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Home Sales to be Tested this Winter

Despite recent figures showing that house prices have increased for the last three months, concerns for this winter are starting to appear that housing may be in for a deep freeze. Three main factors are at the focal point of the debate: the tax credit expiration, default and distress sales and artificially low interest rates.  One or a combination of the three could slow down home sales and shift home prices downward.

In the Tri-Valley of Northern California, the area that Loan Mitigation Advocates has our headquarters, default and distress properties have been waning. The last few months have seen less foreclosure and short sale properties come on to the market.  Six months to over a year ago, these default and distressed homes where primarily found in the lower to middle price ranges. Many of the homeowners in this price range had secured subprime mortgages which later resulted in big problems and consequently led to foreclosures and short sales. Now, things are beginning to shift away from the lower to middle priced homes.  More homes at the middle to upper price ranges are expected to become default and distress sales according to a recent New York Times article.  “Plenty of pain yet to come,” said Joseph Shapiro, chief United States economist for MFR.

At Loan Mitigation Advocates, we are always trying to stay abreast of current market trends.  In talking to homeowners, we have identified that some homeowners at the higher price points have been more equipped financially to survive the downturn in the market.  Despite job losses or reduction in income, they have been able to live off savings or the liquidation of stock for a longer period of time.  Some have been able to adjust their lifestyle while others have found jobs to replace lost income. However, for those who have not been able to overcome their hardship, they are faced with the grim reality that their life savings is being wiped out.  They may be left with no choice but to consider giving up their home to short sale or foreclosure.

On top of the potential for more default and distressed sales, another factor that could weigh in on home sales is a rise in interest rates.  Rates have been maintained at an artificial level for some time due to the Federal Reserves purchase of mortgage-backed securities.  Once this halts, interest rates could float higher which could limit a buyer’s purchase power and in some cases remove them as a candidate to purchase a home.  Less demand results in fewer transactions.  Less transactions results in home sellers’ inability to move their product.  And, if you can’t sell your home, then lowering your price may be the only option.

A third item for consideration is the tax credit for new home buyers. As of this article, the tax credit is vigorously being debated. However, there are signs that the tax credit may be extended for first-time homebuyers and also expanded for existing homeowners who are looking to purchase. If this bill passes, it may be just what the doctor ordered to counteract the items mentioned above and prevent a downward slide for home sales in the future.

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