Thursday, January 30, 2014
Jed Kolko’s 3 Big USA Real Estate Worries
· As rates have risen, the demand for refinancing existing loans has dropped. This may cause lenders to shift credit to new home purchases instead.
· These rules will make banks more confident in issuing “safe” loans, making it easier for homebuyers to get them.
· Everything is on the table for the budget reforms that were agreed upon in the negotiations that ended the government shutdown. This includes the mortgage interest deduction, which gives consumers a financial incentive to own their housing. Altering this deduction will presumably reduce consumer demand – the question is how much.
· According to Kolko, the argument around Fannie and Freddie boils down to this: “How much should the government and consumers be on hook for keeping the 30-year fixed-rate mortgage available and relatively cheap? How much risk do we want the government and taxpayers to take when the next housing downturn happens?” The policy created to answer these questions will undoubtedly impact the housing market.
· For many months now, the Federal Reserve has planned on cutting back its bond purchases. Mortgage rates spiked during the summer not because the Fed started tapering bond purchases, but because they were to start tapering them! Kolko expects that the Fed won’t begin tapering anytime soon (the government shutdown was good for something!) but when it does, rates will almost surely rise.