At the end of 2008, I said I wouldn’t be surprised if the year went down as one of the worst-ever for housing since the Great Depression.
But as we get ready to say goodbye to 2009, it’s clear that this year hasn’t been much better.
We’ve had another record year of foreclosures (3.9 million foreclosure filings, according to RealtyTrac). Housing prices fell sharply in the first half of the year, as millions of Americans lost their jobs.
The housing market is still on life support: The $8,000 first-time home buyers’ tax credit, which was originally set to expire November 30, 2009, was extended until June 30, 2010. In addition, a $6,500 home buyer tax credit for homeowners who had lived in their prior residences for 5 out of the past 8 years was added.
Millions of Americans (about 27 percent, according to Deutsche Bank), are living in homes worth less than the amount they owe on the mortgage. The government’s loan modification program has been a failure so far. More than 760,000 homeowners are in a trial modification and just about 31,000 of those have been converted to permanent status.
Fannie Mae and Freddie Mac, still under government conservatorship, have taken hundreds of billions of dollars in losses, and economists believe they have large, unrealized losses left to be taken. The Treasury Department spent $1 trillion buying U.S. housing-backed mortgage securities, and will spend up another $250 billion before the program finishes in 2010.
FHA now accounts for 30 percent of all loans originated, but has used up its insurance fund and will require higher down payments and bigger mortgage insurance premiums starting next year.
And then there are the real estate investors, swooping in to scoop up properties on the cheap. As the year ends, investors account for about 40 percent of all home sales. Some investors are finding ways of buying distressed properties and flipping them to other buyers for a profit. (Some things never change.)
Speaking of which, perhaps 4.5 million existing homes will sell this year plus another 430,000 new construction houses. That is the lowest number of newly-built homes sold in any year since records have been kept – save 1982, the year interest rates climbed above 18 percent.
If there has been a bright spot, it that mortgage interest rates touched a 50-year low twice this year. Millions of Americans (including your columnist) refinanced to take advantage of rates that were as low as 4.25 percent for a 15-year fixed-rate loan and 4.75 percent for a 30-year fixed-rate mortgage.
And, the first-time home buyer tax credit seems to have propped up the housing market, for the moment.
It’s hard to believe that two years ago, as we ended 2007, some were comparing that housing market to the Great Depression. We’ve fallen so much farther since.
The good news is that if you’re looking to buy a home in 2010, mortgage interest rates will be low, and home prices will be relatively cheap. You’re going to need more cash for a down payment, for closing costs, and for reserves. And, you’re going to need a higher credit score.
If you’re planning to buy a house this coming year, here’s my annual list of New Year’s resolutions you should consider making:
As a buyer, I resolve to:
• Get my credit and finances in shape. If you want to take advantage of today’s low interest rates, you’ll want to have a credit score above 760. The higher the better. If your credit score is below 620, you’ll have trouble getting even an FHA loan.
• Know how much I can afford to spend before shopping for a home. Getting preapproved before you shop for a home has never been more important. You’ll need all kinds of documentation (W2, tax returns, account statements, etc.), so get it together before you visit a local lender. And, shop around. Although Fannie Mae, Freddie Mac and FHA account for nearly 90 percent of all loans, each lender sets its own fee schedule. Get the best deal by chatting with 4 or 5 different types of lenders.
• Know my neighborhood, and be comfortable with it, before I buy a home there. Houses are great. Neighborhoods that are littered with foreclosures may be unstable for years. Spent time in the neighborhood before falling in love with a particular house.
• Interview at least three brokers before hiring one. This is the single biggest purchase of your life. You deserve to have the best representation. Make sure you interview at least three different agents or brokers before hiring one. Ask questions about how many transaction sides they’ve closed, what price range they work in, who their typical customer is, and what kind of technology they use. Hiring an agent is like being in a short-term marriage. You want it to be good, supportive, and productive.
• Read and understand all documents before signing them. I know loan documents are long and boring. So what? You’re committing to the next 15 to 30 years of your life (less if you refinance). Take the time and read your loan and purchase documents. Make sure you understand what they’re saying. Make sure the numbers match what you were promised. And if they don’t, speak up before you close – not after.
NEXT WEEK: If you’re trading up, you’ve probably got a home to sell before you can buy. How can you sell in a slow market? How can you compete against 10 other homes for sale in your neighborhood? Will you qualify for the new home buyer tax credit after you sell? Next week, we’ll continue our look back at 2009 and I’ll have your Home Seller Resolutions for the New Year.