Buyers rushing to claim tax credit dollars have their eyes on the wrong ball
Call it another sad real estate delusion.
Maybe it's not on the same order of that bubble-years mantra that you can never go wrong buying real estate.
Yet buyers rushing to find a home and get a sale agreement in place before the federal tax credit expires on April 30th have their eyes on the wrong ball.
The credit, $8,000 for first timers and $6,500 for trader uppers, is certainly a big chunk of change for a lot of us.
But it pales in comparison to the tens of thousands in additional mortgage payments a potential buyer will be on the hook for over the life of a 30-year mortgage if interest rates jump just a single percentage point. Check out this Times piece, which, along with taking a swipe at NAR, makes the case for watching rates instead of home prices.
April 30th, when the tax credit goes poof, appears to be one of the best known dates out there other than Christmas and Halloween.
Yet in just a few weeks, the Federal Reserve will take a key step backing off from its unprecedented effort to prop up the housing market by keeping rates low.
That big shift is slated to kick off March 31, but it's unlikely that anyone outside of the business and economic spheres has circled it on their calendars.
But buyers should certainly be watching this too, with the Federal Reserve slated to stop buying mortgage-backed securities from Fannie Mae and Freddie Mac.
That is expected to let interest rates, now hovering at a rock bottom 4.91 percent, float upward.
Don't get me wrong - this is not an argument to rush out to buy now in a bid to capture a low rate along with thousands of tax credit dollars.
Anyone buying a home this spring has to take into account whether those tax credit dollars are somewhat of an illusion, with the completion the credit has spurred for more modest homes simply helping prop up their prices.
That's a hard one to untangle.
But this isn't hard to figure out: A lower mortgage rate has the potential to save prospective home buyers many more dollars over the mid- and long-term.
