Good news, Bad news, Lots of News (Especially for Entry-level Buyers)

The good news is the Housing and Recovery Act of 2008, signed into law by President Bush last week. This bill permanently increases FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas (that's us) to $625,500. There is another provision that offers a first-time buyer tax credit of up to $7,500 that is actually an interest-free loan with a 15-year repayment plan. This is available to a person who has not owned a home in the three previous years. This credit is only in effect for buyers who purchase between April 9, 2008, and June 30, 2009. The purchase has to be for your primary residence, and there are a few more qualifying rules. For detailed information, you can go to the Federal Housing Tax Credit site.

The bad news is that Freddie Mac, the big mortgage finance company, posted a large quarterly loss. This resulted in opinions from various sectors predicting further home price declines and the possibility of mortgage interest rates rising.

So how does this affect the current market in OUR neck of the woods, Northeast Los Angeles and the San Gabriel Valley? Those of you who are in the under $500,000 price range know that outside of short sales (which aren't sales) and foreclosures (largely junk with the occasional deal that you better be able to pay cash or put 50% down and move really really fast on), there isn't much that is any good and those few are going in multiple offers. This price range was largely non-existent for the years 2004-2006 and is really the buying opportunity of the day.

I know you think "oh, she's just a Realtor trying to make us feel like we have to buy now and everyone else says prices are still going to come down."  Go ahead, take the chance that something you like that is out there now at a price you can afford will be cheaper in a few months or next year. It might happen, but how much are you willing to bet that mortgage rates will stay the same as today? They have already crept up to 6.5% for most 30-year fixed loans and experts are predicting a rise to 7%. What will that do to your falling prices? Make it a wash, that's what. Your buying power drops dramatically when interest rates rise. For every $100,000 mortgage, the cost goes up $67 for a 1% rise in interest rate from 6.5% to 7.5%, meaning your buying power is actually almost $10,000 less. To put it simply, for every 1% increase in mortgage rate, you have a 10% decrease in buying power.

I know some people predict the market will go down another 10-20%, but once the foreclosures and shortsales work themselves out thanks to the Fed, what seller will put their house on the market? Only the few who really must. There you have the supply and demand dynamic, with fewer homes on the market, the demand goes up and so can prices.