The Fed plans to stop buying mortgage-backed securities the end of March. The general consensus among mortgage brokers is rates will have to rise to attract new buyers of MBS if the Fed does stop buying. After reaching a low last November, the rate for 30-year fixed mortgages has already risen .25%-.375% in anticipation. The only MBS that are being sold right now are those that are backed by Fannie Mae and Freddie Mac because they are backed by the U. S. government, at least for loans up to $729,000 in our area. The question becomes, who is going to buy MBS and at what price?
With money market and treasuries yielding between 1%-2%, MBS are looking much more attractive to Wall Street, private investors and foreign governments. But, at some point, the Fed will have to start selling their MBS which will drive prices down and yields up. Local mortgage brokers expect rates to rise one-half point fairly quickly after the Fed stops buying. Many think mortgage rates will hit 6% by the end of the year.
The biggest problem facing the local market right now is lack of quality inventory: quality meaning priced right and in the best neighborhoods. From all accounts, there is a lot of pent-up demand, especially in the entry-level market. Bank-owned property and private, re-sale homes properly priced are still receiving multiple offers. The move-up tax credit of $6,500 has had little impact on the market because so few people can take advantage of it. First, anyone that is upside down on their mortgage won”t be taking a loss to gain only $6,500.
Second, if you”re still working and have equity, why would you sell only to see your property taxes rise? About the only people who will take advantage of this tax credit are seniors who are retired. They can take advantage of propositions 13, 60, and 90 to downsize yet retain their property tax base if they move within the same county or to a reciprocating county. For more information about eligibility and a list of reciprocating counties, click here.
The high-end market has problems with appraisals, if you need a loan, and we”re beginning to see a few foreclosures in that market. Remember, the real estate market is a matter of neighborhoods and houses. No two are the same. For complete information on a particular neighborhood or property, contact me.