There are some changes coming down the pike for spring/summer and they are not particularly good. The first thing you need to know is when the housing collapsed, one of the things the government did was start buying mortgage backed securities. This effectively allows the government to manipulate the interest rate that you the borrower pays when you get a loan. It has been reported that the government intends to stop buying these mortgage backed securities in March of 2010. If that happens we very well might see a sharp rise in interest rates. Many experts expect we will be in the 6’s by summer instead of the 5% rate many are getting right now on a 30 yr. fixed. That calculates to a significant increase in payment. Looking at principal and interest only on a $180,000.00 loan the payment would be $966.28 at 5%. At 6.5% the payment would be $1137.73. Also if you take that same $1137.73 and apply it to a loan at 5% you would now be looking at a loan of $211,000 instead of $180,000.00. So that one and a half percent difference in interest rate results in your purchasing power being decreased by $31,000.00. That is significant and more important than negotiations of that last $500.00 that many get hung up on. Second only to location, location, location would have to be timing, timing, timing and right now the timing is perfect.
Another thing that has happened as a result of the crisis is that there has been a steady increase in the proportion of loans that are FHA loans. Below is a graph showing FHA Single Family Activity in the Home-Purchase Market.
Keep in mind this graph is of all purchases. Not just purchases with a lender. According to a local Oklahoma City lender, the estimate of government secured loans is over 50% where he works. Why this large increase since 2007? Because, when housing blew up conventional loans become much harder to come by and when they are available the mortgage insurance is more expensive and the down payment required is more when compared to an FHA. This is what resulted in the sharp increase we see on the graph from 2007 till present. Along with this increase has come a greater strain on FHA default reserves. To answer this FHA has announced that it will be increasing the up front mortgage insurance 50 basis points to 2.25% from the current 1.75%. This increases your payment. Also, in order to reduce their exposure FHA is going to reduce the allowed Seller Concessions from 6% to 3%. This is the amount of closing costs that the Seller is alllowed to pay for the Buyer. On lower priced purchases this means that the Buyer will sometimes not be able to ask the Seller to pay all of the closing costs.
The final thing I see in my crystal ball is an increase in prices for first time home buyers as the time runs out on the First Time Home Buyer Credit. In the inevitable act of human folly, many first time home buyers are currently dragging their feet only to find themselves fighting with the other first time home buyers for the same few homes as time again runs out on the credit. These are the same people that were in a panic last November. Got a reprieve and then decided to relive the panic this April. Only this time I doubt there will be a reprieve.
If you break from the herd and buy a house now you will be handsomely rewarded. If you wait you may find yourself paying higher up front mortgage insurance, getting less concessions, paying 6.5% instead of 5% and paying a premium in price for your house as you fight it out with the other procrastinators as the clock winds down. In short you could be throwing a couple hundred dollars a month away for the next 30 years as punishment for your tardiness. In case your curious that is $70,000.00. Surely you don’t want to penalize yourself that much. Call your favorite Realtor today and get the deal of a century. If you don’t have a favorite Realtor contact me at the links below and I will become your favorite Realtor. Remember you heard it here first.
Joel Garcia
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