By: Nick Deonas
OK, this is it! You have been thinking of buying a new home. The Government bailout of the two giants, Freddie and Fannie seem to be just what the doctor ordered. The news experts are telling us that interest rates should start falling, and indeed we did see a point drop on the very first day. The stock markets around the world went crazy with this good news. The next day however was not as bright, and we are all keeping an eye on the days to come.
Now back to that new home. There are many homes on the market and we are plagued with motivated sellers. We should be in the cat-bird seat, with the ability to name our own terms and price. If you have been riding the fence just waiting on a lower interest rate, this is it, I predict they will come down.
That is the good news. I hate to be the one to bring the bad news, but I think we need to talk about it. Just because of the federal government’s seizure of the two giants will surely boost investor confidence and hopefully stabilize this housing crisis we’ve been in for a year or better, it does not address the one aspect of purchasing that new home that is absolutely vital to completing the deal, the bank. It does nothing to loosen credit or underwriting standards that are now so strict it is almost impossible for anyone to buy. You see, if you didn’t qualify for a mortgage loan last week, chances are you won’t this week either. The second problem is the dramatic move on the part of the government does nothing to address the enormous glut of homes on the market, remember we looked at this a few weeks back. This equates to one thing, home values will continue to be depressed.
There is one more animal nipping at our economic heels, unemployment, and it continues to rise. I really don’t think it matters how much the price of a home is reduced, or how low interest rates fall. If you don’t have a job, you aren’t able or interested in purchasing a home.
The folks who will be the quickest beneficiaries of the government’s bailout will no doubt be existing homeowners who are looking to refinance their mortgages. If rates fall a full one percentage point, I believe we will see an upswing in refinancing. Again, this does nothing for the large inventory currently on the market, or the strict qualifying guidelines banks are now adhering to. Looking long term, the government may loosen the lending standards because they are in charge of the agencies.
There are those who are afraid that this may even have a negative effect in that people will really take a ‘wait and see’ attitude, waiting to see just where it will bottom out. We talked about this months ago, that the answer was with the government injecting their power into the market. I hope this move is not too little, too late. ? I wonder how long it will take them to realize that they must get involved in the qualifying standards at the bank level, or this train will remain at the station. We still have one last question as taxpayers, how are we going to pay for this?
I am glad to see the government step in and take control of a situation that is continuing to deteriorate. I am still somewhat nervous that because of the reasons mentioned in this report, we may still have many bad months ahead of us. I think if the government had stepped in ten months ago, we would be in a much better position today. Times will tell how this is going to shake out.