Tax credit expiration ramifications
This week brought signs of a general real estate recovery as the U.S. Commerce Department announced building starts are up and that building permits are steady and not overly ambitious.
With the expiration of the home buyer tax credits, analysts are publishing an array of forecasts for how the market should react with some proving to right and others proving to be completely off.
One of the immediate effects felt in the mortgage world is a drop in volume of mortgage applications which has now hit a 13 year low, down 27% from the previous month, according to the Mortgage Bankers Association.
Delinquencies and other bad news
The volume can be recovered with a strong summer, so that is not worrysome, but trouble lies in news that of all mortgage loans in America, 10% are delinquent. Even more troubling but less surprising is the continuing failure of the Obama Administration’s Home Affordable Modification Program (HAMP), now showing that a large number of participants are “flunking out,” according to CNN Money. We’ve noted before but must reiterate that HAMP is not working.
Politicians are currently considering plans from various states on how they will use funds coming their way, and although the plans are not public, they have been reported to all include subsidizing mortgage payments for underwater homeowners and paying down principle. Critics point to HAMP as a hesitation for supporting any further government programs in any effort to prop up the residential real estate sector.
This next quarter may be critical for the stabilization of the real estate market as it has the chance to make a stable recovery but could continue to bounce at the bottom if everything doesn’t line up properly. What say you?
CC Licensed image courtesy of sean dreilinger via Flickr.com.
Alex Cortez
May 23, 2010 at 12:13 am
Tara, insightful article. I was a big proponent for ending the tax credit, as further evidenced by HAMP, government intervention hinders the free market from correcting itself. What do you foresee for the rest of the year with interest rates likely to increase and a wave of REO’s due to enter the market?
Lani Rosales
May 24, 2010 at 12:04 pm
It looks like interest rates are forecasted to actually go down to 4.5%, the lowest in 50 years. I don’t know about everyone else, but personally I think more REOs will enter the market regardless. People are finally tired of being scared and buying seems to be warming up, even after the tax credit expiration. This summer won’t be a boom but it will be a heck of a lot better than 2009!