After the recent rise in Mortgage Rates I have been getting alot of questions in regards to how it will effect the outlook in Real Estate for the remainder of the year everyone wants to know where the value of real estate is headed. Many people would like to believe that declining home values are coming to an end, and that the market will take a dramatic turn for the better. Sadly, this is probably far from the truth. The decline in value may even continue over the next ten years, driven by a multitude of both complex and compounding factors. Here are four of the biggest problems facing the Real Estate market this year.

Tighter Lending Standards will continue to be a problem ***
Lending standards will continue to become stricter. Financial institutions are seeing their delinquency ratios rise to unseen levels; stretching across their entire portfolios from real estate to credit cards. This is forcing them to be more cautious to whom they lend and require higher credit scores to those who are applying for loans. The vast majority of financial institutions are requiring minimum credit scores in the high 600's in order to even qualify for a mortgage and the remainder of institutions are following suit. Thus, limiting the pool of potential buyers.
No More Tax Credits - At the end of April a couple of big tax credits will no longer be available
The First Time Home Buyer Tax Credit program comes to a halt on April 30, 2010. This means the government will no longer be offering the incentive of up to $8000.00 for purchasing a home. Without this incentive, some would be buyers may stay seated on the sidelines. Fewer buyers means fewer offers, this ultimately translates into sellers having to lower the price of their home in order to attract the already limited number of potential buyers.
Government has stopped the purchase of MBS's (Mortgage Backed Securities)
Also taking place in April 2010, the government is going to stop purchasing mortgage backed securities. This means that these securities will now have to be purchased by the private sector, which is going to demand higher rates to compensate for the increased risk. This factor will force mortgage interest rates to rise. Higher interest rates result in higher mortgage payments. Unless sellers come down in price, buyers will be forced to find more affordable property.
More ARM's Due to Reset - The bulk of 5 year Balloon payments that were taken out in June - December 2005 are coming due...Yikes we have trouble brewing!!!
Last but not least, there are four more waves of adjustable rate mortgages resetting their interest rates throughout 2010. They are the 3 year arms issued in 2007, the 5 year arms from 2005, the 7 year arms from 2003, and the 10 year arms from 2000. This is going to push a mass of new foreclosures into the already predominately bank-owned real estate market. Foreclosed properties typically sell for below fair market value; however, in this market nearly half of all homes for sale are foreclosed properties. It is essentially the driving factor in the declining value of real estate today.




In conclusion, it seems pretty safe to assume that the combination of tighter lending standards, disappearing tax credits, and the recent run up resulting in higher mortgage rates paired with a flood of new foreclosures are going to have a profound negative effect on the already battered Real Estate market this year.


If you have been sitting on the fence looking to purchase or refinance your current loans I would suggest that you do not wait until the last minute.Call me know and lets get the ball rolling ...I can be reached through my website www.fhasubmissions.com or you can call me toll free at 1-866-936-8478

Jeffrey Martino Young at Essex Mortgage Bank in Santa Rosa,ca.95404.

This was a great blog Jeff! A rude awakening for sellers and buyers! I would like to add this: Once the tax credit was extended to april 30 to be under contract and close by end of June it became increasinly apparent that sellers were listing for a bit higher and buyers were paying a bit higher.

Don Lantier
Broker~Owner
Lantierrealty.com
Smyrna GA

So, it soudns like Don is saying that sellers were taking the tax credit into account when setting the price of their houses, so first-time homebuyers weren't really getting as good of a break as they thought they were.

Am I right in taking from Essex Mortgage and you, Kim, that with the incentives going away for buyers, that there will probably be even less people buying then there are now. I'd assume then that housing prices will fall even more; it seems like everybody who is rushing to beat the deadline would even BENEFIT from waiting a few months after the tax credit has ended?

No one knows for sure what will happen when the Tax Credit goes away. I however feel the market will slow down. With the government backed loans going away, interest rates will rise and without any incentive to buy....Are the buyers still going to buy?
Right now, all my first time homebuyers are rushing to find the perfect house prior to 4-30-10. No plans to purchase after the deadline.
Second time homebuyers don't seem too stressed to beat the deadline. However, they need the first timer buyers to purchase their homes before they can move on. It is domino effect.