The Immediate Future of the Housing & Mortgage Markets – One Man’s View

I am a Loan Officer for a national mortgage bank – yes, I am one of those horrible bankers who forced people to take out mortgages they did not understand on homes they could not afford. Actually, I have been a loan officer for 5 years, so I started after those OTHER horrible bankers had done all those bad things to poor unsuspecting people.
At any rate, I get asked often if now is a good time to buy a home.
My answer? There has probably never been a better time to buy a home. Home prices are low, and interest rates are about as low as they have ever been. It is a Buyer’s market, and you can get a great deal on a home.
That said, there is a caveat or two. You have to have decent credit (decent, not great), a job, and you have to have some money (unless you are an Armed Services veteran, there are no more 100% loans), and you cannot have too much other long term debt (long term debt is car loans, other consumer loans, student loans, mortgages and credit card debt).
There can be issues with getting approved if you are self-employed or if you are new to a job or career field, but for the most part, loans are available, and not just for the people with great credit and 20% to use as a down payment.
In addition, you should be relatively secure in your employment situation. I know there is no guarantee that anyone will keep their jobs, especially these days. Buying a home is a large commitment, so if you have an unusual amount of job or financial anxiety, wait to buy until things improve. Peace of mind is a hard thing to lose.
So, given the current good market for buying, what does the future hold for the housing and mortgage market? If I knew for sure, I would be on my yacht sipping umbrella drinks and wondering what to snack on next, but I can make some informed predictions. I call these types of predictions SWAG’s (scientific wild-ass guesses).
My view of the future is predicated on the following assumptions. Until something changes dramatically, these things are and will continue to be true.

• Government spending and the associated deficits will continue to be HUGE – even if the Republicans take over Congress in the next election, it will be many months or several years before anything changes with government spending – this is not want I want, this is reality. Nothing changes quickly in DC.
  
• Taxes will rise – a lot. This is a sure thing. The tax cuts that President Bush got passed on 2001-2002 expire at the end of 2010, so taxes will go up. Add to that the new healthcare bill and other “stimulus” measures coming out of Washington, and you can expect a BIG increase in your taxes.



• The economic doldrums will continue – the decisions and spending by our federal government are exactly opposite what was/is needed to get the economy pumped up. Think I’m wrong? Check out what happened in Japan in the 90’s and see what their government did to “fix” it. They did exactly what Washington is doing, and we are going to get the same result – a decade or more of no grow, at all.

All this means that the housing and mortgage markets will be adversely affected. I expect the following:

• Interest rates will remain low for the remainder of 2010 – then go up. There is currently no upward pressure on rates – Europe has its own debt/spending issues, and many people and institutions are holding their breaths until the election. Then, depending on what happens in the Nov. election, and what course the new Congress takes, rates will rise – maybe a lot. I would not be surprised if mortgage interest rates were at or near 10% in 12-18 months. Why will they rise? The Treasury department artificially “made the market” for mortgage interest rates by buying LOTS (over $1 trillion) of mortgage-backed securities, starting in Dec of ’08. This program stopped at the end of the 1st quarter this year. Also, right now, other countries are financing our deficit spending by buying Treasury bonds – at very low rates (near 0% returns). That will NOT continue. When the countries & investors stop buying our debt, the rate of return will have to rise to get them to buy again (good old supply & demand). So, the Federal Reserve will have to raise rates to sell the bonds, and that will make rates in all other things rise as well. In addition, I think we are headed for rapid inflation, and the Fed will fight that by raising interest rates. This could happen very quickly – in a matter of weeks. I watched rates go up 2+% in a few weeks in 2005, and down 2+% at the end of 2008.


• Home Values will NOT recover – not in the next couple of years. There is not enough demand for homes to warrant an increase – except in some very specific towns & neighborhoods. People are anxious about their livelihoods and the economy and government spending, and that is not going to change until several things change 180 degrees.

All this tells me that the next year or so are not going to be perceptively better than now – and could get worse.

I hope I am wrong. I hope (and am working personally to see it happens) that there are substantial changes in Washington as a result of the November election. I hope that the new Congress will see the light and go after government spending with a blow torch, especially that horrible health care “reform”, without more tax hikes than we will have anyway (those Bush tax cuts expiring). I hope that they make major changes to entitlement spending (Social Security, Medicare, Medicaid) that get those runaway programs under control. I hope all these things, and I am working in my small way to help make them happen, but until they do, no one can assume they will. The old saying applies – “Hope for the best, plan for the worst.”

OK, mortgage rates are low and probably going up soon. Home prices are down and probably not going up anytime soon. The federal government is filled with thieves, charlatans, mountebanks, and failed lawyers (basically the same thing, huh?) , and that will probably never change.
What are you going to do? Do like I did. I own a home and have refinanced to a rate in the mid-4%. If I had some money, I would buy rental properties and/or a vacation home, but alas I do not have the funds for that. Buy a home if you can and want to; refinance your mortgage if you have not done so yet. These things will help you and will help the economy. Then, go vote for conservatives in November and force them to do as they are told.
Contact me if you want more info about anything I have written here.