SellAustinTexas

The Fed reiterated last week that in March of 2010, they will be ending their Mortgage Security Buyback program, a big part of what has kept interest rates low throughout 2009. It won’t be a sudden drop-off, rather a slow decrease in these purchases until March, when there will be no more.

With the Fed no longer spending the tens of billions of dollars monthly on mortgage securities, we will only have the private sector to fill in the gap. When that happens, we can naturally expect mortgage rates to rise. “The difference in monthly mortgage payments of 5% or 6% can be measured in tens of thousands of dollars over the life of a loan,” one writer explains.

The Atlantic Monthly writes that the credit markets need securitization, and warns that it will only become more difficult to borrow money (and those loans will come at higher interest rates) as the Fed program ends. “If you think banks aren’t lending enough now, then you’d find a world with no securitization much worse. Yet, that might be what you get if the Fed ends its program.”

Why would the Fed remove such a successful program? The analogy of a bike with training wheels is often given – if you want an economy to strengthen, recover and stand on its own, at some point you need to take the wheels off. If the Fed keeps rates too low for too long, inflation will rise higher and you will expect to see rates rise anyway. Home loan rates will increase as demand is met, naturally, with or without the Fed.

We can expect the end of the first quarter of 2010 to be a telling time for the economy’s recovery, but the heavy favor of the buyer and borrower is going to change. These will be some of the last months we’ll see that are such great markets for buying a home or land. If you are considering buying, you should begin your search now.

As many have been predicting, mortgage rates are starting to rise, reports the Wall Street Journal: rates were up last week to 5.07%, from 5.02% two weeks ago. Some see big jumps coming, reads the headline.

“To lock in the average 5.07% rate, borrowers had to pay fees equivalent to around 1.1% of the loan with a 20% down payment,” reports WSJ. “While rates have been low for most of the year—particularly since falling below 5% in September for the second time this year—one big question looming is what happens to those rates once the Federal Reserve slows, and ultimately stops, its debt purchases from Fannie Mae and Freddie Mac.”

On Saturday, the Austin Statesman wrote about first time homebuyers taking advantage of the tax credit. The group includes many young professionals who may not have made a home purchase without the incentive, like 25 year old Helen Rodriguez, who says, “it’s the cushion that made me comfortable making this purchase at this point in my life. Without it, I don’t think I would have been comfortable buying.”

Others also include some artists and other creative entrepreneurs, like Tim and Carli Price. They had been house hunting for two years but “could never find anything in our price range that wasn’t ready for a bulldozer,” he says. But after the tax credit, they were able to find an affordable home that met or exceeded all their expectations.

Mortgage companies in Austin are reporting on how many first time buyers the credit is bringing in – about 45% of Sente Mortgage’s loans were to this group, according to Vice President Kenton Brown. “That’s a majority of the purchase activity we’re seeing now.” He says the credit is “creating a trickle-up effect,” that is, allowing home owners to sell their starter homes and move into larger ones.

“Not only does it get first-timers in the market as homebuyers,” says Don Reed, senior loan officer at Integrity Home Mortgage in Austin, “but the tax credit acts as a boost to consumer spending when they get their refund check from the IRS.”

For all the benefits of the tax credit, buyers need to be aware that the deadline is coming and action needs to happen now to take advantage of it. “Don’t dawdle — it takes at least four to five weeks to process a mortgage application and hold the closing,” the Statesman writes. Also, a bump in interest rates is looming: some experts say to expect it next summer, some say sooner. Ed Solter, president of Presidential Mortgage Co. in Austin, is expecting a 1% bump in the first quarter of 2010. Even if legislators were to pass an extension or even expansion of the tax credit, it’ll come paired with higher rates. Now is the time to start your home hunting if you also want to take advantage of these great deals.