Carrots and sticks…
The Real Story …
News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth
The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.
Carrots and sticks…
For a while now, in an attempt to get the economy going again, the government has been offering carrots to motivate buyers to by homes: Tax Credits, historically low-interest rates (resulting from the Fed purchasing/supporting Mortgage Backed Securities) in addition to various other subsidies and incentives.
Come April 30th most of that comes to an end, except for qualifying active duty military that have an extra 12 months to use the Tax Credit. Given the belief that these programs will not be extended (indeed congress promised not to do so at the last extension), we are about to enter a new period of buyer motivation… that of the Stick!
Now there’s no doubt there was and is a need for change in the real estate, home lending / mortgage and appraisal industries. There have been a number of attempts at making course corrections: rule changes, penalties, new standards of practice. I’ll take a minute here to review some of the more notable efforts that have begun to impact the market and that will continue doing so for the balance of 2010 and perhaps beyond.
Last year Non-Family/Employer Down Payment Assistance programs were banned and the minimum down payment for FHA loans… now the major source of financing for the below $300,000 market was raised from 3% to 3.5%. There are rumors of the down payment requirement will be raised again within the next 12-18 months to a minimum of 5%. Add to that the adoption of the HVCC (Home Valuation Code of Conduct) which places additional reporting disclosure requirements for RESPA compliance and making appraisals a more arms length process resulting in lenders requiring purchasers to pay for appraisals upfront. This change which took full effect in January and has made the whole process a bit more cumbersome. However, it does offer greater protections to purchasers form buying properties with inflated values based on tainted appraisals. At the same time many Sellers have had to face the reality of surprisingly low market valuations.
All-in-all these are good things and needed changes and for the most part helpful to buyers; although, many of us in the industry bemoan the added paper work and opportunities for obstacles to getting transactions to the closing table.
More recent changes have included:
1) the Fed’s withdrawal from the purchase of Mortgage Backed Securities effective 3/31/2010, which will most certainly result in rising mortgage rates form the recent historically low rates and a corresponding decrease in consumer buying power. Note that from current mortgage levels of 5% a 1% increase in rates to 6% would result in a 20% reduction of the purchaser’s buying power. Or to put it another way, if a prospective buyer today is considering a $200,000 home he would have to lower his target to a $160,000 home.
2) The raising of the Mortgage Insurance Premium (MIP) rate of FHA loans from 1.75% to 2.25% (effective 4/6/2010), which will increase the cost to purchase for most homebuyers.
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