The Real Story…
News and commentary about the real estate market and related topics.
Dave Parrish, ABR®, CRSA, CSP, GRI, ePRO®,REALTOR ®, RE/MAX MarketPlace
The opinions expressed here are my own and don’t necessarily represent those of RE/MAX International.
Change is a comin’ …
As mentioned here before… One of the biggest issues in the housing market is affordability… Many folks get so focused on price that they miss when the best time is to act… Clearly in excess of 70% of all home purchases require a mortgage… that’s down from the high 80% range at the peak of the housing bubble. So the terms that mortgages are made available is a huge issue in home affordability and thus the direction that the housing market may turn next.
Yes it’s true prices have been dropping and it looks they will continue to do so for at least the next 24 months. So why not wait for it to bottom out. That might be a great strategy if you’re a cash buyer with nothing to sell… Otherwise, it might just make you yet a bigger victim of a market that most don’t really understand.
Price declines have begun to moderate and at the same time interest rates have begun to rise. The difference between price and monthly payments however is less obvious to the public. What it cost for the average borrower to buy the same home (monthly payments) are on the rise. Higher interest rates translate into higher payments and less buying power for the individual homeowner using a mortgage to purchase.
Now add to that two new proposals on the horizon that will affect FHA mortgages in particular and all “conforming” mortgages in terms of down payments and you have the Titanic approaching an iceberg.
- The Department of Housing and Urban Development is planning to increase annual premiums for FHA-insured loans by 25 basis points in April on FHA-insured single-family loans with loan-to-value ratios greater than 95%.
- Some lenders already are charging borrowers higher “loan-level price adjustments” that take effect April 1 for mortgages delivered to Fannie Mae. The fees will not affect borrowers with FICO scores above 740 and loan-to-value ratios of 75 percent or less; otherwise, the costs could as much as double in some cases.
With budget cutbacks almost certain, we are likely to see a significant reduction in the USDA Rural Housing Program that has offered some buyers 100% Financing (this has particular impact on the Pinson and St Clair County Markets). FHA is considering raising their current minimum down payment requirements from 3.5% to a reported 10%. The threatened dissolution of Fannie Mae and Freddie MAC is likely to tighten money markets even more and result in even higher interest rates. All of this translates to the rising cost of homeownership and a corresponding decline in the number of available buyers (DEMAND)… and another dip in home prices.
There will definitely be winners and losers… Next week I’ll discuss the winners and losers.
May the market be with you.
