Housing Market - Post Stimulus

When I first heard of the home buyer tax credit extension in November, 2009, I thought it continued to define the term “stimulus”. I believed at the time, and still do today, that the stimulus was necessary to continue to offer incentives to a housing market in need of any support possible. The tax credit did exactly what it was designed to do, and has even been voted to be extended to allow borrowers to maximize its effect due to mortgage company delays in processing loan files by 6/30/10.

As I shared in my 6/25 post, many economic forecasts were predicting rising interest rates around the time of the tax credit sunset. That surprised and concerned me more than anything. How could an economy grow or expand in any positive way with high/ rising unemployment numbers, rising consumer debt, housing inventory surplus, etc… if rates are increased? Quite simply, rising interest rates would have undermined any momentum the markets had gained and would have pushed it backwards. Housing is 20% of the GDP and is vital to lead any sustainable recovery. Studies have shown $63,000 is put into the local economy with every home sale. How could that be compromised? Why would it be compromised?

To further illustrate my beliefs why interest rates would not increase at the tax credit expiration, the S&P/Case Shiller home price indexes show today that U.S. single-family home prices climbed in April from March, driven by a final sales push before tax credits expired, but signs of a sustained recovery have yet to emerge. "Inventory data and foreclosure activity have not shown any signs of improvement," says David Blitzer, chairman of S&P index committee, which publishes the price indexes. "Consistent and sustained boosts to economic growth from housing may have to wait to next year." With the expiration of tax incentives, existing home sales fell 2.2% in May and mortgage applications to buy homes hover at 13-year lows.

What needs to be remembered here is that affordability is tremendous. Lower listing prices combined with mortgage rates lower than they were when the market was being “stimulated” by tax incentives should start creating some more positive trends. Take advantage of the opportunities that are available today. We have learned that traditional benchmarks and indices are not as reliable as they once were. Please guard against complacency…4-5% interest rates should not be considered the norm.

Mortgage Rates and How To Beat The Homebuyer Tax Credit

Mortgage Rates Continue To Drop

"Today's mortgage rates are officially the lowest rates I have ever seen in my 25 years in the mortgage business."
- Bob Germano, 6/24/10

I had a discussion with a colleague at the end of 2009 to discuss the forecast of the mortgage market. We had a friendly debate about how the economists at the bank he worked for were forecasting drastic reductions in mortgage origination volume for 2010, that the housing market would continue to decrease and mortgage rates would be dramatically higher by the middle of 2010. I disagreed, citing that housing needs to lead the charge back to economic recovery, that there were too many negative economic factors that had not really been dealt with yet and that if the past two years have proven anything, traditional forecasting tools may not predict as well as they used to.

I went back and researched where interest rates were at the beginning of 2010 and am happy to report that at the midway point of the year, not only have rates not gone higher, but they are actually about 1 1/2 percent lower than they were in January.

As a result, I am recommending to everyone I know:
- If you have a fixed interest rate higher than 5.25% , you should explore refinancing.
- If you are in an Adjustable Rate Mortgage, you should explore refinance options regardless of your current rate
- If you are thinking of purchasing a new home, buying a second home or investment property…now might be the best time to take advantage of both market pricing and payment affordability

With the sunset of the home buyer tax credit on 4/30/10, it is my opinion that this should not keep potential buyers out of the market. Believe it or not, there may be greater savings opportunities now than when the tax credit was available.

Consider these hypothetical scenarios*:

Here are the rates, payments and interest amounts based on interest rates as of 4/23/10:

Loan principal amount $417,000.00

Annual loan payments $27,632.28
Annual interest rate 5.250%, APR: 5.34%
Monthly payments $2,302.69
Loan period in years: 30
Interest in first calendar year $12,726.36
Base year of loan 2010
Interest over term of loan $411,968.40
First Payment Due: June
Sum of all payments $828,968.40

Here are the terms borrowers could have locked in on 6/24/10:

Loan principal amount: $417,000.00
Annual loan payments: $25,354.56
Annual interest rate: 4.500%, APR: 4.58%
Monthly payments: $2,112.88
Loan period in years: 30
Interest in first calendar year: $7,798.08
Base year of loan: 2010
Interest over term of loan: $343,636.80
First Payment Due: August
Sum of all payments: $760,636.80

*740+ credit score, full income documentation, purchase or no cash out refinance, 80% LTV . Rates change daily.

Based on the above, a loan on 6/24/10 would recoup $8,000 in 3 ½ years but more importantly, have a payment that is $190 lower and interest savings greater than $68,000 ($5,000 (e) in interest alone in the first year). If a consumer missed the tax credit expiration, they could possibly save more money by doing so.


I hope that people are running home to get their mortgage situations reviewed or calling their realtors to show them their next home. It's about time consumers can say the economy can work to their benefit.