Cheaper Credit Will Stimulate Local Real Estate Market
THE CREDIT CORNER
As I am writing this column, the Economic Stimulus Package has passed Congress and is due to be signed by President Bush this week The housing credit component will raise both FHA and FNMA/FHLMC lending limits based on 125% of our median house prices, with rates currently around 5.5%. According my friend, Dr. Roy Grimm, owner and broker of Buyer Brokers Realty of Sedona, at year end 2007 as many as 455 listed single family residences, having a median listing price of $855,000, will be the beneficiaries of new capacity of potential buyers who can qualify for loans up to $725,000 (subject to HUD’s published prices for our area) at rates that are a full 1% lower than a week ago. Incomes needed to qualify will be reduced 10% across the board. And new buyers of Sedona area homes will save up to $3,890,000 in annual simple interest costs. These incentives may be additionally enhanced by further declines in interest rates as the economy slows. The expansion of these lending limits however is only temporary; granted through the end of the year.
Though the term “sub prime” has been scandalized by the media this last year, borrowers with less than prime, B grade credit can in many cases qualify for home loans under one of FNMA’s expanded approval tiers at rates and payments substantially less than any sub prime jumbo alternatives. These programs also offer fixed rates; not the much publicized ARMs with crippling rate resets. These dynamics will certainly increase demand in our real estate market and firm up values.
As a side note, any market bottom shares similar signals: the issue is ever present in the media; psychology is extraordinarily negative; and the Fed lowers short term rates and expands our money supply. Many veteran realtors I’ve spoken with recently are already busy with new offers by new clients. So as we get back on track, ladies and gentlemen, start your engines.
Next week, I’ll discuss who is actually responsible for the international sub prime mortgage debacle.
Chris Seymour is broker and owner of Country Mortgage Corp of Sedona since 1992. For more information, he can be reached at 928-204-1777 or Chriscountrymtg@aol.com