Friday, September 6, 2013

What Does the Congressional Super Committee Failure Mean for Mortgage Rates and Real Estate?

We are in some scary times right now but also exciting times as we are living in a historic moment. How we handle this fragility in our situation will dictate policy that impacts all Americans for generations to come.

Much of what we hear in the news about the housing market making a comeback is not correct. Over the past 12 months I've seen stories claiming that many areas have seen housing sales increase and home prices have been inching up. While this may be true the numbers are being doctored; let me explain. Last year in the USA there were a total of about 5.5 million foreclosures. So far this year Bank of America alone has over 5 million foreclosures, this figure does not account for Wells Fargo, Chase, Citibank or any other lending institution.

The banks are holding on to inventory and in some cases are renting homes back to the parties that have been foreclosed on. Should the banks flood the market with this inventory what do you think will happen to the home prices across Texas and the rest of USA? You guessed it; the housing market which is the biggest indicator of how an economy is doing would completely collapse and home prices would plummet. Immediately, this situation is killing the refinance market because banks are going with the most conservative appraisal approach when approving refinances. Just in the past 6 months I have lost several refinance deals due to appraisals coming in lower than market value. However; we are not having the same issue with purchases as banks need to get rid of inventory.

What's the flip side? I do see a possibility of recovery. In a previous article I noted that during the mortgage and real estate boom we saw rental rates go down and mortgage rate along with home prices go up. Which meant it was more expensive per month to purchase a home than it was to rent. That trend has now reversed, we will be seeing home prices continue to drop and mortgage rates will stay very low (unless hyper-inflation occurs) for at least 2-5 years. Rental rates are skyrocketing so now it is less expensive per month to purchase a home than it is to rent.

This reversal, in my opinion is what will get us out of our current situation and help in the reset of our economy. Assuming our congress gets their act together the recovery mentioned above has a high probability; if not, hyper-inflation will happen and we may be screwed for a long time to come. I don't know about you but I'm crossing my fingers and hoping for best in this historic moment in time.

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