Mortgage Financing is Available, But is Now The Time to Buy?

The month of May is coming to a close. The kids are almost out of school, and the family rental agreement is set to expire in weeks. It has been a difficult task to save during the past two years, but the deposit money is in the bank. Surely, now is the right time to look for that dream home and take advantage of today’s housing market. Well, isn’t it?

If you plan to stay in your home for ten years and not worry about it devaluing over the next year or two, then maybe the answer to your question is a resounding “yes”. However, a prudent man would do a little more research before jumping in with both feet in today’s roller coaster real estate market. Do not be drawn in by opportunistic enthusiasm. Brokers want your emotions to play a large part in your decision-making process, and eager mortgage lenders are ready for those with good credit. However, cold, hard logic is what is called for in today’s market, more than ever before.

To begin with, the federal tax credits designed to revive the housing market expired last April 30th. That means there isn’t $8,000 available for new homebuyers, or $6,500 for folks who already own homes. The big question is what happens now to the housing market. Critics of the tax credits say they only enticed people who would have bought anyway and essentially crowded those sales into a few months. Issues in Europe, evident from EUR/USD historical data and rising LIBOR rates in London, will impact some ARM rates and threaten jobs in America, another situation that suggests caution.

The critical issue is related to inventory. A recent survey produced by the U.S. Census Bureau indicated that 19.2 million homes, nearly 14.5% of all homes in America, are presently vacant. This figure includes rental property, homes for sale, and homes being held off the market for one reason or another. This figure is the highest in history and shows no signs of improvement in the near term. While there is presently a housing glut on the supply side of the equation, this over supply does not necessarily translate itself into a Buyers’ market.

Reuters stated in a recent article that foreclosures have begun to slow and that a plateau may have finally been reached. However, industry analysts were quick to site other statistics that suggest that banks are slowing down their processing to delay recognition and ultimate takeover of more homes than they wish to maintain. Although many believe the market has stabilized, current price levels are not based on supply and demand forces. The backlog of homes awaiting foreclosure and vacant homes that developers are holding onto until the market improves would both produce additional downward pressure on an already saturated market.

Mortgage rates fell to the lowest point so far in 2010 as ongoing economic worries pushed bond yields lower. The popular 30-year fixed-rate mortgage averaged 4.84 percent this week, down from 4.93 percent a week ago, but slightly above the 4.82 percent seen a year ago. Funds are available at these rates for creditworthy borrowers.

If this is not a buyer’s market, then it truly is a renter’s market. Reluctant homeowners have resorted to renting to buy time until better days. Negotiating a lower rent is much easier than a deep discount on a home purchase due to the prevailing mortgage on the property. Too many Americans over the past decade have continually borrowed on their homes via refinancing deals to pay off over indulgent credit card balances. Capacity, one of the “3 C’s” of credit, is nonexistent. Collateral and Character are also in question. Until a true bottom is reached in the housing market, available buyers would be best advised to take advantage of the rental market and bide their time.

Buying a home is a major life decision, requiring its fair share of due diligence. No meaningful improvement in the foreclosure market is likely this year, although mortgage modifications are only delaying the inevitable for most of these borrowers. Your dream home may be just around the corner, but caution is advised as to when you should make your best offer.