Well we've seen, heard, and can't get it out of our minds how much money the government is spending to revamp this fragile economy. For those of us in the real estate industry this downturn has been a benefit with low mortgage rates brought on by purchases of mortgage backed securities and long term treasuries from the Federal Reserve. What you must realize is this is also the government spending money (they just don't advertise it as that), in order to artificially bring interest rates down and get people to buy homes and refinance. We'll see if this is a good strategy or not. The FED over the last 8 months has expanded its balance sheet trillions of dollars! YES, I said TRILLIONS!!!
Where is all this money going? Who is getting it? How will it be paid back? Very interesting questions. The housing market is showing signs of recovery but interest rates are beginning to come back up. Why? Well lets just say Obama and Congress keep spending money like a kid in a candy store; and now he's talking health reforms that will cost billions more. ??? Borrowing and spending more doesn't seem to be the answer to a borrowing and spending problem. You just wind up with more debt! Speaking of debt; the national debt, which in the history of the United States has only paid off once, has ballooned to over 11 trillion dollars and its growing by over 3 billion a day!!! Wow! That's a big number.
So what do we expect next? A crash? A recovery? Who knows. The bailout plans of last year and the economic recovery plan of the current administration needs to be financed; and in the last few weeks we've had record Treasury auctions including a whopping 104 billion the week of June 22nd. The auctions have been well received but caused an oversupply of bonds forcing more selling than buying pushing bond prices lower and yields higher (higher interest rates). Since our market high on May 21st for mortgage backed securities rates are now roughly a point higher than their lows in May. We've seen some rebounding, however, more auctions are coming (this coming week 73 billion) to fund the bailout plans and deficit spending so this could spell even more volatility for bonds.
If you are in the market to buy a home, rates are still at historical lows. Do not play the gambling game and say "rates will come down if I just wait long enough". With this mind set you'll lose out on a great opportunity. I suggest asking your mortgage broker/banker, if they have daily access to bond quotes and alerts that are set up to let them know when the market shifts in order to provide you with up to the minute advise should a reprice for the worst occur in the middle of the day. This will save you thousand in interest because they can alert you at the right time before lenders reprice on bad news. I know I have access to this, and any mortgage professional serious about their business or their clients will.
On the jobs number released this week; employers shed 467,000 jobs compared with expectations of only 365,000 pushing the unemployment rate to the highest level since 1983 at 9.5%. This is a staggering number and will probably continue to rise. Our peak in foreclosures, in my opinion hasn't happened yet, and we'll probably see more to come the rest of this year and maybe even all of next year. The massive job losses, and more are still to come, will cause financial difficulties for those families that own homes and could cause defaults.
I don't like giving bad news but right now, in these times, we've seen prices being lowered (especially in housing) and you can really get good deals right now. Home prices got out of hand and now the market is correcting itself to bring prices back in line. Now I want to move to the topic of loans.
Many people think home loans are impossible to get. That is not correct. Or that you MUST put 20% down. This again, is not correct. There are several programs still available to help you purchase your first or next home. Government insured loans are a great way to finance the purchase of a new home. Many in the business tried to stay away from government insured loans because they "thought" they were "too difficult" or "too strict" to originate. This is simply not true. My niche is government insured loans such as FHA, VA, Rural Housing, and 203K Streamline loans; these are excellent loans and give borrowers a low or no down payment (VA and Rural Housing) options with competitive interest rates.
One loan in particular I want to speak about briefly is the 203K Streamline or rehabilitation loan. This loan will allow you to take a "fixer upper" and turn into the perfect home. With this program you can finance 96.5% of the purchase and cost of repairs to rehabilitate a home and do the things you want such as flooring, HVAC repairs, purchase of appliances, new cabinets and doors, just to name a few. The amount of repairs cannot exceed $35,000 and cannot be structural. I don't have enough space to talk about this program in full detail but feel free to visit HUD's website for more details (www.hud.gov).
The point I want to make is loans are available and rates, although not in the 4's, are still historically low. So call your banker or broker and if you're interested in buying a home. If you don't have one, I'll volunteer!
Have a happy fourth and god bless!
Until next week!
