Will we see more of this? (AP Photo/Phil Coale)
"The recovering housing market may be heading for a relapse as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke consider ending support for the source of the global financial crisis."
The first time home buyers tax credit is scheduled to end November 30. For those home buyers who want to cash in on this credit, time is running out, and even more quickly than some of those home buyers might imagine. With recent new changes in mortgage regulations, loans are now taking longer to close. While 30 days from application to close used to be the norm, 45 days is now the average. November 30 is the Monday following the Thanksgiving holiday. For those counting on closing on November 30, many may find themselves crunched by the long holiday that precedes that Monday. Buyers should be looking to close the week before Thanksgiving in order to ensure they get that $8000 credit. Lenders and title companies will be short staffed for the holiday, which could push some of those closings later rather than earlier.
The Feds have been purchasing mortgage backed securities all year, which is one of the reasons mortgage rates have remained so low. $1.25 trillion was allocated for this program that is scheduled to end this year. The rate on (MBS) mortgage backed securities, coupled with the yield on the 10 year treasury bond determines mortgage rates. If the Feds suddenly cease purchasing MBS’s, will mortgage rates suddenly rise?
If the recession is technically over, as Fed Chairman Ben Bernanke announced just last week, the Central banks have to start easing out of the stimulus programs, but should both forms of housing stimulus be allowed to expire at the same time?
“Bernanke and his Fed colleagues may continue talking this week about how to wind down purchases of mortgage- backed securities, according toPeter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. The two programs have helped stabilize real-estate demand, with new-house sales rising 9.6 percent in July from the prior month, the most since 2005.
Ending these efforts may stifle the housing rebound by depressing sales and pushing up both mortgage-backed bond yields and interest rates on home loans.” What will this do to the “housing recovery?” We know that approximately 1.2 million homes have been sold to first time home buyers this year. Of those, approximately one third of those have said that the tax credit pushed them to make the decision to buy this year.
“This is the first major test of policy makers’ ability to coordinate exit strategies as they seek to wean the economy off government support, said Brian Bethune, chief financial economist of IHS Global Insight, a forecasting company in Lexington, Massachusetts.
An abrupt stop might push up mortgage rates by a half to one percentage point, said Hooper, a former Fed official. Tapering off -- by reducing weekly purchases and stretching them beyond the end of the year -- would have a more muted effect, pushing rates up by at least a quarter percentage point, he said, adding that the Fed may announce just such a strategy after its meeting this week.”
The problem facing both the Obama administration and the Feds is that there is no precedent for the type of housing crash we are currently experiencing. There is no doubt that the stimulus programs have assisted the housing market move towards recovery. The question remains whether or not this stimulus is required to keep the recovery going.
For more information about this topic, please see National debt puts housing stimulus at risk and has Wall Street nervous.
Comments
The loan modification efforts to prevent the increase of foreclosure rates have not got a huge welcome. The reason is because the lender needs to revise the ‘borrowing terms’ of the troubled borrower who is struggling to repay the loan on time. It also involves reducing the interest rate which is generally not received well by the lender who would lose some margin in the sale. In addition, the revised plan involves cutting the principal amount by reconsidering the financial state of the borrower and hence, it tackles the benefit of the borrower than guarding the interest of the lender. Hence the lenders and their representatives or not willing to either reduce the principal amount as well as the interest received from the borrowers as the amount they pay to the bank also reduces over time making it further difficult for them to tackle the vicious circle.
Read more.at housingnewslive.com
I think before any meaningful recovery in real estate prices can take root, we need to overcome three major obstacles…
"Rebound Obstacle #1: Inventory Glut. Nearly 10% of all homes built this decade are sitting vacant, compared to a historical average of 2.2%. In total, we’re sitting on almost 10 months worth of inventory versus a historical average of four months.
Rebound Obstacle #2: Loan Resets. Forget subprime. We’ve already worked through 80% of those resets and written down $1.47 trillion in the process. Now we’re facing a $2.5 trillion mountain of Alt-A loan resets. The first big wave hits mid-2011, with the peak expected to come in early 2013.
Rebound Obstacle #3: Foreclosures. One in four homeowners are now underwater. If we break it out by loan type the picture gets worse – 25% of prime loans, 45% of Alt-A loans, 50% of subprime loans are severely underwater. Add in the 6.5 million Americans out of work since the recession began and it doesn’t take an Einstein to predi
Only when the restructuring gets stable and the pricing reconciles and reaches an acceptable and affordable level, the industry is expected to recover. With the housing market in great trouble, moderately-priced apartments have become the core buy.
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housingnewslive.com
James, Obstacle #4: Price. In many places prices are still very high and about 3+ times people's yearly income. The government is just slowing down the much needed correction.
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