That’s all that’s left until the First Time Buyer’s Tax Credit ($8,000) and Existing Homeowner Tax Credit ($6,500) go away for good. Under both of these programs, homes must be under contract by April 30 and closed by June 30, 2009. No exceptions, no extensions this time around.
Interest Rates: They’re going up. One of the most telling charts I have seen in a long time is the money supply chart from the Federal Reserve, which accompanies this post. In it, you’ll see that the government’s desperate cash dump into the economy has effectively DOUBLED the money supply in 18 months. The amount of money in circulation is now five times what it was in 1994 and ten times what it was in 1985. 
This chart shows why 30-year fixed interest rates in the 5's are such a good deal - and why so many of us have fears about inflation.
This chart shows why 30-year fixed interest rates in the 5's are such a good deal - and why so many of us have fears about inflation.More Interest Rate Jitters: One reason rates have been at such unbelievable lows is that the Federal Reserve has been purchasing mortgages (at artificially low rates) for the past year. Very few private investors are interested in locking in long-term, low-yielding notes when the printing presses are working double-time … hence, the government has been subsidizing our low rate environment by buying private mortgage debt with its freshly printed money. If that seems a bit gimmicky, it's because the Fed realizes our economy is credit-based, and if there is no credit being extended there is no growth for the economy. Getting people to buy houses or refinance mortgages usually unleashes a flurry of ancillary spending, which is why the Fed took this extraordinary step during the early days of the economic crisis. But with a price tag now approaching $1.25 trillion, the Fed has announced that mortgage purchases by the government will end in March.
FHA Troubles: Five years ago, FHA made up less than 5% of the nation’s mortgage market. Today, depending on where you live, FHA is insuring the loans of 40-50% of all new purchases. The primary reason is that private banks are being ultra-cautious, after years of freewheeling insanity. To keep credit flowing, FHA has stepped into the void, but now FHA’s reserves fallen below the congressionally mandated limits and some are calling into question the financial viability of FHA. What will that mean? Tighter underwriting guidelines, fewer exceptions, higher mortgage insurance premiums and possibly larger down payment requirements. If you are a first-time buyer and you plan to go FHA, realize that it’s going to get more difficult and more expensive to get financing in the not too distant future. (Note to prospective FHA buyers - this is known as a “call to action”!)
It Takes Jobs: Historically, there is no such thing as a “jobless recovery”. It will take job creation to stabilize and then rebuild our economy, but where are the jobs going to come from? The unemployment rate was 4.9% during the first quarter of 2008, 8.1% in the first quarter of 2009, and will be over 10% during the first quarter of 2010. Until this number levels and starts to fall, it’s going to be a slog. The very good news here in Colorado is that our unemployment rate is less than 7%, which is why our market has outperformed every other market in the country and is better poised to withstand the storms that continue to batter our economy.
New Construction = No Construction: The new home market is dead, which isn’t all bad if you plan to buy (or sell) a resale home in 2010. New construction, which grew hand-in-hand with easy credit, topped out at 2.07 million units in 2005. This year, we are looking at a total of about 550,000 new homes, or one-quarter of what was built just four years ago. As the population continues to grow, existing homes, and especially entry level resale homes, figure to be in greater and greater demand.
I’m a Realist: As you can see, I’m not a mindless cheerleader for the housing market. I believe there are sectors of the market that will perform well, and sectors that are may continue to have trouble. I believe the homeownership rate (which peaked at 69% in 2005 and is currently around 66%) will continue to fall back toward its more historical norm of 62-63%. That will create more renters and more opportunities for landlords (who are financing homes with fixed rates in the 5’s right now) but it will also make it more difficult to sell once the incentives of a large tax credit and historic low rates leave the scene. (Thinking about selling in 2010? Better re-read this paragraph!)
I do firmly believe Colorado is better positioned than almost anywhere in the country to weather these changes. As I have said before, we were first into the housing crisis (because of significant job losses in the early part of the decade) and we’ll be first out of it.
But this is no time to hire a part-time agent, go “for sale by owner” or make any other big decisions without a lot of serious research and assessment. Buying a home isn’t a game anymore, it’s a serious investment which requires careful analysis. And that’s where I shine.
Give me a call if you’re thinking about buying, selling or investing in 2010… there are opportunities in our market, but there are traps as well. I'll give you the facts so that you can make a decision that's based on clarity.
