Possible Mortgage Lending Changes

Possible Mortgage Lending Changes


“The Only Thing That Is Constant Is Change -”
– Heraclitus

The end of Freddie Mac and Fannie Mae will drive change to the mortgage environment.  How will this affect our real estate environment?

“You have to assume that almost in any future model being drafted, loans will be more expensive.”
David Stevens, CEO of the Mortgage Bankers Association

Don’t fool yourself if you think these astronomically low interest rates are going to be around much longer.  When was the last time you earned a decent interest income on your savings account?  Oh, wait why have a savings account when you are earning such pitiful returns?  Yes, mortgage rates are related to the savings rates you earn.

Economically, we just cannot sustain this environment for much longer.  This type of environment will eventually have a backlash.  Remember the the Boom and eventual Bust of the Real Estate market in early 2000s?  It wasn’t that long ago.

I like what Lawrence Yun, Chief Economist for NAR has to say about the eventual rise in interest rates:

“Affordability conditions remain favorable in most of the country, and we’re still dealing with a large pent-up demand. However, higher mortgage interest rates will bite into high-cost regions of California, Hawaii and the New York City metro area market.”

I think one thing that has not been touched on is that an increase in wages might offset the increase in interest rates.  As long as they are congruent, essentially people could afford the same price for a home.  If standard of living increases along with the interest rates, there really should not be a bite into what you can afford within most areas of the United States.

If the standard of living can start growing again along with the increase in interest rates, the housing market will not fizzle.  But, if standard of living does not grow in proportion to other rising costs then, well, we will see a fizzle in the housing market.

Everything is cyclical.  You have to take the good with the bad.  Also, you must get through the bad to get to the good.  It’s no time to panic; but, to look at more analytically as to  how you are going to adapt to the possibility of a changing environment.