SubscribeEconomic Forecast, Extending the Tax Credit and the Golden Window for Buyers
October 20, 2009
On October 12, I attended a SILVAR sponsored economic update and forecasting presentation by CAR EVP Joel Singer, and I thought you might find the following summary and comments beneficial:
- As we all know financing is the primary key to housing stability, and Singer is 100% confident that both tax credits and the $729,750 conforming limits will be extended into 2010—both of which are keys to continued recovery
- 40% of first-time buyers for 2009 bought because of the tax credit
- The Feds are on track to extend the credit, maybe even improve it, so let’s keep our fingers’ crossed
- The CA State Senate already approved the extension of the state $10,000 tax credit, and it should pass Assembly this week—yeah!
- Food for thought: before the competition increases due to formalizing the tax credits, first-timers should make their move sooner than later
- The move-up market here is the most impacted, but will improve as financing does; as such, he feels as though there will be some level of government involvement to stimulate the secondary market for non-conforming loans
- Right now, inventory levels for $750k-$1mm are at 6.1 months, which is healthy; inventory levels for $1mm+ are at 12.8 months, which signals a clear buyers’ market
- With government support, non-conforming lending will ease, but not necessarily cause rates to be lower—current margins are already at all-time highs primarily due to risk—by stabilizing the system and improving liquidity, risk is reduced, savings rates increase and rates remain about the same
- Futures point to a Fed funds rate rise of .500% to .750% and conforming 30-year fixed mortgages at 5.6% in Q2 2010
- As such, this gives anyone needing a conforming loan about 5 months before both rates and prices are up significantly
- And if you missed the headline on September 24th about the Fed easing their policy of keeping mortgage rates low, you’ll want to know that they are almost cutting in HALF the the effort– $14B versus $25B
- The overall number of homes/units sold next year will be down, but that’s only because we had a record number of units sell already this year—foreclosures will be DOWN relatively significantly
- Activity will still be high and it’s likely the $1mm+ segment that will provide buyers with the best value
- The “second wave” of foreclosures due to rate adjustments is a farce—many people, like myself, are looking forward to loans adjusting at lower rates, which is precisely what the majority of those loans will do
- 2010 will be a growth year with GDP expected at about 1.9%
- Great news for the economy, but growth causes higher prices and higher rates—
- The population of CA will grow another 1.1%, so that’s about $370,000
- We’ve added about 600k people per year since 2000, and about 500k babies are born in CA each year, so I guess that means there will be more demand on housing, which is also good news
- Unemployment may be 12% in CA, but that number is tied mostly to construction-related industries.
- With High Tech, Finance, Exports and Travel all on the rise for the Bay Area, our property values and local economy should benefit significantly
The Latest on Rates and Activity
Even with the incredible rates that continue to drive the refinance market, over 50% of the transactions that we closed in September were purchase transactions. Also of importance is the fact that of those purchase transactions, 35% were financed using “JUMBO” loans! Jumbo 30-year fixed loans are running about 5.75% and that jumbo 5/1’s are around 4.50%. And if you have a $417k conforming loan, 5/1’s are available at 3.75%!!
According to the MBAA, last week’s applications were down, but the four week moving average is up, along with interest rates (albeit slightly). We’re seeing the opposite effect locally, but it’s likely due to the many move-up buyers looking to take advantage of the $1mm+ market through Winter.
Is it just me, or does it genuinely feel like the golden window of opportunity for buyers right now..?
A great success story for us lately included funding a loan for a borrower who had a 63% debt-to-income ratio. We have also bridged three separate transactions that allowed buyers to move up without having to sell their current home first. And finally, we improved a client’s credit score by 100 points and saved them over $8,000 by having an erroneous collection removed from their credit record. So even with all the news headlining the challenges in the mortgage world, at least some great success stories continue to be made.
Comments
Got something to say?
