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Pundits are all over the board on where home prices will end up in 2010. Six fundamental factors are listed below which will have an effect.
Mortgage rates. Mortgage rates have hovered around historic lows in much of 2009 - thanks primarily due to the Federal Reserve, who purchased up to $1.25 trillion in mortgage-backed securities. The question is what happens when the Fed exits the purchase agreements in March and the private market steps in. Most expect rates to increase up to 1%.
The 3 Fs. Fannie, Freddie and the FHA. Nearly nine out of 10 mortgages are now backed by one of the three government controlled mortgage agencies. The FHA, which some have called the new sub-prime, continues to suffer heavy losses. In fact, some predict it may need a government bailout. As a result, it is tightening it's lending standards in 2010 which could disqualify some buyers.
Loan modifications. Loan modification have forced mortgage servicers to hire and create new systems to handle the ever-changing rules and loan modification programs coming out of Washington. Fewer than 5% of those eligible for modifications have been moved into permanent status. Modification programs are improving. But it has also pushed more foreclosures down the road, which will serve as an overhang for housing at least through 2010.
Option Arm Resets. Many took out loans that were pick-a-pay plans which means the buyer could pick out the lowest initial teaser monthly payment plan. Most buyers of expensive homes opted for the lowest monthly payment, which didn't even cover the interest due on the loan. So the amount they owed on the home continued to increase each month. These loans were very popular in California where real estate prices had skyrocketed during the boom. Most resets were on 5-year arms and are due to reset in 2010 and 2011. Many of these loans also have triggers which automatically require the higher monthly mortgage payment when the amount owed on the home is between 110%-125% of the original loan balance, which is happening right now. On average, a teaser monthly mortgage rate of $1,672 would jump to $2,725 on reset.
The Government Tax Credit. The government tax credit has been extended to April 30. Buyers must ink a contract by that date, and close by June 30 to qualify. Also, the tax credit has been expanded to now reach upper income buyers, and home owners that have lived in the same home for 5 years can get up to $6,500. Singles with modified adjusted gross incomes of up to $145,000 can qualify although phase-outs begin at $125,000. For couples filing jointly, the credit begins phasing out at $225,000 and modified adjusted gross incomes above $245,000 do not qualify.
I think that this will fuel a great deal of demand before April 30. So if you're planning on selling your home, get it prepared and get it on the market as soon as possible.
"It's the economy stupid." This famous political axiom seems to have fallen on deaf ears in Washington. Instead of focusing on getting more Americans and businesses back to work, the three democrat-controlled branches of government have obsessed over the government health care takeover. Hopefully, it's passage will not cripple businesses further, and thwart the growth of permanent, benefit-laden jobs. Businesses may opt instead to hire temporary or part-time workers, who don't reap the benefits enjoyed by full-time employees. JOBS, JOBS, JOBS, is what will get the economy and the housing market back on solid ground.
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