2009 was a year when many home owners lost their homes to foreclosure, while other home owners could not move due to their depreciated home values. Let’s also remember that 2009 was also the time when many home buyers took advantage of home buyer tax credits and reduced prices from distressed properties (which helped boost home sales statistics).
As much as it felt that 2009 was the tear down year for the real estate industry, 2010 is promising to be a re-building year; the upcoming year will lay the foundation real estate markets to come. So, you might ask, “how will things be different?” This is what we may expect to see in 2010: a change in home buyer attitude; rising interest rates; and “Cash for Caulkers.”
More home buyers will be searching for homes in 2010. However, continued changes in mortgage underwriting guidelines will most likely limit the number of qualified home buyers. Mortgage underwriting guidelines have been tightening through 2009 and will continue into 2010. The trend of shrinking the pool of qualified home buyers due to mortgage guidelines requiring increased down payments, higher credit scores, and reduced debt ratios will most likely continue as FHA’s new underwriting guidelines are anticipated in 2010. New FHA guidelines are expected to increase the minimum down payment to 5% and restrict debt ratios below 45% (for FHA mortgages).
Additionally, the current home buyer incentives are likely to sunset without any further extension; it is doubtful that home buyer credits will continue in its current form. As a result of having more “skin in the game,” it is possible that home buyers will be more conscientious during the home buying process; home buyers will take more time and be more discerning in their home search.
Mortgage interest rates are likely to increase through 2010. Having been relatively close to historic lows for nearly a decade, mortgage rates will most likely steadily climb as current Federal Reserve programs are set to end (already evidenced by a consecutive 4 week rise in the average 30-year fixed rate as indicated by Freddie Mac’s Weekly Primary Mortgage Survey). The Fed’s current purchase program of mortgage backed securities and agency debt, that was meant to assist the housing market and facilitate mortgage lending, is committed through the end of the first quarter of 2010. The Fed has already begun slowing the pace of these purchases, so as to ease the transition in the marketplace (www.federalreserve.gov/).
The most anticipated news for 2010 is the “cash for caulkers” program, also known as the “Home Star” program. Although many have speculated about the program and its guidelines, legislation has yet to be passed. President Obama, in a speech given at the Brookings Institute on December 8th, called on Congress “…to consider a new program to provide incentives for consumers who retrofit their homes to become more energy-efficient…”, and to emphasize passing of such as legislation (WhiteHouse.gov). The plan is supposed to offer tax incentives to home owners for increasing home energy efficiency through home energy audits, system replacements, and weatherization; however, the final legislation (if any) may have variants of the current proposal.
In the near future it may seem as if home owners may be talking more about retro-fitting their homes than moving, while more home buyers will complain of the mortgage process. Regardless, everyone is looking forward with optimism to 2010.
This article is not intended to provide nor should it be relied upon for legal and financial advice. Permission to use this article is by written consent only.
by Dan Krell. Copyright © 2009