Higher rates will likely trigger more foreclosures, again depressing the US housing market, even though ARMs only make up a small percentage of outstanding mortgages.

Still, Austin will escape much of the damage. A brief survey of 4-5 mortgage officers and brokers that I know and trust revealed they don’t think the next foreclosure wave will have a dramatic affect here. My lender associates say they just didn’t put many borrowers in truly exotic vehicles such as interest only.

As you can see in this chart, mortgage rates are at historic lows.

Average Rate for 30-Year, Fixed-Rate Mortgages

We expect a continued buyers market with good inventories through 2010.

My lender associates do admit selling some 5 year ARMs, but they feel that homeowners refinancing will have a two-fold chance to maintain or only slightly raise their rate. (1) Mortgage rates have held steady for the last six months and should rise only slightly in the first half of 2010 and (2) market values have only declined moderately (10-20%) on a city wide basis.

Outside of Texas many of these ARMs will only be renewed at substantially higher rates because their (1) home values have declined coupled with (2) higher unemployment means banks will remain tightfisted with their bailout reserves. Many will be impossible to refinance and will be subject to foreclosure.

What this means for Austin is a continued buyers market with good inventories through 2010. But the later part of 2010 may bring higher rates and signal the end to the both low mortgage rates and lower home prices.

* Washington Post, Dina ElBoghdady, September 09,2009

Chart A

A mortgage may be the best long-term investment you can make in the next year or two – for 3 reasons.

3) A low interest- rate mortgage will be a big plus as inflation rises.

The Federal Reserve has greatly expanded the money supply in the last year via huge borrowings. Political rhetoric claimed these massive assumptions of debt were made to increase the potential of banks and other financial institutions to lend money. Good theory but banks have remained cautious about new loans and reserves have increased – thereby enlarging the money supply.

2) Inflation is likely to accelerate as the global economy recovers.

Chart B

The world economy will drive the next stage of recovery – not the US. Developing economies have pushed the demand for crude higher this year, despite a worldwide business slump. As you can see in Chart A, oil has jumped this year.

Likewise, gold prices have rebounded despite the recession and specter of deflation, as you can see in Chart B.

1)  Mortgage rates are poised to rise

Mortgage rates have been trending down, depressed high unemployment and resulting deflationary pressures. As you can see in the graph below (Chart C), mortgage rates have fallen, even as crude and gold prices have risen.

Chart C

The consumer price index, a measurement of inflation, is closely tied to energy prices. The CPI is likely to catch up with oil as economies rebound.

In short…how long can mortgage rates stay low with growing debt, rising inflation, and competition from abroad? Regardless of when the Great Recession ends or things return to normal, a conventional loan or FHA a mortgage may be your wisest investment.

Hard to say, but one thing is for sure…mortgage rates won’t be lower than they are today.

What did escape my attention were the new apartments: the Monarch, Legacy & Ashton that were also opened. What a surprise when I found some of those buildings with over 95% occupancy rates. This coupled with rents averaging $2000 for a one bed/one bath apartment that got me to thinking about pent up demand.

While lenders have all but disappeared and mortgages are hard to come by, condo loans are all but non existent except for those with 20-25% down. Qualifying for single family home loans while stringent is still achievable with 5-10% down. So this means a lot of new renters downtown that may eventually want to buy.

When qualifying for a condo mortgages does improve there may be some latent demand. This will not signal the start of a new speculative era of real estate but may show steady growth in the medium priced downtown condos in the coming years.

The city has become accustomed to being labeled a top economy. It recently ranked fifth on Forbes.com’s list of cities most likely to bounce back quickly from the recession.

San Antonio’s economy — driven by sectors such as health care and insurance — has benefited greatly from military expansions and relatively stable housing prices.

The Brookings Institution report measured changes in employment totals, unemployment rates, housing prices, the values of goods and services produced by cities, and other factors.

Other Texas cities listed as top-performing metro areas include:

• Austin (third),
• Houston (fourth),
• Dallas (fifth),
• McAllen (sixth) and
• El Paso (11th).

The above-mentioned report is from the Real Estate Center at Texas A&M.

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Is this auction of properties located at Brazos St. and 8th St. a death knell for the downtown condo market? Or merely an innovative way to move properties in a slow market?

Success or failure depends on attracting bidders, according to research on auctions. The newspaper advertisement announcing the auction said prices would start at $80,000 – far below anything reported in the MLS system lately.

If enough good bidders show up, then higher prices may result than from the normal market mechanism. If the auction brings together many who are interested in newly remodeled downtown condos, and effectively pits buyer against buyer – then maybe this is really an effective marketing campaign.

Since my office at RE/MAX Downtown Austin is one block away you can bet I’ll attend!

Return to home page.

The good news is that first-time homebuyers who purchase a home between April 9, 2009 and December 1, 2009 can receive a tax credit of 10% of the home’s purchase price with stipulations of course.

I recommend researching this further, but below I’ll try my best to summarize the main points.

For homes purchased in the 2009 specified dates above, the credit amount cannot exceed $8,000 and the buyer must live in the home for at least 3 years. Otherwise, you must pay the amount of the credit back in full.

For homes purchased in 2008, the credit cannot exceed $7,500 and it must be paid back. To learn more details about the 2008 tax credit visit the IRS website here.

FYI: If you haven’t filed your 2008 federal tax return yet, the form you must file with it is Form 5405.

Bottom line: If you’re looking to buy your first home soon and plan on living in it for awhile make sure you purchase it between April 9 and December 1 of this year.

I found this information on IRS.gov and this Austin American-Statesman article from last month- both good sources for more detailed information and information on other tax credits available.

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The bottom line is the Fed announced recently that they are going to buy up to $600 billion in mortgage-backed securities. This has already driven rates to historical lows. In January, the SEC is meeting and information may be released that could have a significant bearing on rates, potentially for the worse.

We are already seeing lender backlog due to low interest rates. With a first time home buyer tax credit of up to $7,500 and low or no money down programs available for many people today, now is a great time to buy a home.

From a real estate buyer’s angle, nothing could be better. If you are considering a condo downtown or near downtown there is a holiday sale going on – deep discounts are available.

Baron Rothschild (1871) is credited with the saying “the time to buy property is when there is blood in the streets”. Panic and uncertainty create opportunity.

There may be blood in Austin’s downtown streets today.

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• Existing condo projects are largely sold out, reducing the pressure on prices
• Existing condo prices are based on a historical sales, not hypothetical future ones
• Homeowners Association fees may be lower and/or more stable because they’re shared out among a larger number of owners
• Many new and very recent condo projects are in the luxury price range

In short, they have more measurable value than presales or recently offerings. Still, existing resales are discounted from 15-25%.

If you believe the stock market anticipates future economic activity, now may be the time to buy. Real-state investment trusts are down 50% from their highs, so real estate assets may be a bargain.