Does Buying Now Make Sense?

Several months ago Karl Case of the Case-Shiller Report said, “If you have a realistic version of the American dream, buying a house now can make a lot of sense.” Case is considered the guru on real estate pricing. If you don’t believe him, how about the Gallup Poll in January that says 67% of Americans say now is a good time to buy. Why? Like we said in our , interest rates are still at historic lows (even though they are inching up) and prices of homes are still below prices seen since 2006. 

We have seen an increase in buyers since January, the prices of homes in our area are up 16% from January 2010 and homes are on the market for an average 39 days. Expectation in prices of homes will continue to rise starting mid 2011and continue upward through current projections of 2015. Interest rates will surely follow. Considering all this, it certainly looks like now is the time to buy. 

But what about the announcement that the government is going to eliminate Freddie Mac and Fannie Mae? How will that affect the buyers and the market? The Reforming America’s Housing Finance Market Report to Congress in February 2011, stated the Administration wants to develop a plan to responsibly reduce the mortgage market role of Fannie Mae and Freddie Mac and, ultimately, wind down both institutions.”  They are suggesting increased down payment requirements, and other measures. In other words they want to increase the private capital in the mortgage market thereby “reducing taxpayer risk.”    

The Administration is saying the private mortgage markets (local banks and financial institutions subject to strong oversight consumer and investor protection) will be the primary source of mortgage credit. Banks and other financial institutions will be required to hold more capital reserves so they can withstand future recessions or significant declines in home prices. The banks will also be required to apply more conservative underwriting standards, so they will require homeowners to hold more equity in their homes. 

The plan is designed to promote a level playing field for all participants in the housing market.  Although they say they want to ensure that all Americans have access to quality housing that they can afford, the Report makes it clear it’s not their goal for all Americans to be homeowners.  Part of this reform will be focused on Federal Housing Administration (FHA) as well, by increasing the price of FHA mortgage insurance. Already FHA has raised premiums two times since the beginning of this Administration. This is supposed to continue to strengthen the capital reserve account of FHA, and put it in a better position to gradually shrink its market share. Going forward reforms of Fannie Mae and Freddie Mac with changes at FHA will help ensure the private market—not the FHA—fills the market opportunities created by this reform.

We should see FHA changes sometime in March 2011 and by October 2011, some of the recommendations in the new Dodd-Frank Wall Street Reform and Consumer Protection Act passed July 2010 will come into place. Do you think it’s time to buy now? We do. If you have any questions please call Jacquelyn Nunez at 703-339-7506.  Jacquelyn is a partner in Exit Realty Associates, 8998 Lorton Station Blvd., Lorton VA.