Housing Factors to Watch in 2010
2009 made some progress toward a more steady housing market, but what should we watch for in 2010 and will it bring a modest upturn? This depends a great deal on decisions of policymakers and the market’s reaction. Here are a few things to keep an eye on:
Mortgage rates: The Federal Reserve committed to purchasing up to $1.25 trillion in mortgage-backed securities, which has kept mortgage rates at or below 5% for the majority of 2009. When the Federal Reserve retreats (now planned for March 31st), what will happen to mortgage rates? It is a hotly debated topic. The Mortgage Bankers’ Association expects rates to rise by around one-quarter of a percentage point, but other economists think that an increase of a full percentage point is inevitable. Low mortgage rates helped meekly support a fragile housing market in 2009, and allowed homeowners to refinance higher rate mortgages. Below is link to Zanola Company’s in – depth review of the history of mortgage rates and their effect on the housing market.
Fannie, Freddie and the FHA: Almost 90% of mortgages are backed by government entities Fannie Mae and Freddie Mac or government agencies such as the Federal Housing Administration. No one knows what lies ahead for Fannie and Freddie, but the White House is expected to offer recommendations for the future early this year. The FHA stands on shaky ground after big losses that may turn into another bailout. The FHA is anticipated to release information on how it will tighten up in 2010 within the next few weeks. Tighter loan standards for FHA, however, is a scary concept for builders and developers everywhere.
Loan modifications: The Obama administration’s modification program, launched in February 2009, has allowed 728,000 borrowers to sign up for trail modifications. However, only 5% have been able to move to permanent workouts. Borrowers who complete three reduced loan payments are eligible for a permanent modification that reduces their monthly payment for up to five years. These modification efforts, as tenuous as they may be, have aided in pushing back the supply of foreclosures in the market. While delinquent loans continue to pile up, it is safe to assume an increase in distressed and foreclosed properties to hit the market in 2010.
More loan resets: High-cost housing markets, such as the California coast, are still sitting on a hill of adjustable-rate mortgages that are set to increase in 2010. Additionally, interest-only jumbo loans that allowed borrowers to defer higher payments for three, five or seven years will reset to higher payments. Unfortunately, some of these borrowers will not be able to manage the higher payments and may be upside down. This could cause additional pain for high end housing markets.
Tax credit and home sales: The $8,000 tax credit that bumped up sales and values in 2009 has been extended through the first half of the year. Some economists worry that we are adversely affecting future demand, while others expect modest gains to continue past the tax credit expiration date. Winter prices tend to decrease in any market, but Spring 2010 prices and sales will give us a better idea of what’s to come.
What factors are you watching in 2010?
Source: WSJ Developments
