Friday, May 13, 2011

Housing Industry Changes on the Horizon

By Blueberry Beeton, Real Estate Broker

High-priced homes may be harder to obtain
Over the last 6 months I have seen more real estate activity than I have in the last six years! Perhaps it's a sign of people being sick of waiting, or maybe it's an anomaly to the Midcoast area of Maine or just to my own practice. It is exciting—people are ready to build additions, purchase new land, move into their dream homes. But they are being put through the wringer to get their loans processed.

It is more important than ever to research your loan options and build up your credit. If you are looking for a construction loan, having your plans really well defined and an itemized list of costs as well as a clear time line is more critical than ever.

An article in the May 10th New York Times (Federal Retreat on Big Mortgages) reports that the federal government is indicating that it will discontinue backing some higher principal mortgages:

For the last three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to a substantial degree.

But now Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average, and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. The result, analysts say, will be higher-cost loans and fewer potential buyers for more expensive homes.
This suggests that higher priced property values are going to continue to be pushed down. Loans will be harder and harder to obtain and will cost more. It's also likely that there will be changes to how lower principal mortgages are secured, which may soften prices in that sector. These proposed changes are going to rattle the housing market, but it doesn't have to be a nightmare. Be smart about your investment.

Before you panic about the value of your own home or think you might score a great price on a new home remember that although real estate value is largely determined by "the industry" it is also largely affected by the value the seller places on a property and the value a buyer places on the property. More important than the improvements, the size of the property, or the vicinity to water is the location and the surrrounding properties.

Before you buy ask yourself, if you had to stay here forever, could you do it? Could you find work? Could you continue to pay the mortgage? Do you want to stay in this area? If this is a temporary investment, then consider renting. Check out this great calculator also on the NYT web site that will help you determine whether purchasing a property makes sense for you: Is it Better to Buy or Rent?

There is no doubt that the market is shifting. For better or worse be sure you can answer those critical timing questions before you buy. The longer you are able to stay in the property that you buy the more likely it will be a wise investment.

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