Although most analysts are crowing about the increase in sales and the early signals that the real estate market is turning around, there are a few items that may complicate matters and/or destabilize the market down the road (i.e. during the spring buying season):
- The Federal Reserve is expected to wind up a $1.25 trillion buyback program that has kept mortgage rates low. This "lack of demand" for mortgage-backed securities may trigger steep increases in mortgage interest rates.
- The FHA (Federal Housing Administration) has tightened underwriting standards and plans to further tighten these standards at the end of the first quarter. This could reduce demand by making it more difficult to get a loan.
- The "third extension" of the first-time homebuyers' Tax Credit (which now includes a $6,500 credit for existing homeowners) is due to expire by April 30 and most likely will not be extended any further.
We are not out of the woodwork yet: There are many homeowners who are just waiting for any signal of a market turnaround to put their home on the market. Inventory is still high. And interest rates are still at historical low levels (most probably will rise!!).
So, if you are a renter waiting on the sidelines for the market to bottom out - be careful! Any 1/2 point offset in interest rates will more than compensate for any additional price drops you may experience in your market....