The year 2010 should be a banner year for real estate buyers. There will be challenges and benefits unique to this time period. Learn how to time your purchase or refinance to take advantage.
Current Mortgage Rates Are Lower than 2010's Will Be
Most analysts expect that when the government ceases to prop the mortgage-backed securities (MBS) market with its $trillion-plus in purchases, the spread between yields on mortgage-backed debt and Treasury securities will increase perhaps by a half percentage point. This means that the price of MBS should drop and interest rates should go up. In addition, as the economy recovers, concerns about inflation are bound to make themselves known. Investors can be expected to abandon the bond and MBS markets for stocks when things heat up, and that is very likely to push mortgage quotes higher.
Mortgage and Housing Markets Will Continue to Vary
The entire real estate industry has not gone to Hell in a hand basket--it depends on where you live, although in general the real estate market will continue to favor buyers over sellers in 2010. That means those looking to buy a home next year should not feel pressured to act rashly.The performance of the entire US housing market is much less important that the movements of your local market, and sales and pricing will vary a great deal from one neighborhood to the next in 2010. That works for mortgage quotes, too--a home loan in a "distressed" market is more expensive and harder to get. So don't rely on national news--get a knowledgeable real estate pro and a good lender and take advantage of their knowledge of local conditions.
FHA Mortgage Requirements Set to Increase
While Fannie Mae and Freddie Mac have jacked up underwriting standards in the face of increasing defaults, FHA home loans, which come with a minimum down payment of just 3.5%--have remained an option for many marginally-qualified borrowers. With FHA guaranteeing nearly 30% of new-home purchase mortgages, its reserves have dipped below Congressionally-mandated levels. So in early December, the Department of Housing and Urban Development (HUD) announced that it would add restrictions to FHA mortgage requirements: raising up-front cash requirements (probably to about 5%), boosting minimum credit scores (potential target: 620-660), and possibly charging more for its mortgage insurance premiums. And even more new requirements may be in store.
Tax Credits More Widely Available
In addition to lower prices and rock-bottom mortgage rates, buyers in 2010 have an extra incentive to get into the market. In early November, the first time home buyer tax credit was extended and expanded. The legislation gives qualified first-time home buyers a refundable tax credit of 10% of their purchase price (up to $8,000) if they close on the purchase of a primary residence by June 30 (they have to get into escrow by April 30). The income requirements to be eligible for the credit were also increased, and qualified current home owners were made eligible for a credit of up to $6,500.
2010: The Year of the Home
All in all, 2010 offers many more reasons to buy a home than most periods in history--current mortgage rates are low, housing prices have tanked, there are government incentives, and in the near future, rates may be higher and loans harder to get. So those in a position to buy should seriously consider getting it done fast.