The Year in Review and a Look Ahead to 2010

As expected, 2009 was a tumultuous and unpredictable year, but as a general statement, it was a very satisfying year for western Pennsylvania, at least by comparison. Our region experienced nothing like what was happening in various localities across the country. In those markets, prices were collapsing, foreclosures were rampant and homeowners appeared to be in desperate straits.

In our little corner of the world, prices were stable, interest rates dipped below 5 percent for the first time in my career and buyers remained quite active, if reluctant, as a result of the perception created on the nightly national news. Much of the ‘real estate crisis’ was the creation of the media. If we could have lived in a vacuum we would probably have felt little impact.

The real estate stimulus package was a big seller; first-time home buyers came from every direction and as we approached the November 30 deadline, a frightening level of frenzy developed. I had a recurring nightmare that first-timers who entered into agreements to purchase were unable to get their property closed by the deadline and a tsunami of litigation ensued, with unhappy buyers being obligated to buy their houses without the benefit of the government incentive.

A great deal has changed as a result of the events of last year. Low down payment mortgages, other than FHA-insured loans, have vaporized. And it is no longer possible for those with ‘less than perfect’ credit records to obtain home financing.

Appraisers have come under significant scrutiny as, correctly or not, it was perceived that many of the banking problems we experienced were the result of overstated values caused by appraisers’ willingness to overvalue property in order to make a deal fly.

A very positive change that has come out of all this is the standardization of good faith estimates (GFE) of the cost of acquiring property and the synchronization of these costs to those that appear on the HUD 1 settlement statement which buyers receive at the time of settlement. This is an important improvement, as a frequent complaint of home buyers was that their actual costs in no way resembled those which were estimated for them in the beginning, but at the time of settlement it was often too late to do anything about it. With the new approach, the loan officer’s estimate will appear right there next to the actual costs and any significant difference could be cause to stop the closing.

Overall, last year was a case of expect the worst but hope for the best, and what we got was pretty good. So what about 2010?

The new stimulus incentive is even better than the previous one. Whereas last year only first-time buyers were eligible for up to $8,000, now both first-timers and some move-up buyers can take advantage of the program until April 1 with first-timers still receiving up to $8,000 and move-up buyers qualifying for as much as $6,500.

Look for the first quarter of 2010 to be very robust as it relates to home sales. My only concern is whether we will be borrowing business from the second half of the year and pushing it into the first quarter. After all, if you are thinking of buying a home in 2010, why not move up your plans and take advantage of the incentive? If that’s the case, we are going to see really skewed statistics in this coming year, with a deluge in the first six months and us twiddling our thumbs after June 30 which is the closing cut-off for the incentive.

What about interest rates? It seems to me that with the amount of debt the government is racking up, rates will inevitably go higher. When and how high are questions for which no one has an answer, but consider this: since the government must pay its bills and at this time does not have the revenue to cover them (thus the deficit), the only real options are for the Treasury to print more money, resulting in inflationary pressure on the economy OR they can borrow the money through the use of Treasury instruments like bonds and notes.

As long as we can continue to get the Chinese and other foreign investors to accept low returns on their treasury notes, our interest rates can remain low. However, if investors become reluctant to continue investing, our only method for continuing the attraction is to increase the return (raise the rates). When these rates increase, all rates increase. So those old saying, ‘strike while the iron is hot,’ is certainly applicable. If you’re thinking about a new home, NOW is the time. I think we have about six month of ‘business as usual’; after that, the old crystal ball starts to cloud up.