There is exactly one month left before the $8,000 first-time home buyer tax credit and the $6,500 move up home buyer tax credit expire. As mortgage rates have been steadily rising since the middle of last week, all signs are indicating mortgage rates will continue to rise, at least for the near future. Even if mortgage rates did fall back once again after the expiration of the incredibly popular tax credits, the likelihood of home sales significantly increasing again in 2010 is extremely remote without government incentive.
There are several indicators pointing toward a dramatic increase in mortgage rates, but two of the more noteworthy indicators will be put to the test over the next few days. Tomorrow, the Federal Reserve will complete its purchase of $1.25 trillion in mortgage-backed securities. It is no secret this program has kept mortgage rates artificially low for more than a year. Once the Federal Reserve exits the program, who will be left to purchase the holdings? And on Friday, the latest unemployment figures are due out. The preliminary unemployment figures imply the creation of nearly 200,000 jobs in March. That’s great news on the work front, but bad news to the feeble housing industry. If homeowners are beginning to enjoy more stable job security, mortgage rates are certain to go up.
Over the weekend, Alan Greenspan forewarned of imminent interest rate hikes by saying increased rates are a “canary in the mine.” Greenspan’s speculation is centered on the federal deficit that has ballooned.
The tax credit has been extended once, and even expanded. However, the likelihood of another extension is virtually nonexistent. As mortgage rates climb, if a signed purchase contract is not completed by April 30, the tax credits will be lost. Even if you succeed in agreeing on a home purchase with a seller, the next obstacle would be to close by June 30. As housing sales slumped over the winter and into early spring, the clock is ticking and time is clearly of the essence now.
Robert Hyder
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