No one really knows what the future holds, but studying tends and data can allow some insight into the beyond. That stated, here are my thoughts for housing and lending in the New Year:
1. The Fed will keep rates low. Bernanke and Company will not do anything with The Federal Funds Rate for the majority of 2012, if at all. This means that loans based on The Prime Rate will remain as is. In addition, The Fed will continue to buy Mortgage Backed Securities thus allowing mortgage rates to remain low.
2. Foreclosures and “distressed sales” will remain a large percentage of home sales. More foreclosures will hit the market, probably end of first quarter. Short Sales and bank-owned homes will remain steady as the market continues to adjust and correct. While these distressed homes depress values, they also set floors and it appears that most areas have hit bottom and are rebounding.
3. Homebuyers are back! 2012 will see home buying increase. My guess is that the National Association of Realtors will adjust their predictions mid-year. Buyers recognize that bargains abound and record low rates have made home affordability at an all time best. I am already witnessing multiple offers and full priced offers in various markets indicating that both buyers and sellers have adapted to the market. While 2012 will not set any records, it will surprise many.
4. Underwriting will continue to remain conservative. The fate of Fannie and Freddie coupled with the concerns over FHA’s financial condition has lenders overly cautious. Increased repurchase requests coupled with a few big lenders exiting the lending arena will create an “err on the side of caution” mentality in underwriting. Keep copies of everything financial and be prepared to provide extra documentation when borrowing.
Lending is prevalent but many consumers seem shocked when asked for certain documentation, especially compared to lending a few years ago.
5. Mortgage deductions will be under attack. Congress will allow the Mortgage Insurance deduction to lapse. From a budgetary perspective, I can see why. From a housing perspective, another year would not hurt, especially since FHA increased their mortgage insurance premiums and USDA added them. Mortgage Interest deduction should be safe. At worst, it may be lowered to $500,000 but I think this deduction, considered sacrosanct by many, will be left alone in a political year.
If you are thinking of buying or refinancing, the timing and conditions are very good. While there are many unknowns, as well as many “knowns”, such as Europe; the debt ceiling; over-regulation; and more, housing seems determined to prove Darwin correct.
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