Based on current inventory, and the expected rate of foreclosures in the near future in the sub 500k range,

Asked by Summer, Sausalito, CA Sat Nov 22, 2008

wouldn't it be best for a buyer who wants to purchase a single family home in that price range to hold off making the purchase until 2009, when he/she will be eligible to receive the tax credit? Are interest rates on home loans expected to rise drastically between now and June 2009?

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Pam Buda’s answer
Pam Buda, Agent, Santa Rosa, CA
Sun Nov 23, 2008
Hi Summer--I think you have a range of good points to consider in the preceding answers, so I won't duplicate them. I am including a link to a blog post I did concerning sales trends in Sonoma County year over year through 2008 so that you can add a local perspective.
Our sales activity has been increasing steadily since January, fueled by the bargain priced REO properties. In October for the first time in several years, the number of new listings coming on the market has been exceeded by the number of newly ratified sales (open escrows.) Some local lenders I have talked to estimate we are more than halfway through the subprime loan resets from loans originating in 2005 and 2006. I will tell you that buying an REO here is no walk in the park. Properties, including fixers, with good fundamentals-neighborhood, floor plan, etc. are selling with multiple offers and generally for over asking price. I spoke to several agents in my office (largest market share office in Sonoma County) and there are buyers who have made 8 and 9 offers on properties with out successfully landing one because they are often competing against investors with all cash purchases. So it is important to align yourself with a dedicated advocate i.e agent and be well educated and of course pre-approved so that you can move quickly and powerfully as the right property(s) come along. Trying to time it may be less important than allowing yourself a number of months to find and secure the right home for yourself and your family.
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Robert Chome…, , San Diego, CA
Sun Nov 23, 2008

First of all, the $7,500 first time home buyer tax credit is only good (to my understanding) if your purchase by June 2009.

Secondly, no one accurately can predict where 30 year fixed rates will be in the future, no one. 30 year fixed rates are based upon a number of global market forces mostly out of everyone's control. The Fed can lower the Fed Funds rate, but that does not directly correlate to lower 30 year fixed rates. I know a lot of smart people who have tried to predict mortgage interest rates the last 10 years and have been dead wrong every time.

I think the other posters have been correct that well priced bank owned homes have been going fast and getting multiple offers throughout the state. They are the only part of the inventory that is quickly moveable, a big chunck of the rest of the inventory is short sales which take much, much, much longer to sell. So everyone is going after the bank owned home part of the inventory.

In terms of the new inventory coming on in 2009, it will be interesting. The other posters are correct that there is finally a massive effort going on to modify current home owners loans instead of foreclosing on them. The biggest effort by far to date. This could cause less foreclosures to come on the market and thus reduce new bank owned homes and thus reduce overall inventory.
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Frank Schofi…, Agent, Reston, VA
Sat Nov 22, 2008
Contacts in the lending industry are expecting rates to drop 1st half of 2009. Someone told me that Suntrust exec stated they expect rates in the high 4% range by summer of next year. I briefly looked on line to see if i could find something. Let me know if anyone see anything out there!
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Scott Godzyk, Agent, Manchester, NH
Sat Nov 22, 2008
Interest rates will stay steady over the winter, they have been going up a little and then coming down and repeating over and over, but relatively the same. The reason is teh banks guidelines are so tight, that they are not giving out alot of mortgages, lowering the rates will not help anyone with these strict guidelines remaining. In the spring when home sales increase no matter what the economy expect rates to start to rise.

As far as whether to buy now, the foreclosed homes and owner owned homes that are priced at or below todays market prices are selling relatively well. There is not a great inventory building up as they are selling. If you can find a home that meets your needs and it is at or below todays market value, by all means you should buy now.

good luck with your search
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Dave Roberts, Agent, Healdsburg, CA
Sat Nov 22, 2008
Hi Summer,
There are a lot of separate questions packed into those two sentences. Let me try to answer some of the issues you raised. First, the inventory of bank-owned homes continues to move very fast relative to the market as a whole. Well priced homes under 500K, whether bank-owned or not, are moving out of inventory pretty quickly. Secondly, nobody can know what the foreclosure picture is going to look like next year. We are confident that many homeowners are going to be in trouble, but the government and banking interests are still discussing potential remedies for workouts and foreclosure time-outs. The $700 billion bailout can be used for this, but nobody is certain if anything will happen until January 20 of next year. There seems to be a consensus that keeping people in their homes makes more sense than continuing with massive foreclosures. In this area, almost everyone in trouble with their mortgage is way upside down on their equity. position and deciding who takes the loss seems to be the big question for everyone. In any case, I don't think you can plan on more or less foreclosures with any certainty.
Second, many of the mortgage lenders I talk to see rates possibly coming down half a point in the very near term. That is going to make financing easier. If you're looking at FHA loans, their down payment requirement goes up from 3% to 3.5% after the end of the year, so that half point extra down payment might make a difference for some buyers and encourage them to do something this year.
Third, tax credits are nice when you can fit them in with prudent financial planning. In the case of a credit on a home purchase, however, a lower purchase price can easily offset the credit's value. You should be taking tax planning advice from a tax professional since they will know your personal situation much better than any of us can.
Finally, whether you decide to do something this year or wait until 2009, you need to get all your ducks in a row with financing pre-qualification, bank and income documentation, and the other details that can trip up your sprint to get the next great deal. Work with a buyer's agent to help get focused on the neighborhoods and current market conditions in the areas you are interested in and watch for that one home that calls to you. Over the long haul, whether you buy now or next year is going to be a minor issue for your financial and residential plans.
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