up giving all of their money to a bank as mortgage interest payments? Why should only members of the upper middle class be able to afford a home? Might it be good for our society if fiscally responsible members of the lower middle class could afford homes?
Bottom line...now may be the ideal time to put together a purchase strategy based on your unique situation.
Perhaps if your unique situation includes the overriding desire to lose money on the largest purchase you're going to make, now's the time to buy. If not, maybe it would be best to wait for prices to stop going down before jumping into such a large commitment. When even the people who make money from mortgages (Freddie and Fannie) tell you that home prices aren't even half way to the bottom, you should probably pay attention to them and ignore FUD and spin from people who only make money if you buy or sell a house.
Home Prices Could Fall Another 20%: Freddie CEO - Earnings * US * News * Story - CNBC.com (broken link)
You need to reread that article.
Nowhere in it did they state that prices would fall another 20%
Here is what it actually said.
"As a result, we now believe that national home prices will fall 18 to 20 percent peak to trough"
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Not the end of the world as we know it.
