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.

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.

The Austin Statesman recently published “8,000 Reasons to Buy,” re-capping a great program that is nearing its end. A lot has been said about the $8,000 Tax Credit, but there are a few things to remember:

1. The credit increases your refund, dollar for dollar. “For first-time home buyers whose income falls within certain limits, purchasing a house, condominium or townhome might make them eligible for a tax credit worth 10 percent of the purchase price of their home, or $8,000, whichever is less. This amount reduces the amount of taxes you owe, or increases your refund, dollar for dollar, according to the IRS. For example, if you normally would have a refund next spring of $100, with a qualifying home purchase your refund could be $8,100.”

2. It takes little effort.  ”It’s money in your mailbox,” as one agent says. She likens the amount to 4% appreciation in value on a $200,000 home.

3. Now is the time to find a house. You need to have closed on a house by the deadline, and loan approval is taking four to six weeks, as the Statesman reports. The house should be under contract by later this month.

4. There are more reasons to buy a home now, not just the tax credit. “Interest rates are at a historic low. Because the market has dipped, you will be buying at a lower price point instead of a higher one,” says a 28 year real estate veteran.

Other sales promotions and tax breaks exist. For instance, Freddie Mac is offering to pay 3.5% closing costs and offers a two year warranty on Freddie Mac owned homes. For this program, you need to have made a first offer on a home before October 30.  You must first contact a buyer’s agent for this program to be valid.

Texas and Austin both offer unique first time homebuyer programs, as well.

If you have any questions about buying an home and are interested in looking, talk to your real estate agent today.

On the same day as “10 Ways to Pick the Right District,” the Washington Post also ran a feature on “The Power of Good Schools.”

To parents hunting for homes, schools and school districts can be a priority that comes even above size of home and price. One mother that was interviewed, who has a physically challenged son, said “school fit is number one, house location a far second.”

Both parents and agents in the Washington area reported to the Post that they’d come in and request to look in homes only in the district they selected from their research. Some will say, “this is my budget, and here is the school.”

But it’s not always just test scores and graduation rates that interest parents. While those are easy to find on school and public websites, there are many variables to consider when picking a school (as we mentioned with the first article). “Our choice was not primarily based on academics, but more on safety, social conditions and the types of peer influence that our [three] boys would have.”

School districts that perform well will often increase the perceived value of a home, and number of offers a house for sale may receive. Often, even if a buyer doesn’t have children, they may inquire about the schools, since they know it will affect the resale.  Some buyers will go to great lengths to put their children in what they believe are the top tier schools, at times taking on quite a financial burden.

Photos: D Sharon Pruitt

But is the intense focus on school districts always worth what people think it is? Says one buyer who spoke to the Post: “I have seen a pronounced school-boundary mentality among some parents. But I think the boundary obsession is blown out of proportion to its educational significance, at least in Northern Virginia, where all the schools are good,” he said. “It’s more of a status or prestige thing, like ‘Lake Wobegon, where everyone is above average.’ ”

Even though a school and school district might have high marks, it comes down to the individual teacher, especially in the younger ages. Performance may vary compared to other schools, but quality leadership in the school may be running good programs with high parental and community involvement.

Particularly with younger children, looking at the performance of the high school may be a mistake: “I’ve worked with clients who as soon as they’re pregnant they want to move. That’s so out of line,” says one agent interviewed. “What’s silly is that parents often choose their homes based on high school district while the kid is still crawling. Chances of living in the same area 14 years later are so remote that they should save their money and give Junior’s college fund a head start rather than flee to a great school district too soon.” Schools can change, boundary lines can be re-drawn, and particularly if you’re factoring in two incomes before children come along, your financial situation can change.

If you’re willing to step back on being in the most prestigious school district, you may be able to find a nicer home, or even your dream home. Also, you may be cutting back on your commute time, and less time in the car is more time to spend with your children at home.