Housing market? What’s that?
Listening to Obama and Romney during the just-ended presidential campaign, one might wonder if we have any problems with the housing market at all, since neither one spent much time talking about it. Unfortunately, despite the lack of airtime and press, we are still very much recovering from the giant housing bubble that burst four years ago. Any homeowner – and anyone looking to buy a home – is well aware of that.
What that means is Obama’s policies are going to go a long way toward determining whether we continue to improve or slip back towards the abyss. But what are those policies? In short, it’s mostly going to be more of the same – but that’s not necessarily a bad thing. Here’s what to expect, and how experts believe it will help.
The mortgage interest deduction stays the same. One of the biggest benefits in owning a home is the annual tax deduction you can take on the interest you’re paying on your mortgage. Had Romney been reelected, his policy of capping itemized deductions at $ 25,000 would have effectively raised taxes on a lot of people – including lots of Americans in the middle class – because mortgages account for 35 percent of all itemized deductions. Obama has no interest in altering the status quo here, which means that people will continue to be able to write off large chunks of money. Just how big are we talking about? Nationally, mortgage interest deduction make up about $ 100 to $ 150 million each year. Savings of that magnitude should continue to encourage more people to buy. This is especially true because…
…mortgage interest rates should stay low – and may drop even further. We’re already at record lows for mortgage rates, and under Obama, there’s no reason to believe that this downward trend will stop – at least not until the market really starts to rebound. Currently, 30-year rates are hovering at around 3.4 percent. Just three years ago, buyers with good credit could expect rates in the then-great range of 5.5 percent. Here’s what that means in real dollars:
House price: $ 195,000
20% down payment: $ 39,000
2009 monthly mortgage payment (at 5.5%): $ 886
2012 monthly mortgage payment (at 3.4%): $ 690
That’s a difference of almost $ 200 every month. To put that in perspective, a person who could afford this house at 5.5 percent in 2009 can now choose between saving that money or buying a bigger, better house selling for over $ 40,000 more.
More people will be able to refinance. The big push of the Obama administration in terms of housing has been to make it easier for people to refinance, and there’s no reason to believe this will change. This probably won’t help many of the homeowners who are most at risk of losing their property, but it should bolster those people in middle income brackets by allowing them to utilize the record-low mortgage rates to put more money back in their pockets (or, preferably, spend it and thereby stimulate the economy). In general, this will probably have a negligible effect on the housing market itself.
Regulations will change things… somehow. In just a few short months – January of 2013 – the new Consumer Financial Protection Bureau is supposed to set new standards that will outline how much borrowers can be expected to repay based on their financial situation. The goal is to prevent a repeat of the run up to the housing crisis where lenders were encouraged to approve mortgages to people who clearly couldn’t afford them. No one really knows exactly how these rules will affect home-buying because they haven’t been established yet. If the Bureau creates standards that are too strict, lenders may make it even more difficult to borrow than it already is and the market will slow down; too loose, and consumers may feel like nothing really changed from four years ago.
Beyond those new regulations, there’s one other big wild card on the horizon: the economy could go back into a recession if there is a stalemate over the upcoming financial cliff. Everyone in Washington is saying that they don’t want us to go over that cliff, but given how the two parties have worked together over the last four years – or rather not worked together – there’s a decent amount of skepticism out there.
Despite this, most experts say that these “more of the same” policies are likely to boost the market – but the appreciation will be slow, just as it has been over the last year or so. Of course, after the incredible price jumps of the early 2000s that led to the bubble bursting in 2008 and the bottom falling out, slow and steady increases sound like a dream come true.
About the Author: Robert Mansions enjoys writing for Apartments Management Group. When he’s not busy writing he enjoys keeping up with housing market trends and the other happenings in the real estate industry.
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