With the constant changes in the economy and the changes in Mortgage guidelines  (sometimes taking place on a daily basis), my challenge was to give some informative content that would not change before this information was in your hands.

The frenzy of the economy has made everyone skittish about investing and transacting business, especially for such a large transaction as purchasing a new home.  I believe it is still a great time to buy and sell in Sioux Falls and surrounding areas.   I also believe that we will see some changes locally in the next year, with the slight trickle down from the national trend.  Our market, from a housing standpoint, is not immune to what is happening on a national scale, but I do believe we are doing well yet here in our area. 

The Housing Market in our area

As of September 2008, median prices for homes in our market have not changed more than an average of 5% in the last year, and are actually up an average of 2% from 2 years ago, according to figures produced from the local Realtors Association. Looking back 5 years, we are still staying fairly consistent with the normal market ups and downs; number of closed sales, pending sales and number of new listings.  It would surprise most people to find that we have less homes in inventory this year over last, which contributes to home price stability our market.  Housing in our market here in the Sioux Falls area is 60% more affordable than the average US Housing Market.  Although new construction has decreased, we are still seeing building and construction activity.

What are rates going to do?

This is a question I am asked multiple times every day.  Although I would question whether anyone has a crystal ball, I believe that being cautious and waiting for rates to dip down to the lows of 2003 and 2004 may not be a wise choice if you are waiting to purchase or refinance.  Some financial analysts predict that we will see rates gradually increase over the next 6 months by .50% and in the next year we will be up 1% over this year. Other analysts have predicted rates dropping .50% in the next 6 months and then gradually increasing again.   With the bailout of souring mortgage securities, increased Treasury yields will consequently result in higher mortgage rates. History shows us that market volatility will cause many days with dips, dropping rates below the gradual trend upward, but for the longer term, mortgage rates likely will edge higher.   

How does a bailout influence mortgage rates?

As credit guidelines have tightened in the last year, a bailout affects mortgage loans by making credit more available.  The other side of this is that it may also make interest rates higher. One analyst explains it this way. A bailout of faltering mortgage securities and other assets from banks will affect rates in the following manner.  One objective of a bailout plan is to calm the credit markets and stretch the difference between mortgage rates and rates on treasuries. The Treasury Department made a recent announcement that it would buy mortgage-backed securities in the open market. We as a country will have to borrow the money to do this by way of selling treasuries. With the expected rate increase in treasuries, the net result is likely that the mortgages supported by underlying treasuries will see a rise in their rate.

What recent changes have we seen in Mortgage Guidelines?

As of mid-October, we are still seeing credit guidelines tightening. As a result, FHA loans have become more popular.  As higher credit score requirements and rates for credit risk increase on conventional mortgages, as well as the subprime loan product going away, we are qualifying many home buyers into FHA loans. There are some benefits of FHA loans. •FHA loans carry a lower monthly insurance premium. (Some premium is paid up front)  •These loans tend to be offered at a lower rate. This is because FHA loans are federally insured; they tend to trade at a higher premium in the secondary market. •FHA loans are not credit-score driven. Borrowers can have a lower score than other products and still qualify for a good rate. •In some cases, higher monthly debt-to-income ratios are allowed.  • FHA loans require as little as 3% down.  •For sellers; you can offer concessions that make marketing your home much more attractive without having to lower the price of your home again. •Homeowners can take cash out up to 85 or 95% of the home's value; or consolidate a first and second loan up to 95% of the home's value. • FHA loans are assumable, which can be an attractive selling point when you turn around and sell your home when the interest rates are higher.

FHA has changed its appraisal and fee negotiating guidelines. In the past, many sellers steered clear of FHA loans because the appraisals were too strict and certain fees were non-negotiable. The FHA has greatly loosened these guidelines to make it easier for both buyers and sellers.

Don't Panic

This all may mean that as a prospective buyer you may need to purchase a home that is priced slightly below where you may have considered a year ago, but, you can still purchase, and purchase at a great rate. Dating myself, but making a point, I recall when I bought my first home in 1990, my first homebuyers rate was over 10%.  Borrowers who bought homes in 1990 would have gotten the worst rates of the decade. The loan adjusted after 3 years, and eventually found its' way down to 8%.  I remember thinking it was a great rate at the time!   Borrowing at 6 or 7% on a mortgage is still affordable. As well, there is a great inventory of homes out there. The housing market will continue to move.

Thinking toward the future

What should you do now to insure the best position to purchase a new home in the near future?  Get your credit situation in order.  Start saving down-payment money.  Improve your "profile" from a credit standpoint so that you may qualify for the best possible loan and rate available.  If you have things to clean up on your credit, your Mortgage Lender would be happy to help you analyze that credit and give you instruction on what needs to be done to improve your score, or correct items that need to be corrected.  Start a savings account if you have not already done so, and come up with a savings plan.

In conclusion

The doom and gloom in the media everyday is alarming and has made many of us reconsider our financial situation and spending habits.  We still however, live in the land of great opportunity. Commerce is taking place every day. There are still good mortgage options available.  We are still able to take advantage of good rates. We have a beautiful city here in Sioux Falls, and surrounding communities, which continue to grow, and the dream of home ownership is still alive and well here in South Dakota.