With all of the budget problems we are going through, how will it affect interest rates? Well according to NAR Chief Economist Lawrence Yun, rates may increase however, there are other factors that could keep rates down.
Right now the rates have hit an all time low, 4.15%, and will stay low for another 2 years. This is due to the faltering economy. Although rates are at a all time low, sales of homes fell last month by 3.5% compared to the same time last year.
This is an excellent time for buyers to purchase their home.
If you think we’re the only country facing problems, then you haven’t been paying attention to our other neighbors in Europe. They are experiencing economical problems as well!! In fact, their problems do help our country but it could be a sign of what can happen to the U.S..
If we can’t stop our spending and fix our current problems, we will be creating an economical monster for our children. This beast will not be easily defeated. As our problem debtors become larger (the beast), the REO housing inventory becomes larger, and will take more time to be sold off.
The Senate is proposing to change the FHA down payment to 5% and decrese the loan limits. Why make it harder to qualify for a loan when FHA is critical in providing affordable financing to help decrease the growing foreclosed properties. Currently the nation’s largest lending institutions own more then 872,000 homes which is twice that of 2007. It will take 400 days for lenders to foreclose on the home and 176 days to sell it. This will make our recovery even slower. Although financing isn’t the only factor to a recovery, it is one of the most important factor to decrease the ever growing inventory.
Although home sales have increased, the prices have decreased in 118 markets across the country. Prices have declined approx. 7.5% in March from a year ago. This is the eighth straight month of declining prices. So what’s keeping the sales going? I believe that the low interest rates and affordable prices are keeping sales alive.
San Francisco is showing signs of recovery along with San Mateo county. With gas prices continuing to rise, many buyers are moving back to big cities where they don’t have to use their car. This may be one reason why San Francisco has been experiencing a brisk recovery.
If our government continues to ignore our budget problems that we have today, we will be in the same credit classification as Greece. Once we loose our credibility, things will be more expensive. Something has to be done.
Although our budget is operating at a 60 % deficit, home sales have increased and is on track to out perform last year. This increase is fueled by homes being more affordable, historically low interest rates, and lower unemployment, according to Lawrence Yun, NAR Chief Economist. April did show signs of our economy improving but the housing industry is still fragile.
Even though we have an increase in sales, the values of the homes have dropped 3% in the first quarter of 2011, which makes this decline the largest since 2008.
With all this going on, it’s still a great time to make that investment in the “Great American Dream”.
Bank owned inventory nationally grew to a record high of 2.2 million in March and foreclosures starts increased by 33% month over month. This may sound bad but foreclosure sales have increased and delinquencies are down by 11% which is the lowest since 2008.
Pending sales have increased which is a good sign that the demand is strong and the inventory will decrease hopefully faster then any increase. The U.S. is expected to add at least 750,000 new households in 2011 which is a healthy demand. A lot of these new homeowners are a result of lower home prices that are cheaper to buy then to rent, low interest rates, and more confidence in the recovery of the economy.
“The good news is that recent home buyers are staying well within budget, leading to exceptionally low loan default rates among home buyers over the past two years,” Yun added.
Home sales rose slightly last month. This is the sixth month in a row that home sales have increased. Lawrence Yun, NAR chief economist, says “We’re clearly on a recovery path”. This is a good sign and sales should continue to increase.
There are all types of buyers out taking advantage of the market. First time buyers purchased 33% of homes sold in March and all cash buyers purchased 35% of the homes sold, for example. With the market current market conditions, it makes more sense to purchase a property then renting.
The California Housing Finance Agency (CalHFA) is administering $2 billion in federal funds for borrowers who are at risk of losing their homes. Borrowers who took out loans after January 1, 2009 are eligible for 4 different programs as long as the property is a primary resident, meet income requirements, and face a documented financial hardship.
The four programs are the following:
- The Unemployment Mortgage Assistance Program (UMA) which will help homeowners with their mortgage payments.
- The Mortgage Reinstatement Assistance Program (MRAP) which provides funds for homeowners who have fallen behind in their payments
- The Transition Assistance Program which provides relocation assistance
- The Principal Reduction Program (PRP) which provides funds to reduce the outstanding principal balance.
GMAC, Guild Mortgage, CalHFA, and California Dept. of Veterans Affairs are the organization that offers all 4 programs.
There are about 78,000 homes that are either vacant and for sale, or under construction. This is an improvement and with a normal level of buying, the homes would sell in 2 1/2 months. The study shows that there is a housing shortage brewing. If this happens, then it would change the market to a seller’s market and buyers will have a hard time purchasing again. The market today is still considered a buyer’s market and there are more bargain hunters out looking for deals. More investors are also very active making all cash purchases. There are 6 cities that are considered to be cheaper then renting the same house. All this may be history if unemployment rises, which it is decreasing today, interest rates continue to rise and become non deductible.
For the third month in a row, mortgage lates, 90 days or more, have declined. This could be another sign of recovery. With fewer defaults, the inventory level of REOs and short sales should go down as well. Could this be the bottom or is it a double dip situation. Only time will provide us with an answer. Either way, now is still a good time to purchase real estate.
