The world of real estate finance has been tumultuous to say the least. There are still fundamental problems with the mortgage market that affect every potential borrower. Of course, like many tough situations, there are both positives and negatives. Let’s look at both and what they mean to you.
The good: In case you haven’t noticed, the interest rates on mortgages have dropped again. Thirty-year mortgage rates are below 5 percent and 15-year terms are in the mid to low 4 percent range. Low interest rates, coupled with the historically low real estate prices and the large number of homes for sale, have created a tremendous opportunity for potential homeowners.
When you include the tax credit for first-time homebuyers, you have market incentives that are rarely seen. Manatee County buyers are taking advantages of these incentives with single-family home purchases increasing 37 percent to 297 for September 2009 from 213 sales in September 2008. We all welcome any reduction to the inventory of homes for sale.
The bad: The lenders are not approving many loans. Figures recently published by the Federal Reserve HMDA report for 2008 show application turndown rates of 32.3 percent, almost 4 million potential mortgagees denied. Until there is liquidity in the credit market, we will continue to see a depressed housing market.
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Additionally, taxes and insurance prices have not dropped with the market real estate prices; this is keeping potential homebuyers out of the market. Property taxes in the $4,000 – $5,000 are not uncommon for homes selling in the low $100,000’s. Appraisals still seem to be leaning toward the lowest common denominator with many transactions between willing sellers and approved buyers nixed by low valuations.
The government: The government’s response to the housing crisis has not been strong to say the least. People are losing their homes because bank or servicing companies will not assist with modifications; ironically, the same companies are often receiving much less total compensation through foreclosure in a weak housing market. This is being done by the same entities that accepted public money in the TARP bailout. A congressional panel formed to review the federal reserve TARP funding recently released a report that states the plan to help troubled homeowners has been largely ineffective and will fall short of the goal of aiding 4 million to 5 million distressed homeowners. This is not news to the many people who have tried to navigate the loan modification process and have been turned away.
One of the few bright spots originated by the government has been the first-time homebuyer tax credit of $8,000. The tax credit was set to expire Nov. 30, however, it has recently been extended through April 2010. Agree with it or not, this tax credit has given the real estate market some much needed life. What other positive actions, if any, that will be taken by our elected representatives remains to be seen.
Brian McMahon, a licensed mortgage broker, can be reached at (941) 720-2573.