CAUTION: KNOW WHAT THE NEW “STIMULUS” HOUSING PROVISIONS ARE

I’m quoting from a lender I know and he warns that the public must be aware that the promises made by the government regarding lower rates and tax incentives need to be carefully scrutinized. 

Here’s the truth.

Yes, the Fed has been buying Mortgage Bonds, but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds…which won’t have much of an impact on present interest rates. Why? First, see the Fed’s purchases for yourself by hitting this link: Fed Mortgage Bond Buying

So why is the Fed buying these Bonds? Well if you think about it, it’s very smart of the Fed…and maybe even a little sneaky…because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today’s great interest rates.

Stay with me here…

With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today’s low rates.

Here’s the most important part.

Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.

The clincher is this:

Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.

Buyer beware could not be more appropriate than now.

RESIDENTIAL RENTALS

There are many options when you’re looking for housing.  Especially during these tough/turbulent economic times.  Many people are forced back into renting. 

Because of the number of homes on the market, many owners are opting to rent their homes out while waiting to sell.  This can be a great opportunity for individuals who need to rent instead of buy. 

When negotiating a lease you should always have a representative.  Perhaps this is not something you’ve done in the past, but it is best to have “someone on your side”.  You can search for the rental online if you’d like, but be sure to contact a licensed realtor to help you along with the process.

IS PHOENIX SHRINKING??

Remember when we were the fasting growing city in the country?  Well, no longer.  However, let’s look at perhaps why and address one of the reasons for the housing slow down.

Keep in mind that when the state was booming, there were a lot of job opportunities….in all aspects of construction.  Considering our close proximity to the border of Mexico, it is no surprise that we had a huge influx of people coming here.  Add to that our lax immigration policies and you have a lot of population growth. 

In addition, the afford price of new housing brought in all kinds of investors.  A good deal of people from California as well as other parts of the country.  The growth at that time was unfortunately measured by how many homes were being sold.  These were not to full-time residents, but to investors hoping to hold on to the home and then sell in a year or two.  This has created a false number in the number of new residents. 

Now, with the mortgage crisis a lot of these homes are going into foreclosure.  Be sure to find out home many of the foreclosed properties are actually full-time Arizona residents and not people who purchased these homes for investment reasons.

HOUSING IN SCOTTSDALE

On a daily basis, we see around us evidence of the housing bubble bursting.  Not one community that I look into is spared.  The two houses next door to me are in foreclosure.  What does this mean?  People are walking away from their homes.  Some of them are leaving altogether, some have already purchased other properties and just going to let the chips fall where they may. 

This, unfortunately, in the near term affects all of us left behind next door to these properties.  While I’m in the real estate business, I say to people “if you don’t have to move, don’t try to sell”.  This is not a selfless act, it is reality.  There are so many homes on the market that we have to clear this before we can start on the way back up. 

However, if you are able to purchase…say you are renting and can buy, this is a good time in that there good deals at this time.  I understand people hesitating though.  What if the market drops more.  I don’t think there’s anyway for us to guarantee anything.  I just had a property fall out of escrow.  There were a few reasons this happen, not the least of which that the buyer just didn’t feel confident that the value wouldn’t drop more.

This economic problem with home values can be a double-edged sword.  If you’re fence sitting you could miss out.  I don’t think anyone should live their lives with “what ifs”.  That is not healthy, in my opinion.  I understand caution, however, risk is a part of life.