Is the Federal Reserve's Bold Move that Bold?
Sunday, September 16, 2012 • 6:48am
Who out there can assure all of us that the Federal Reserve’s move to buy mortgage bonds at $40 billion per month will spur on the real estate market. We are told that these aggressive actions will lower mortgage interest rates and extend the same for 6 months longer than the previous package.
First and foremost, the rates are not the cause of the slow real estate market. We are at record lows as it is. Are we at a point the banks will be paying us interest.? Of course not. It starts with jobs, it continues with the stiff restrictions on obtaining mortgages, and it ends with first time home buyers affording a home so that the seller can move up to their next home (Or what I call trickle-up economics).
Job creation to lower unemployment, and the fear of unemployment, is the biggest hold-up in the housing market. “If I buy a home will I be able to keep the home.”
"however, I don’t expect it to have a great influence on the current interest rates. It all has to do with job creation. It is somewhat of a double edged sword, the government believes that by enhancing the real estate market there will be an uptick in job creation, as opposed to job creation giving rise to an improved housing climate.”
Looking at today’s market there is a glut of short sales and foreclosures. They have lessened a little because investors are gobbling them up. However, they are not the buyers that are wanted to buy. These un-real buyers already have homes they live in and therefore are not assisting in the “trickle-up”. You see, when a a home is sold due to a short sale, in most cases the seller cannot purchase a home for two years as the sale does affect their credit status just not as bad as a foreclosure leaving the ex-homeowner the ability to buy for at least seven years. In other words, no move-up buyer. No trickle-up.
The financial institutions need to become just a little more flexible in their qualification guidelines. Yes, there are plenty of interesting programs for all types of buyers, however, many first-time buyers are finding difficulty obtaining mortgages. There are more 25-30 year olds that are living with their parents than ever before and the rental market has been "hot" to a point that rental prices are skyrocketing.
Other bank related conditions include the arduous process of short sales and foreclosures. It is a long process that may or may not come to closing. Sure HAFA & HESPA rules have helped a little – but just a little. And then there is the appraisal process. The banking industry did the right thing by using the pool system of appraisers to combat fraudulent mortgage practices, but these appraisers can come from anywhere which means they may or may not know the area and its nuances which relates to value of the property. We are seeing under appraisals more so than ever, which in turn results in the loss of transactions.
So back to this bold move, it is not that bold, the market is at a standstill, which says that we have in my opinion, as well as many others, hit bottom (unless of course, the Shadow Inventory is released by the banks).
It is far from all doom and gloom, I am seeing an uptick in sales in our areas with prices rising a little. Our office alone has increased its transactions by 10-20%. The market will work itself out, it just may need a little help, not an extreme. It starts with those first timers. When the Federal Government designed the first time homebuyers credit it was a call to action to buy now. But it gave a boost for the ” trickle-up” to work, even in the short term. Could it work again? Can the $40 billion per month be better spent on such a program or even just for a down payment for qualified first-time home-buyers. Just food for thought. What is your opinion? Email me at firstname.lastname@example.org
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