Early this week a buzz has been heard all over the nation that had its start in our nation’s capital of Washington D.C; President George Bush, along with some regarded advisors have devised a plan that intends to save “at risk” home buyers and borrowers from going into default and foreclosure with their property. The plan is structured to be implemented in the near future and the programs primary directive aims at freezing introductory teaser rates on the controversial Option-ARM or Pay Option mortgage program. Over the last few years unqualified home buyers have been enticed by the ARM program but failed to realize the long term ramifications of the program; while the introductory rate of 1% to 2% was often seen as being a slam dunk, many borrowers failed to see that many of these interest rates were only fixed for a small number of years. while many investors made money from this program by capitalizing on a then booming real estate market, others didn’t refinance their program or sell when their teaser rate ended. This unfortunate turn of events meant that many borrowers were very over extended in terms of their how much they owed on their property compared to how much they made, it was also not uncommon for some homeowners and borrowers to be upside down on their real estate investment. While the Federal Reserve Chairman Ben Bernacke has made attempts to alleviate pressure by cutting the federal interest rate, President Bush’s new plan may make a more direct impact in helping out the borrower by taking the problem head on and helping the problem where it is most needed, by assisting the consumer.
With all of the negative speculation on today’s housing market, it’s extremely difficult for condo buyers and sellers to stay positive and look at the “Big Picture”.The majority of society would prefer to sulk in the negative aspects in life regardless of what it pertains to…..Why do you think the media is 85% geared towards death, theft, scandals, and Paris Hilton???Why, because a newspaper with a good Samaritan story on the front cover won’t sell.It’s that simple.So let’s take a moment to look at the housing market “Big Picture” and really break it down.
There are several factors supporting our market, one being historically low mortgage interest rates.The 30-year fixed-rate mortgage is estimated to average 6.7 percent during the second half of this year, and fluctuate around 6.6 percent in 2008.Second factor, our unemployment rate is nothing like it was during the last housing recession in the mid 90’s.According to Lawrence Yun, NAR senior economist, with the National Association of Realtors, “the unemployment rate is likely to average 4.6 percent in 2007, unchanged from last year.”He also mentioned, “Inflation, as measured by the Consumer Price Index, is projected at 2.6 percent in 2007, down from 3.2 percent last year. Inflation-adjusted disposable personal income should rise 3.0 percent this year, up from a 2.6 percent gain in 2006.” Each of these viable attributes played an enormous part in the down-whirl spiral of the market in the last recession.They simply don’t exist today.
Lastly, there’s the concern focused on the amount of available inventory in the larger markets. Buyers now have an overwhelming advantage given the wide selection of homes available in many markets, but with profit margins coming under pressure, homebuilders will limit new construction well into 2008. In San Diego we have already noticed new home builders placing their new developments on hold, intelligently waiting for their competing available inventory to be absorbed…. Sounds like a smart move to me.
Keeping in mind the influences mentioned above, it should be easier for you to consider the “Big Picture” when placing your opinion of today’s housing market. For buyers looking for a long term investment, this is the market you should be purchasing in. A few things to keep in mind the next time you see the media do what they do best…..