But reality 101 will come and go for most buyers ... it's all about "payment", it's been the same for cars and boats for 50 years and now real estate has joined the ranks ... and since we've had this little bump in the road, it's now shown how much payment really matters .. not investment, not future plans, not interest rate - just how much: _____________ can I buy for "X" amount of dollars per month -- (fill in the blank.)
We used to literally put more gold into the market to do the same thing. 100 years ago, the big debate was if we should add silver and go to a "bi-metallic standard". This is all about money supply which can speed up or slow down an economy. Now we have NOTHING backing the money!!! Neat eh? Well, almost nothing, trust backs it. All this paper that we all chase 5 days a week (or 7 if you're a real estate agent) has no real value eh, it's just dirty paper, but because we all TRUST it, it does indeed have value and we don't need any gold now.
Back to the issue, we DO need to control the economy (1929 proved this-the invisible hand theory is dead). And real estate drives the economy to a big degree. So by lowering interest rates, there is more investment in this cornerstone of our market, which picks up the economy in a huge domino effect. So one way or another, buyers get more money and thus buy more houses. This is basic macro-economics. It does NOT mean your house will sell right away, as real estate is a slow economic process. It does mean the macro-economy (things like inflation, unemployment, etc.) will begin to change.
To avoid getting too more complicated about it, the simple answer is "YES". But again, I don't think the fact that they can suddenly afford more house is what's happening or influencing. It's more about stimulating an economy of which they are a part... it trickles down. As an investor, I'm known to say every day right now "now is a great time to buy", why? Not because you can buy more real estate for the same down payment, no because financing is CHEAPER (my loan will have less interest expense AND my debt service is lower).
Broker, CRS, GRI, ePro
Raving Real Estate
Laramie, WY 82070
Secondly, once a bubble has burst, buyers become more rational (at least for a while). And rational buyers aren't going to pay prices for homes that, in many areas, are stupendously overvalued by just about any standard you can imagine. If we actually do enter a recession, buyers actions will all depend what sectors and regions are hit hardest. Big layoffs in any metro area could put a damper on house buyers no matter what the interest rates are.
Finally, changes in credit markets have made real estate unappealing for financial speculation - those speculators who are still liquid will move on to whatever sector will host the next bubble that will be fueled by cheap money as the fed has no choice but to continue to drop rates - probably another 50 - 75 basis points in the next two meetings. Whether more will be needed depends on how markets respond.
The damage to credit markets from subprime, and alt-A mortgages has been done - it's unlikely we know the full extent of that damage yet. I'm guessing it will take at least a couple, perhaps more, years to work itself out.
From an economic standpoint--from a rational standpoint--the lower ranes and possible increase in the conforming loan amount is good. But I don't think most buyers will be positively influenced by that.
First, lower interest rates generally result in a potential buyer being able to buy "more" house. In times of good interest rates--which we've had for quite a while now--buyers aren't sitting on the sidelines saying, "Well, rates are now 5.25%. That's too high. But if they drop to 5.0%, then, then I'll buy." Instead, they say, "I want to buy a house. How much house can I buy today when rates are 5.25%? And if rates drop to 5.0%, what could I afford?" The buyers aren't sitting back because rates are too high. C'mon. Rates have been great. They've been sitting back because of a fear that housing prices will drop lower, and their $400,000 house today will be worth $350,000 in a few months. So, no, I don't think lower rates will have much of a positive effect.
As for the conforming loan amount: Pretty much the same answer. It could help some, especially in pricier areas. But that hasn't been the primary reason people weren't buying. Rates for nonconforming loans are still very good, and as good as they've been in years. That's not the problem. The problem is one of consumer confidence. And that'll take a while to rebuild.
At least that's my take on it.
Interest rates hovering around 5% for a 30 year fixed will indeed help Buyers into homes and Sellers out of the homes they are trying to sell.
For Buyers, as I continue to say, now is the time to find THE home you really want and find the Sellers REAL price. The asking prices are generally no where near the real number the Seller will accept when pushed. If there REAL price is still more than you want to pay, MOVE ON! But at least get in the game and find out!
For Sellers, price your home correctly near your REAL price, be competitive and your home should sell in a reasonable amount of time. The best home in a given neighborhood with the best price will sell. It is like a law of physics! Be creative. Offer credits. Offer Interest rate buydowns. Offer closing costs. If you do this instead of simply lowering your price it will get Buyers attention! Get the Buyers engaged and in the Game!
During Jan '08, with news of our country being on the "verge of recession", I have participated in a sale of one of my listings, as well as start seeing homes selling in areas that have had 140+ DOM. In fact, we just got beat out in a multiple offer situation. This is despite more short sale/reo properties in the market. Of course, increased days on market resulting in lower list prices, coupled with lower and more attractive interest rates are resulting in homes selling.
UPDATED: Senate committee OKs amendments to stimulus package
Changes do not address raising conforming loan limit
Thursday, January 31, 2008
Editor's note: This story has been edited from an earlier version to clarify that a proposal to raise the conforming loan limit and upper limits for FHA loan guarantee programs remains part of the economic stimulus bill to be voted on in the Senate.
The Senate Finance Committee approved a proposed economic stimulus package Wednesday that would expand tax rebates in stimulus legislation approved by the House Tuesday.
A full Senate vote on the stimulus bill adopted by the House is expected this week. If the Senate accepts the committee's proposed amendments or allows other changes to the House bill, negotiations between House and Senate leaders to reconcile differences between the two versions of the bill would begin again.
The bill approved by the House in a 385-35 vote Tuesday -- HR 5140, the Recovery Rebates and Economic Stimulus for the American People Act of 2008 -- would provide tax rebates of $600 to $1,200 per working family and about $50 billion in tax breaks for businesses (see Inman News story).
The White House and House Democrats had urged Senate lawmakers not to slow implementation the $146 billion economic stimulus package by amending it to include additional tax cuts or relief measures. But legislation approved Wednesday in a 14-7 vote by the Senate Finance Committee includes amendments such as extending tax rebates to Social Security recipients.
The amendments approved by the committee did not address a provision of the House bill that would temporarily increase the $417,000 conforming loan limit for loans eligible for purchase by Fannie Mae and Freddie Mac to 125 percent of the median home price in high-cost areas.
The House bill would also expand Federal Housing Administration loan guarantee programs, which are currently restricted to loans of $362,790 or less, to include mortgages of up to 125 percent of the median home price. Under the HR 5140, the new limits for Fannie, Freddie and FHA programs would be capped at $729,750 and expire at the end of the year.
The issue of conforming loan limits for Fannie and Freddie and limits on FHA loan guarantee programs was outside of the committee's purview. When debate over the economic stimulus package begins on the Senate floor, the bill put forward in the House bill will be the starting point for possible amendments, including those endorsed by the Senate Finance Committee.
Keep an ear open on this one. Inman news is a great resource for everyone interested or in the Real Estate / Mortgage market.