Why Buy Now? 2010 May Bring Higher Overall Costs
Should you wait and see if home values in the Tampa Bay area drop further before buying? Everyone wants to pay the lowest possible price. The sales price, however, is not the only factor that determines monthly payment if you will be financing the purchase. A 1% increase in mortgage interest rates would result in a higher monthly payment than an additional 10% drop in value.
The financing cost associated with buying a home should increase as the federal government begins easing off stopgap measures to boost the housing market over the next few months. What factors will cause the increase?
- Tax Credits for First-Time Home-buyers & Move-Up Buyers are set to expire
- Upfront Mortgage Insurance Premiums for FHA Loans will go up a 1/2 point
- Credit Requirements for FHA Loans have been tightened
- Down Payment requirements for FHA Loans might increase to 6% (up from 3.5%)
- Interest Rates are expected to increase from historic lows
- Seller closing cost contribution limits may decrease from 6% to 3%.
Government sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac have been the primary buyers of mortgage backed securities. The $11 trillion U.S. residential mortgage market has been dominated by GSEs since private investors exited the market in 2007. The Federal Reserve is set end its program of purchasing mortgage-backed securities by March 31. Such a move would likely cause mortgage rates to climb from record lows because private investors would demand higher returns to purchase residential mortgages. When combined with the above factors, we see cash-to-close and loan costs going up.
Consolidation in the credit markets may also be a factor. The concentration of power in the mega-banks, backed the Federal government guarantees, is limiting consumer choice. The remaining mega-banks can afford to enforce tighter requirements and charge higher rates since since much of their competition has been eliminated. Disintermediation has not been our friend.
To learn more about the Tampa real estate market and factors impacting home buying, contact Dale Bohannon at (813) 979-4963.
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