Submitted by Richard Daskam, real estate agent
I have had several buyers contact me wanting to know how Bush’s foreclosure package is going to affect the real estate market. The proposal that is steaming through Congress has several real estate consequences that will affect the prices of property in the short run and the long run.
First of all, the availability of FHA Loans in Southern California. With the median price in Southern California of more than $500,000, we will likely see the FHA loan limit increase to more than $700,000. This will open up down-payment options as low as 1.5 percent. Currently, the minimum down payment is at least 10 percent on conventional and jumbo loans in most zip codes of Southern California for all loan amounts. FHA is also more liberal than normal lenders. This will open the door to thousands of buyers to jump back into the market.
Second, the package encourages the directors of Freddie Mac & Fannie Mae, the main purchasers of conforming loans (currently loans under $417,000) to increase their loan limits to 125 percent of the median home prices in any given area. This means that the conforming loan limits for Southern California could increase to over $700,000 as well. The increasing of the loan limits will reduce the interest rate for tens of thousands of home buyers from about 6.5 percent to under 5.5 percent in today’s market. This will save $3,000 to $5,000 per year in mortgage interest.
So what does this mean to the current real estate market and the chances of buying a foreclosure or distress sale?
According to statistics presented by Charles McMillan, the 2008 president-elect for the National Association of Realtors, the changes in loan limits and easing of the loan guidelines will result in:
1. 210,000 fewer foreclosures.
2. Buyers saving $3,000 to $5,000 in mortgage interest every year.
3. More than 500,000 refinances over the next year, reducing the number of foreclosures.
4. The increase in activity and sales will reduce the time on market for property by one to five months.
5. Median sales prices will increase by two to three percent over the next year.
6. The increase in loan amounts will add $44 billion in economic impact.
7. The long-run impact is an easing of loan and credit restrictions across the board.
So what does this mean to the average person?
If the loan limit increases do come about, more buyers will be coming out of the woodwork to take advantage of today’s low interest rates and will be competing for foreclosures that do come on the market.
Fewer short sales and distress sales because owners will be able to refinance out of their bad loans to FHA loans due to easier credit standards.
My suggestions?
1. Talk to a lender and get pre-approved for a loan so if these guidelines do change, you will be ahead of the game. Once the new guidelines go into effect, lenders will be swamped with buyers.
2. Look at all of the available homes and if one fits your needs, seriously consider making an offer before someone else does.
3. Be prepared to act quickly. The competition will likely be increasing dramatically.
Richard Daskam is a broker associate with Keller Williams Realty and can be reached at 562-857-1965 or at Richard@KW.com.
