Back Down Again?

It's quiet in our offices this month--really, really quiet. Now we're reading that the national trends say that the uptick ended in about July, which, coincidentally, is what we saw. It was far busier through July than it typically is in the summer. It was slower in August, but that is almost always true. After Labor Day, we usually see a marked increase in activity. That lasts until about Halloween, or maybe Thanksgiving, and then the buyers hibernate like bears until the spring.

We're not quite sure what to make of this latest turn of events. The stimulus program and the $8000 tax credit for first-time homebuyers were supposed to be making the phones ring. Indeed, it did, but the phones have slowed down. I can only speculate, and my guess would be that the market will not stay up until unemployment comes down. I also think that the hoopla over national health insurance has people worried about costs. Whatever the reason, it's not good.

One of the earliest CEOs of General Motors famously said that "what's good for General Motors is good for America". I would argue that the same is true of real estate. The government needs to do what it has to do in order to stimulate the real estate market at all levels, not just at the lowest end. The recovery depends upon it.

Housing and the Federal TARP money

People all want to refinance or take out a new mortgage at the bottom of the market. Well, I wasn't sure before, but, based on what I've learned about the government's stimulus program, the time to get a mortgage is NOW. It turns out that the TARP money being given to banks isn't free. In the same way that the first-time homebuyer's tax credit sounds as though you don't have to pay it back, the TARP money has been characterized as a bailout, leading us to think that the banks are being granted the funds. But we were wrong--they have to pay it back, with 5% interest for the first number of years, and 7% interest after that.

So, while I previously thought that interest rates would just keep being forced down until people bought real estate, I now think we're at--or even past--the rate bottom. If a bank has to use money that it's paying 5% for, how many loans can it make for less than that, or even for the same amount, without incurring losses? In our WP mortgage joint venture with Webster Bank, we've seen rates, which had been at 5% with no points for a 30-year fixed mortgage, start to creep up. That now makes sense to me, and it's a call to action.

As I've said before, what you pay as a mortgage rate will matter more on the margin than what you pay for the property, so, if you have the money to buy a new home, buy it now! By the time you realize that rates are heading up, they will be higher yet.