Elite Realty Group Blog

In the second quarter of 2010, we will have 3 major factors working against the housing market at the same time.  They are:  climbing interest rates, expiring tax credits and worsening lender guidelines.  What I’m going to outline for you now is how this will impact us and why it is so urgent for your sellers and prospective seller to act NOW.

• Rates: Interest rates have been at their historic low point (5% – 5.5% ) for so long now, most people have forgotten that the average 30 year rate is somewhere between 7% and 7.5%. On March 30th the Federal Reserve will cease buying all the low rate mortgages.  This means buyers will qualify for less house since interest rates will likely be around 6% – 6.5 % by June and probably in the 6.5% – 7% range by the end of the year.  This is the optimistic forecast.  If inflation shows up we’ll see rates spike sooner.
• Tax credits expire:  Buyers will no longer be provided incentives by the government to purchase houses.  You probably have some decent statistic about the % of sales over 100K are 1st time or move up home buyers.  This will puts significant dent in demand.
• Worsening lending guidelines: Buyers will qualify for less house because the lending guidelines continue to become more restrictive.  The pendulum is not done swinging,  We can currently qualify buyers at 50% of their gross income.  This will fall to 41%-45% by the mid year and we are unlikely to see any improvement until we’ve had a few years where loans stop defaulting.  Also the minimum credit score required to purchase FHA is about to move from 620 to 640.

Looking at those three factors we can see less demand, tougher qualifying through higher rates, and tougher qualifying through lower debt standards.  These three combined will put another layer of significant pricing pressure on housing over and above some of the REO pressure that exists already.