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The dominating element of the current economy is a fundamental need for stabilization of real estate prices at all levels. Such stabilization will alleviate the intense fear that has been so pervasive in the economy for nearly two years, and has affected all sectors of the micro and macro economies. The multi-trillion dollar erosion of real estate wealth, in conjunction with overall devaluation of retirement and capital accounts, diffused throughout the economy as a whole, is significantly negating consumer confidence, which in turn trickles down to all aspects of consumer spending.
Lower interest rates and government-sponsored incentive programs led to some market stabilization as reflected in September's Existing Home Sales, which were up 9.4% year over year. But new rigid lending guidelines imposed by Fannie Mae, Freddie Mac and HUD threaten to impede a full-fledged market recovery. Jumbo money (loans over $729K) is still available for financially strong borrowers, though lender guidelines are extremely restrictive for these programs.
Congress is in the process of finalizing the extension of the current First Time Home Buyer Tax Credit of $8K. New purchases must be under contract by April 30th 2010 and closed by June 30th 2010. In addition a $6500 credit will be added for move upbuyers who have lived in their property for a minimum of 5 years. The credit program appears to have propped up sales numbers in the 7 months that it has been available to buyers. It is vital that some type of tax incentives remain in place to attract additional new first-time buyers to the market and stimulate an increased volume of sales in the move uppurchase category. At this time we are seeing minimal market activity from potentialmove up consumers who are dissuaded from listing their current homes due to decreased valuations and a lack of viable, enticing offers from potential buyers. Moreover, homeowners are prevented from moving up due to upside-down loans caused by diminished values and high LTVs (often 100%) at the time of the original purchase transaction.
As the current mortgage and housing market situations continue to play out in ways that are difficult to predict, what should one do? First, it is important to recognize that we are officially in the midst of a buyer market.This may be an excellent opportunity to acquire real estate with the intention of a semi-long term hold. Alternately, we are advising that our clients who already own property to position themselves for a potential refinance at the aggressive interest rates currently available. If you have any type of ARM (such as 5, 7 or 10 Year Fixed either with or without the option to make interest-only payments), we encourage you to take a moment to review your current loan or call us to confirm 1) when your next interest rate adjustment will occur and how this will affect your overall game plan and 2) what the approximate principal + interest monthly payment will become once the rate adjustment is applied to the loan balance. For many borrowers whose original loans were written in 2003 and 2004, this could be your first adjustment year. Now is the time to familiarize yourself with the impending rate adjustment so that we can analyze all possible refinance options with you, including the possibility of a new Interest Only program. Under tightening lender guidelines, successful mortgage transactions will increasingly rely on the borrower's maintenance of a strong credit history and documentation of a minimum of 6 months total living expenses in liquidity.
Please feel free to contact us at your convenience to review any real estate financing scenarios. We are pleased to handle transactions of all sizes and complexity levels and are always available to address any questions, run numbers, or put together customized, specific what if scenarios.
Wishing you a joyous Holiday Season. Hopefully well be updating you in the weeks ahead with some more positive information.
-Gloria Shulman, Curtis Cohen, Justin Bayle, Ted Kachadorian, Bashar Hamad, Nathan Jensen
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