New Year- New Real Estate Market

As we look forward to 2010- we need to be aware of the changes that will be imposed in the Real Estate market with the new year. The changes we can prepare for (as I still have yet to receive my crystal ball) are in the mortgage industry. Here is what we can predict on interest rates- and how:

During their regularly scheduled meeting of the Federal Open Market Committee, the Federal Reserve kept the Fed Funds Rate unchanged. But history has shown that when the Fed has left rates too low for an extended period of time, there is a price to be paid, via higher inflation. Yet if the accommodation is removed too early, it can derail an already fragile recovery. The Fed continues to walk this tightrope, trying to get it “just right.”

Along with this decision, the Fed emphasized and reminded that their MBS (Mortgage Backed Security) purchase program will still end on their already revised deadline date of March 31, 2010. Why is this significant? Let’s look at the numbers from last week to get an idea. The Fed purchased $16B in MBS in the latest week bringing the year-to-date total to $1.087T. This means there is $163B left to purchase before March 31, which in turn means the Fed will purchase about $11.5B on average each week through the end of the buying program. This is less than half of what the Fed was buying regularly throughout 2009 and a 1/3 less than what the Fed has been buying in recent weeks.

So why does this point to higher rates around the corner? When there is lots of supply and diminishing demand, the price of that item will subsequently go down – it’s Economics 101. So, when Bond prices start to decrease from the diminishing demand of the Fed’s purchases, home loan rates will naturally be likely to increase.

Keep an eye on interest rates- as we near the end of March- rates will increase. Unfortunately we can predict how quickly or how high they will go up- but we do know an increase will occur.

On the good news front- it has been made mandatory that all mortgage brokers and loan officers get licensed. Currently there are no regulations on who can be a mortgage broker or loan officer. Now- all current workers in the industry must get licensed by July 1, 2010. All newcomers to the industry will have to undergo training and licensing. As there currently exists with real estate agents- there will be  a system set up for mortgage brokers that allows you to research who you are working with to find out about any formal complaints filed, length in the industry, etc.

Have a Happy New Year- and a prosperous 2010!