Posts Tagged ‘refinance’
There Can be No Economic Recovery Until Real Estate Recovers
Real estate is the corner stone of our economy. A recovery of the real estate sector has always brought us out of past recessions. This one will be no different.
We know a big surplus of vacant houses has existed on the market for years. Much of this is caused by the foreclosure catastrophe. If nothing changes, we will eventually work through the glut and return to normal in several more years. But do we really want to continue in a very slow recovery for years to come?
The government has made several unsuccessful attempts to reduce foreclosures and thereby stimulate the economic recovery. All of us are aware of the government’s Making Home Affordable Program and spinoffs like Home Affordable Modification Program. No single program or combination of programs has made a noticeable improvement in the recovery of the residential real estate sector.
Some expert’s have advocated the government intervene to force a reduction of mortgage principles so that homeowners can refinance at today’s lower mortgage rates. While this may be a viable option, it would come at another heavy expense to taxpayers.
A better solution is establishing tax incentives for investors like you and I to buy up the glut of houses and either turn them into rental properties or sell them on the open market for market value.
There are several advantages to putting an investing incentive in place. Foremost, only after the surplus dries up will the market return to normal and housing values begin appreciating again. When that happens, homeowners and investors alike will be able to refinance or again sell properties at a profit.
This is a much less expensive alternative to taxpayers. Congress should enact an investment incentive allowing investors to immediately depreciate the value of properties instead of requiring it be done over multiple years. Although I don’t favor controls on investors, if the government enacts this incentive, it is also likely to require the property be held for a period of time that could be several years in length.
Overall, increased immediate depreciation would have the compound affect needed for a rapid real estate recovery. The tax savings for investors would make more investing funds available. These funds would be plowed back into the real estate market to further reduce the excess inventory. Reducing the inventory takes pressure off the lenders’ balance sheets when the FDIC reduces the amount of reserves lenders are required to hold in anticipation the loans will not be repaid.
Major Banks Hiring Loan Officers
The real estate market looks to be gearing up for more sales after two major lenders announced they are in the process of hiring 1,600 loan officers. As one of the largest mortgage lenders in the country, JPMorgan Chase is in the process of hiring 1,200 mortgage officers over the next couple of years. While the company does not expect to be suddenly inundated with mortgage applications, they do anticipate steady growth.
Citizens Bank, the nation’s 24th largest lender has plans to add 400 additional loan officers before 2013. They anticipate increased staffing by 100 people in 2010. They increased lending in 2009 by 167% over 2008 and see continued growth going into the future.
The Mortgage Bankers Associate estimates the industry will grow to $916 billion over the next two years. That’s in comparison to this year’s forecast of $725 billion. The expectation is growth will be heavily in purchases by new buyers as the refinance market is expect to drop to $474 billion in 2012, down from $717 billion this year.
Falling Mortgage Rates is More Good News For the Real Estate Industry
Both buyers and sellers received good news from Europe this week. The financial chaos in Europe has investment money flowing out of Europe and into the US mortgage market. And just when most investors were braced for a rate increase caused by the ending of the Federal Reserve’s $1.25 trillion mortgage-securities purchase program.
The ending of the fed’s purchase program coupled with the end of the first time buyer income credit could have sent the real estate industry back into a tail spin before the recovery ever took a firm hold. Instead, record low mortgage interest rates mean buyers can afford more house for the same payment. For sellers, it means prices should gradually increase as buyers can afford more. For the banks, it means more people will qualify to purchase their REO and begin stabilizing the entire housing market.
There is a rough correlation that says a one percent decrease in interest rates equals a 10% increase in buying power. Before the sudden influx of European money, interest rates were expected to climb towards 6% over the summer. Now, they are heading down from an already low 4.86% percent were they ended last week.