Housing Faces Upcoming Challenges

Housing Faces Upcoming Challenges

According to this Real Estate Economy Watch article, The Last Days of the Homebuyer Tax Credit, there are 2 upcoming issues that will hurt housing.

1. Permanent Expiration of the Housing Tax Credit - According to the article, "This is it. No more extensions. When April 30 comes and goes, the tax credit for everyone is over and buyers have only until June 30 to close. With the prospect of getting more than they bargained for in the short term, the housing lobby agreed." In essence lawmakers made representatives of the National Association of REALTORS (NAR) promise that they would not come back and ask for another extension of the housing tax credit.  Therefore, buyers have until April 30, 2010 to sign a contract to buy a home and June 30, 2010 to close in order to get the tax credit.  That's it.
2. Government Mortgage Purchasing Will Decrease Dramatically - According to the article, "About the same time the credit goes away, something more serious will hit the housing markets, the end of the Federal Reserve’s programs to buy up $1.25 trillion of mortgage-backed securities and to lend as much as $175 billion to Fannie Mae and Freddie Mac to do the same. Mortgage-backed securities are sold to investors and the better the market for them, the lower the interests that consumers pay. These government programs to buy mortgage securities have helped to prop up the mortgage-backed securities markets and keep mortgage rates at record low levels for nearly a year. The Fed announced two weeks ago that both are going away April 10."

In my opinion, the effectiveness of the tax credit will wane much sooner than April 30, 2010.  After the first group of buyers took advantage of the tax credit, most of the buyers that did not do so were probably not interested in buying.  I will agree that some simply simply were not ready to buy the tax credit extension may spur some of them to buy now, but I believe that a majority simply felt that $8,000 was not enough.  The tax credit would have to be larger to get this next group of first time buyers off the fence.  Since the tax credit was not increased I predict a lesser tax credit effect this 2nd time around.  I believe that you will see an initial surge of tax credit buyers followed by a long lull followed by a surge near the end as procrastinators try to close before June 30, 1010.  The overall results will be disappointing.

The upcoming decrease in government mortgage is a much bigger problem.  Per my previous blog post, Our Phony Real Estate Market, right now the housing market is almost entirely being supported by artificial government intervention.  When that government intervention ends the housing market will have to survive based on the fundamentals (think jobs and income).  Therefore, it will be a difficult time for housing if unemployment is still around 10% or worse and all these government housing subsidies expire.  This does not even factor in the coming wave of Option ARM foreclosures caused by a large number of Option ARM mortgages resetting starting in the spring of 2010.  Because of these issues I predict another decline in housing beginning in 2010. The gist of the matter is that there will be more short sales and foreclosures and this will drive the price of homes down further. Some areas will be harder hit than others, but the effects will be felt nearly everywhere.

If you are a Middle TN homeowner, property owner, real estate investor, home builder or real estate developer who cannot pay your mortgage payments (due to losing your job, having your income reduced, illness, health problems, adverse business conditions, slow sales, loss of investment property tenants, vacancy issues, lack of funds to complete the project, feuding business partners, etc.), know that you will not be able to pay your mortgage, have defaulted on your mortgage, are already in foreclosure, or owe more than your home is worth, please contact me to discuss your options including a loan modification and a short sale (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home). I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I primarily help sellers (homeowners, property owners, real estate investors, home builders and real estate developers) of distressed real estate, short sales, pre-foreclosures, foreclosures, investment properties, failed new construction projects and struggling commercial real estate developments located in and around Middle Tennessee (Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN).  If you do need to short sell your home or property, or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Over 15% of Option ARM Mortgages Seriously Delinquent

According to this Office of the Comptroller of the Currency Office of Thrift Supervision news release, OCC and OTS Release Mortgage Metrics Report for Second Quarter 2009, in the 2nd quarter of 2009 15.2% of the 900,000+ Payment Option Adjustable Rate Mortgages (Option ARM's) were seriously delinquent and 10% were in the process of foreclosure. Both of these figures are approximately triple the rates for all mortgages. The release defined Option ARM Mortgages as mortgages which "allow borrowers to choose from a variety of payment options each month, including payments that reduce principal, cover interest only, or result in unpaid interest being added to the balance of the loan, resulting in an increased amount owed."

Other important points covered in the release regarding default rates and foreclosures are:

• The percentage of current and performing mortgages fell by 1.4 percent to 88.6 percent of the 34 million loans in the portfolios of reporting servicers.
• Economic factors continued to adversely affect credit quality, with delinquencies up across all risk categories—prime, Alt-A, and subprime. The percentage of serious delinquencies increased to 5.3 percent of all loans in the portfolio.
• Although delinquencies rose, the number of new foreclosure actions remained about the same as in the previous quarter. Total foreclosures in process continued to grow and reached 993,000 mortgages, or about 2.9 percent of the portfolio.

All I have to say is "wow".  This is really bad.  There is no way the real estate market is in any stage of recovery at this point in time.  There will continue to be high levels of foreclosures and short sales for the next few years.

If you are a homeowner in Middle Tennessee who has one of these Option ARM Mortgages and your home is worth less than the amount(s) you owe, please contact me to discuss selling your home via a short sale.  I am a Middle Tennessee short sale, pre-foreclosure (preforeclosure) and foreclosure expert and REALTOR.

• Rutherford County Tennessee: Murfreesboro TN, Smyrna TN and La Vergne TN (LaVergne TN)
• Williamson County Tennessee: Brentwood TN and Franklin TN
• Davidson County Tennessee: Nashville TN and Belle Meade TN

You can find out more information about me via my website JimTheRealEstateExpert.com and my Active Rain profile Jim McCormack's Active Rain Profile - Short Sale REALTOR and Real Estate Expert.