Conditions right for market, for now
They did it again. Last week mortgage rates set a new record for the lowest rate since 30-year fixed rate mortgages came into existence. That's good news for those who want to borrow money and can qualify. We all know that banks have been remarkably critical when reviewing borrowers' qualifications - a sharp turn from the mirror fog testing that preceded the real estate feeding frenzy of last decade.
Even Fed head Ben Bernanke thinks the banks have been a little harsh. Last week he stated that overly tight lending standards by some banks may be holding back the U.S. economy by preventing credit worthy borrowers from buying homes. This, we think, is an admission that the housing market - once again - is key to economic recovery and stability.
In his speech on Thursday, chief Bernanke said that although credit standards needed tightening after the 2008 collapse, the "pendulum has swung too far the other way" and credit worthy borrowers are now unable to get loans from some banks.
Even so, the interest rates and moderately priced homes are sure to attract attention of even the most cautious buyers. Refinancing has been fueling bank activity for some time now so there may be a wait to get your loan approved, but if you can show good income history and decent credit, our local banks will loan to you. Each week at our Multiple Listing Service meetings, bankers make their pitch that money is available "to qualified borrowers."
A quick check of our website, www.cdarealtors.com reveals that, as of Friday, the 30-year fixed rate at Idaho Housing and Finance Association was 3.1 percent with an effective annual rate of 3.21. Freddie Mac reports the average rate of the nation's banks dropped to 3.34 percent. Although that is only a .06 percent difference from a week ago, it still means a savings of $1,800 over the course of a 30-year mortgage on a $100,000 loan.
Lest we find ourselves becoming complacent with a recovering real estate market, let us remind you of the forecast, "fiscal cliff" that some say can only be averted by raising taxes. Many in Congress believe that an easy way to shore up the economy is to revoke the Mortgage Interest Deduction. This deduction, as many of you know, allows the interest paid on a home loan for your principle residence or second home to be deducted from your gross income at tax time. And even though housing has traditionally brought this country out of a recession, those members of Congress will push hard for the repeal of this deduction. The effects on the housing market could be crippling at best. Many who would love to have their own home may not be able to afford one without this beneficial tax advantage.
"It's chilling the market," said Jerry Howard, CEO of the National Association of Home Builders. "Whenever there is uncertainty surrounding the value of an American home, why would you expect people to go out and buy a home? Or, just as much to the point, when there's uncertainty about the value of a home why would someone put their house on the market to sell it, that's why this whole debate to me is counter-productive and is only retarding the nation's economic recovery."
Even the best qualified buyers will be caused to pause before jumping into a house payment that requires mostly interest to be paid on the front end of the mortgage with principle paid later, especially when they know that this interest comes straight from their gross income and offers no reduction in tax liability. Most people will be looking at a higher income tax with no actual increase in income.
If you believe that housing will propel us out of our recession and agree that it is middle class Americans who will be hurt most by the loss of this deduction, tell your Congress person. As Realtors, we have been telling them, often and loudly, not to damage the fragile housing market by repealing this important component in the formula for homeownership.
A fiscal cliff may bury the housing market, but eliminating this deduction will throw another stone in the path to recovery.
Trust an expert...call a Realtor. Call your Realtor or visit www.cdarealtors.com to search properties on the Multiple Listing Service or to find a Realtor member who will represent your best interests.
Kim Cooper is a real estate broker and the spokesman for the Coeur d'Alene Association of Realtors. Kim and the association invite your feedback and input for this column. You may contact them by writing to the Coeur d'Alene Association of Realtors, 409 W. Neider, Coeur d'Alene, ID 83815 or by calling (208) 667-0664.