Data proposed by the National Association of REALTORS® indicates that for several metro areas, including Denver, San Diego, Los Angeles, New York and Washington, DC, prices for homes 2008’s expanded conforming range have not dropped to the levels proposed for October 1, 2011. The Federal Housing Finance Agency estimates that buyers above the limits can expect an increase in mortgage rates of 0.5% to 0.75%, which may make larger mortgages unaffordable (Fears, 2011). Data indicates that the portion of the market still dependent upon the current conforming limits, such as San Diego, will be negatively impacted by lowering conforming loan limits.
Today, the bond market was in negative territory due to stock strength as signs of recovery from what CNN money calls “the worst four-week loss since March 2009.” If improvement to the stock market coupled with a decline in bonds continues, it will equate to a rise in mortgage rates. With the Fed conference this week, stock investors will be watching carefully for any announcement of any additional stimulus from the Fed.
2nd Quarter Gross Domestic Product (GDP), Coming out on Friday- Providing data on the total of all goods and services produced in the U.S. This report is considered to be the best measurement of economic activity and will be the second of the three for this quarter. Last month, readings showed the economy growing at an annual rate of 1.3%. It is expected that Friday’s report will indicate that the GDP actually increased only 1.1%. If there is a revision much larger than anticipated, mortgage rates may decline this week (especially true if the inflation does not get revised higher by the report).
University of Michigan’s Index of Consumer Sentiment - Tracks consumer willingness to spend and an upward revision of 55.4 from August’s reading of 54.9 is expected. A lower reading indicates consumers were less confident about their personal financial situations than previously thought which would be good news for the bond market and mortgage rates but a negative indicator of economic recovery.
There may be quite a bit of activity in mortgage rates this week. If economic reports are stronger than expected and if the treasury auctions show a reduction in demand, we can expect rates to move higher this week. The way trading looked late last week, it appears mortgage rates may have hit bottom for now.
It’s a great time to mention the impending conforming loan limit changes and how they will impact us. Of the 16 US metro areas, San Diego, Las Vegas and Phoenix will experience the highest percentage of decrease in limit. It appears a substantial amount of housing in San Diego is still dependent upon government backed credit and will feel the “crunch” from the lower limits. As Treasury bond yields are low and stocks uncertain, it is also a great time to stress to that rates are still at historic lows and the cost of money incredibly economical.
Mark October 1, 2011 on your calendar. Why? That’s the day the Conforming Loan Limits, the maximum loan that can be sold to FannieMae, FreddieMac, and GinnieMae (FHA loans) are going to change. The government raised the limits during our housing crisis so lenders had the liquidity to provide loans to home buyers and jump-start the housing market. Which was needed, but that will end on September 30, 2011!
Here’s how the Conforming Loan limits will change. Any loan for a single-family home that is above $697,500 in San Diego looks like it will be reduced to $546,250. (In other area of CA the conforming limits will change from $729,750 to $625,500) Loans that are above that limit are considered “Jumbo Loans” which are generally more expensive then conforming loans. What does that means to a home buyer? The new conforming loans will become more costly. Also larger down payments may also be required which will make it more difficult for first-time home buyers to get into the housing market.
If that’s not bad enough, interest rates might start to rise. If mortgage rates rise then less people will be able to qualify for home loans. If that happens there will be less buyers shopping for homes and prices will fall even more! Remember if prices drop but interest rates rise you qualify for less. As a home buyer you don’t gain by waiting!
Remember no one knows when the real estate market has hit its bottom. Don’t be the home buyer who wishes they had bought, because once the real estate market starts rebounding, it may happen very quickly.
