By: Gracee Arthur
This summer, what was a slowly improving housing market, came to a literal stand still with a Congressional cliffhanger over the debt ceiling deadline. Many buyers who were ready to take the plunge decided to wait a little longer before making a commitment while others decided to remain permanently out of the housing market. Despite the lure of historically low interest rates and attractive prices, the combination of banks’ reluctance to lend to qualified buyers and increasing job insecurity put a damper on sales. Now the new “super-committee,” created after the debt ceiling debacle, is threatening to further impede the housing market by ending the tax deductions for mortgage interest and property taxes.
The National Association of Realtors is clear on this issue which has the potential to drive the real estate market down an additional 15% (as much as $20,000 to $30,000 loss in home equity) .
Along with the possible loss of attractive homeowner tax benefits, the qualifying loan amounts for conforming loans is being reduced substantially by the US Government. This is the limit put on the maximum loan amount to be guaranteed and sold to the secondary market by Fannie Mae, Freddy Mac and the FHA . The limits are area specific based on housing prices which means in the Los Angeles area the amount will be reduced from $729,750 to $625,500. The nationwide decrease in guaranteed lending amounts will have an additional negative effect by categorizing more loans as “jumbo” products. The failure of banks to increase and simplify lending in the jumbo arena has already created a stopper on the move up and more expensive housing markets. The nonconforming loans will carry higher interest rates eliminating many potential buyers. The California Association of Realtors estimates the reduction will impact as many as 30,000 in California alone! The change took effect on October 1, 2011 .
The next topic of conversation is lenders preparing to dump a lot of foreclosures on the struggling market. As a 20 year veteran of the real estate industry, I was delighted to notice a substantial decrease in new listings in September. The less new inventory the better the opportunity to move the existing product. However, if the banks continue to refuse reasonable mortgage adjustments and reductions for home owners attempting to save their homes and dump foreclosures on the market, rather than cooperate with more lucrative short pays, the slowly improving market will further deteriorate. Recently, the “Wall Street Journal,” “USA Today” and the National Association of Realtors cited lender’s reluctance to loan to qualified buyers as a major stumbling block for housing sales.
All three of these issues have a severe impact on the average home buyer , seller and people hoping to remain in their homes. The government needs to put more pressure on the banks to help revive the housing market since short pays, mortgage renegotiations, and new loans since the purpose in bailing them out in the first place was to help the housing market! The government should also take the proposal to remove homeowner tax benefits off the table, along with encouraging Fannie and Freddy to restore the previous higher loan limits for conforming loans. There are no other options since it is only with a recovery in the housing market will we see the economy head toward a strong recovery.