Online loans today.

What Effect Does the Dramatic Debit Ceiling Deal Have on You Buying a House?

August 5, 2011

in This Week in Real Estate

This has been quite the dramatic week with Congress narrowly ducking the debt ceiling storm and a jittery stock market spiraling out of control. In the housing market, the changes have been less dramatic, but  more on the lines of a roller-coaster ride. Like everyone, we had our share of woes associated with the debt ceiling deal, but for now we can safely count our blessings.

The Good News for Home Buyers and Homeowners

Debt Ceiling Deal HappinessFirst the good news for home buyers and homeowners. The debt deal that became law Tuesday gave homeowners some temporary relief with lawmakers leaving the mortgage interest deduction (MID) untouched. MID allows homeowners to  save money on taxes if they itemize their interest on mortgages. Previous versions of the compromise legislation suggested lowering the income eligibility guidelines for the MID to $200,000, for single taxpayers and $250,000 for joint filings. In these tough economic times, any kind of saving is a bonus. So, if you are mulling about buying that house, now maybe the time to do it while MID is still at play. Think about it, come tax time you can rake in some money while having a house to your name. A word of caution though. The debt crisis has not gone away and MID may not remain a sacred cow for  long as lawmakers look at  $1.2 million to $1.5 million in additional budget cuts. The deduction will cost the government $131 billion next year, and it’s bound to be an attractive target.

Debit Ceiling Deal – Yearly Low in Mortgage Rates

The other sweet outcome of  the debt-ceiling deal is record low mortgages. Pundits were on tenterhooks claiming  the advent of an apocalypse as lawmakers battled away stoking a scenario where the government nearly defaulted on its financial obligations. If that would have happened, the financial market would have convalesced, skyrocketing interest rates and raining on the dreams of potential homeowners. But, with the deal being sealed, mortgage rates this week touched the lowest level for the year. On a 30-year fixed-rate mortgage, interest costs averaged 4.39 percent this week, says housing-finance Goliath Freddie Mac. The same happened with 15-year fixed-rate loans and 5-year adjustable rate loans, which dived to 3.54 and 3.18 percent, respectively. In all likelihood, interest and mortgage rates will lie low allowing the market to get a breather. “We might be seeing a “dead cat bounce” for the housing market,” said Anthony Sanders, real estate professor at George Mason University in an interview to the Hill.The new rates would also help existing  homeowners. The Wall Street Journal reported that nearly 42 percent of borrowers, who have  a 30-year fixed-rate loan could lower their rate by one percentage point. But, of course, it would all depend on your income, credit scores and how much equity you have in your home. So, if you haven’t already refinanced, now may be the time to look into it.

The other reason to really look into buying now is the slow uptick in home prices. Nationwide, single-family housing prices gained 0.7 percent in June compared to May, according to the June Home Price Index released this week by analytics firm CoreLogic. That’s the third consecutive month of gain in home prices. Experts attribute the boost to seasonality. Prices are still down 6.8 percent from June 2010, an even worse decline than the 6.7 percent experienced from May 2010 to May 2011. The star performers were the New York-White Plains-Wayne NY/NJ market, where prices increased 2 percent year-over-year. Chances are the prices will continue an upward climb, and it may not be such a bad idea to buy now when homes are still affordable.

Not-So-Good News for First-Time Home Buyers

Now for some not-so-good news for potential first-time home buyers. The Sun Sentinel reported that prized mortgages insured by the Federal Housing Administration will become harder to get on homes that cost several hundred thousand dollars. Starting in October, the government could lower the maximum amount that can be borrowed while qualifying for FHA insurance, the paper reported. With attractive interest rates and down payments as low as 3.5 percent, FHA mortgages are considered the best deal around. Without these loans, borrowers would have to pursue conventional mortgages with 20 percent down payments and higher interest rates. The change would particularly affect buyers strapped for cash and in expensive markets such as South Florida, California and New Jersey.

On the whole, the housing market did not end as bad as it could have this week.  That itself is a cause for celebration.  But what form it could take with the greater financial market settling itself, the next political wrangling heating up leading to the 2012 elections and the debt ceiling deadline looming in 2013, remains to be seen. The ride ahead may continue to be a bumpy one.

Comments are closed.