What is on the Horizon? How will it affect REALTORS®, Buyers and Sellers

 Three major events are going to occur in the very near term, and every one is a call to action for those thinking of buying or selling. 

Event 1:  Deadlines for the Home Buyers Tax Credits

All contracts will need to be completed on April 30 for the transaction to qualify, and all transactions will need to be closed by June 30, 2010.

Will there be another extension? Maybe, but many economic pundits are saying “This is it”.  Concern about the bulging deficit may outweigh the boost that a continuing tax credit would give the housing market.

 Event 2:  Increase in FHA Up-Front Mortgage Insurance Premium

The FHA Up Front Mortgage Insurance Premium will increase from 1.75% of the loan amount to 2.25% on April 5, 2009.  While this fact is not setting off wild alarm bells for most buyers since the MIP is financed into the loan, here are a few reasons to act before this happens:

1. Overall Loan to Value:  with this change, the loan for FHA buyers will increase to a 98.75% loan to value ratio.  If there is any market decline, the FHA borrower will slip “under water” in a very short time.  It will also take longer for the FHA borrower to gain any equity when their 3.5% down payment is reduced to 1.25% at closing through the addition of the mortgage insurance premium.
2. More to come:  In addition, HUD is seeking permission for and plans two other changes:  an increase in the down payment amount to 5% and a restriction of seller contributions to 3% from 6%.  While the date for these changes is not yet announced, be certain that they will soon follow.  Insurance payments on belly up FHA loans are enormous, and the agency will have to make changes.

 Event 3:  Fed to Stop Purchasing Mortgages

One of the largest buyers of mortgage backed securities is getting out of that market on March 30, 2010.  The Federal Reserve is winding down its purchase program, and has been clear that it really is ending this program of propping up the prices on these securities.  Once their demand for these mortgages is removed, and if the supply of mortgages continues at its current rate, one likely result will be a reduction in the price paid for the securities and higher interest rates for the home buyer.

 The net result:  Buyers, it is truly the time to make a buying decision.  Giving up the $8,000 tax credit means that after April 30, you will be paying $8,000 more for your home.  Sellers, think about the fact that rising interest rates will shrink the pool of buyers qualified to purchase their properties.  It is time to take a hard look at offers that are currently on the table or making market-wise pricing adjustments sooner rather than later.