There is a lot of buz going on regarding a possible increase to the Tax Credit. We asked Christ Simms, Certified Mortgage Planner with Pulaski Bank what he knows -
Ok my phone has been ringing off the hook today about the $15000 credit. Here’s the skivvy on it:
Currently the House has passed a bill and sent it to the Senate packaged as a “Stimulus Package”. The senate does not like the bill as is sits so they are fighting to change it. Currently the Democratic side is ready to go but the Republicans are fighting to see additional help to housing.
One Amendment 353, a proposal by Senator Ensign, would provide a lower interest rate of 4%. This is currently being debated by the senate. Last night the Lieberman/ISakson Amendment was included in the senate version. This would provide for a tax credit of 10% of the sales price with a max of $15K to any body who buys a home this year. This would not be subject to just first time homebuyers. The credit would be available on all primary residence purchases for the 2009 year and could be filed as an amendment on the 2008 returns. This is good news. The question is will people actually spend the money or will they do the same things as the bank and hold it. The proposal also calls for NO Payback if you live in the home for more than 2 years. This could really help the housing market. The question is, will it go through?
In order to answer that we need to look at what came out today. Today we found out that unemployment is at 7.6% which is .3% above consensus estimates. That is a big difference. Most economic advisors were expecting 7.4 to 7.5. To top it off 2008 was revised with worse numbers. Needless to say there are no jobs out there. That’s bad for housing and the economy. No Jobs means no spending, which also means no taxes. Being our democratic congress is printing money with no end in sight, how do they plan on paying it back with out people having any jobs to pay taxes. There in lies our current rate situation. Being the government needs to beg for huge amounts of money over the next few weeks just to pay for things they have already begun doing (like bailing out failing banks who are still buying corporate jets), the money has to come from somewhere and the problem is where is the government going to get the money to pay for the payments on the money it was lent? This is a huge concern that the government might default or just print more money. Printing more money means we will have higher inflation which is bad for Mortgages.
So to recap there is a bill currently being debated in the senate that could help housing but will cost a lot of money and the government doesn’t have any money. Secondly there are no jobs to pay taxes so there is a fear that the government won’t have any money for a while. Lastly average mortgage rates are sitting at about 5.5% on a 30yr fixed for FHA and conventional because of the fear the government doesn’t have any money and doesn’t know if it can raise it.
Does this mean rates will keep going up, actually we feel the lower rates are still right on the horizon, this is merely a fear issue in the market. There is some validity to the fear but because of the processes that are already in place and the stimulus package that is now a must, we are looking for rates to hit in the lower 4’s. So hang in there and be diligent, it might be an ugly ride in the mean time.