The economy has hard hit in 2008 much due to the housing market. In 2009 it struggled to recover. The small gains of the past year in many ways were due to federal support that will be removed sometime this year.
What can we expect in the near future? Here is a list of BIG issues to stay aware of if jumping in the real estate market as either a buyer or seller in 2010:
Mortgage rates: Mortgage rates have been low for most of 2009 due to the Federal Reserve committing to purchase up to $1.25 trillion in mortgage-backed securities. Many buyers took advantage of rates at or below 5% for much of 2009. The Fed’s purchases have been extended to March 31. What will happen when the Feds stop? This question keeps economists wondering. The Mortgage Bankers’ Association expects rates to rise by around one-quarter of a percentage point. Some say that is optimistic and think they could increase by as much as a full percentage point. These low mortgage rates helped ignite a fragile recovery in home sales in 2009.
Fannie, Freddie and the FHA: Fannie Mae and Freddie Mac back almost 90% of mortgages. What is to come for these giants is clearly uncertain as the President Obama has said he will bake recommendations on how to rebuild the entire U.S. housing-fianance infrastructure. The FHA has lost so much money it may take a bailout from taxpayers. It is expected it will announce tightened lending measures sometime soon. This is bad news for the economy. Half of all first time buyers used FHA taking advantage of the minimum 3.5% down payments. Tightening these standards could eliminate many first time home owners from entering the market.
Loan modifications: The Obama administration launched an ambitious government effort to date in February 2009 to modify loans of troubled borrowers. It had an underwhelming and unimpressive start because banks weren’t prepared to handle the swarm of requests from borrowers. Borrowers who complete three reduced loan payments are eligible for a permanent modification that reduces their monthly payment for up to five years. Through November 2009, 728,000 borrowers had signed up for trial modifications, but just 31,000 had moved into permanent workouts, or fewer than 5% of those eligible. Loan modification efforts have helped to hold back the supply of foreclosures for sale.
More loan resets: What about the warnings from analysts above the wave of defaults due to adjustable-rate mortgages reseting soon? Interest-only loans that allowed borrowers to avoid making principle payments for three, five, or seven years will reset to higher payments. Those loans were very common among borrowers of jumbo loans, which are too large for government backing and range from $417,000 in most parts of the country to as high as $729,750 in the most expensive housing markets. Many of these borrowers are upside down, leaving them much more likely to default if they can’t afford the higher payments. That could cause more pain for mid-to-upper end housing markets that began to show even more signs of stress in 2009.
Tax credit and home sales: Sales were ignited in the last half of 2009 due in part to the $8,000 tax credit that had been set to expire in November. Now the credit has been extended through the first half of this year. The tax credit led first-time buyers to compete with investors on lower-priced homes, and prices posted six straight months of gains through October, according to the Case-Shiller index. Some think buyers buying up short sales will continue to increase through 2010.
Keep an eye on these hot topics and you will be ready to move at just the right time. As a buyer or seller in 2010, information is key. Stay informed and stay posted for more great information coming your way here on my blog.