Should Congress Extend the First Time Home Buyer Tax Credit?

First-time Home Buyers (FTHB) who purchase a home before December 1, 2009 will receive a First Time Home Buyers Tax Credit (credit) of up to $8,000 when they complete their tax returns next spring. Many people are calling on Congress to extend, and even increase, this tax credit.

Over the past 6 months, most housing reports across the country have shown increasing gains in the housing market. Most reports point to this tax credit as at least one reason that the housing market seems to have bottomed and begun to rebound. These people argue that this resurgence in the housing market will end abruptly on December 1.

They point to the fact that 30% of all home sales in July were to FTHBs. Some reports show sales of FTHBs account for up to 50% of sales in some markets. What will happen to the housing market without this important incentive to lure would-be renters to purchase a home?

Richard A. Smith, CEO of Realogy, parent company to Century 21, ERA, Coldwell Banker, and Sotheby’s International Realty, says, ”The giddiness we see out there is without merit.” He believes that the housing gains are mostly attributable to these credits. Others disagree. Michelle Meyer, an economist with Barclays feels that while the credit contributed to an increase in sales, much of the increase points to a strengthening of the economy. “Even if you say some of the gain is artificial, it's still true that we're seeing an increase in housing demand, and that shows fundamental strength," she says.

Others still think the credit should be extended and expanded in size and scope. Mark M. Zandi, chief economist at Economy.com, analyzed the housing market and says that increasing the tax credit to $15,000 for all home owners (not just FTHB) through the end of next year would result in 675,000 additional home sales. Johnny Isakson, US Senator from Georgia, is behind a plan to just that.

Regardless of whether or not you think it should be extended, if you're counting on using the First Time Home Buyer Tax Credit, time is running out. The purchase must close on or before November 30, 2009 (Not December 1, 2009 as many articles I have read suggest).

Want to know more? I can be reached at 708.473.7688 or BarkerLoans@gmail.com and, as always, my advice is free!

---

Falling Consumer Credit May Mean Lower Mortgage Interest Rates

The Federal Reserve announced that consumer credit fell by a record $21.6 billion in July – more than 5 times the projected decline of $4.0 billion. Consumer credit figures for June were revised to a decrease of $15.5 billion from the originally-reported decline of $10.3 billion.

Total consumer credit fell at a 10.4% annual rate to $2.47 Trillion. This data suggests those US households are staying away from the use of debt as unemployment and other economic factors worsen. This is the sixth consecutive monthly decrease – the first time that has happened since the last half of 1991 – and represents the largest decline since the Fed began tracking consumer credit in 1943.

So, how does this affect interest rates?

While several things can affect interest rates, most of the day-to-day fluctuations in interest rates are caused by simple supply and demand. As we have seen in the recent past, as investors demand more and more Mortgage Backed Securities (MBS) the price has increased which has an opposite affect on the interest rates. Now, with consumer credit shrinking so quickly, there is going to be a supply issue. As consumers borrower less and less, the supply of MBS and other investments go down. Lessening supply has the same affect as increasing demand – it raises the price which reduces the interest rates.

Like the Boy Scouts – Be Prepared!

As I always say about interest rates – you have to be prepared. As rates continue to fall, more and more people will be looking to take advantage of them. If you are not prepared you will miss out on this opportunity. Give me a call and we can get your mortgage application started. If rates do come down, we can lock them in as soon as possible. If rates don’t come down, we can lock them in at the near-record low rates we have seen this year. Either way, you need to prepare yourself now if you want to save money on your mortgage.

As always you can call me anytime - from any state in the U.S. - at 708.473.7688 or at email me BarkerLoans@gmail.com And remember, my advice is always free - so call!

---

Are Mortgage Rates Going to Go Down in September?

This is the biggest question I get, and the hardest to answer. Nobody knows for certain the direction of interest rates, but here is some thing to consider when deciding whether or not to refinance your mortgage or lock in your interest rates.

Now – Mortgage Rates Are in a Tight Range

Mortgage interest rates have been in a range between 5.0% and 5.5% for most of this year. Historically, these interest rates are incredibly low. The US government has done everything they can to keep these rates as low as possible. The Fed has been aggressively purchasing Treasuries and Mortgage-Backed Securities (MBS) – as the Fed purchases these securities the demand for them increases, as does the price, which causes the yields to decrease. It seems that every time mortgage rates approach 5.5%., the government has some announcement about purchasing treasuries and MBS in order to increase demand and push the rates back down.

Anybody who is at or above 5.5% should at least take a look at refinancing to see how much money they can save. And, if you have equity in your home and carry balances on your credit cards you would be crazy not to consider paying that off to save lots of money. Now is ALSO the time to consider shortening the term of your mortgage.

Many Projecting Lower Rates over the Short Term

There are countless experts, journalists and bloggers who are predicting lower rates over the next 30 days. They point to the recent decrease of mortgage rates and increase of demand for treasuries and MBS. They also look at the rapid increase in the stock markets (The Dow closed at 9,582 on 8/28/09 up from 6,595 on 3/6/2009) and many predict a market correction (A market correction is when the stock market, while on an upward trend, goes down by 10 – 20%. Many people see this as a normal part of the stock market and feel that a correction is likely soon). If there is a market correction, the money that comes out of stocks will be put into safer investment vehicles such as treasuries and MBS – again, increasing demand and prices and decreasing rates.

If this is the case, you need to be prepared to take advantage of these rates as these interest rate drops are historically short-lived. There are a lot of people who missed out on locking their mortgage rates below 5.0% earlier this year because it lasted for such a short period of time and they were not prepared.

If you think rates are likely to decrease, give me a call and we can get the application process started. If rates do drop, we will have all of the information we need to jump on these rates as soon as they fall. If the rates drop and go up as quickly as before, the only people who will be able to take advantage of them are those with applications in process.

Later – Rates Have Only One Way to Go

Eventually, though, rates will have to increase. There is not a lot of room on the “down side” on rates. And, with the positive housing and economic news we have had lately, the government will likely reduce the amount of treasuries and MBS they purchase. With the government reducing their purchases, the demand goes down, causing prices to go down and rates to rise. Many experts are predicting the government to make an announcement at the end of September to this effect. Once that happens, rates will rise.

What should I do?

First, call me and get your application done so you ARE ready the minute rates come down and you can benefit. Then, we can talk about your situation and see what the best plan is for you. If rates come down, we will be ready to take advantage of them. If rates don’t come down, we will be ready to lock at the current low rates before rates begin to rise. Either way, the best protection you have is to have an application in process so you are ready to take advantage of the market – no matter what the market does.

For more info, any questions, or to help you get your application started today, I can be reached on my cell phone at 708.473.7688 or via e-mail at BarkerLoans@gmail.com.

---