Another Sharp Drop In Home Prices Is Coming

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I'm a 35 year real estate investor and what I'm about to tell you is not meant to scare you but to protect you. Come September 30th, middle and upper income home buyers and sellers will see another sharp drop in real estate values. Here is why:

In 2008 when home prices began their collapse, to try to stabilize the market, the federal government jumped in and raised their loan guarantees from $417,000 to as much as $729,750 per home loan. Without that guarantee, most lenders would no longer have made those big loans. But under the new formulas scheduled to take effect on September 30th, the top guarantee will drop to $625,000 or less depending upon where the home is.                .        

Without full government guarantees for these big loans, down payments could easily jump to 30% or more, credit scores and debt-to-income ratios will become stricter and interest rates lenders charge will also leap to 6% or more from the current 5%. That's because the lenders are scared of this real estate market and this economy and if they have to keep the mortgages, they'll demand much tougher terms. This means many prospective buyers won't qualify or will simply find the terms too onerous and not act.

If you're thinking this only impacts middle and high end buyers, think again. It will sharply limit the move-up market, which is a crucial part of housing demand, leaving first time buyers and investors as the primary purchasers. First time buyers like nearly everyone else are struggling to the point most are now renting.  And investors are buying foreclosures or demanding low-ball pricing from sellers.               

What does this mean to you? If you are a seller, consult with your local real estate professional but get your home on the market now. A typical escrow takes 60 days to close, and that's after you find a buyer. This means September 30th is closer than you may think. If you are a buyer, market pricing is coming your way, but the terms are likely to become much more expensive for you. Home prices will eventually stabilize but not any time soon. If you can afford to stay in your home, please enjoy it. If you can afford to buy, please buy something that will serve you and your family well for the long term.

Dick
For more details, please see: http://www.nytimes.com/2011/05/11/business/11housing.html?_r=1&nl=todaysheadlines&emc=tha2