I am a worrier, so I am probably a little biased on this subject. I can find a reason to worry about almost anything if you give me the opportunity. That said, this hissy-fit that the United States Congress is having at the moment does have implications for the average person who may be thinking about buying or selling a home.
If you’re looking for a political analysis of this situation, you’re in the wrong blog. What I’m mostly worried about is what the current crisis might do to real estate prices and mortgage interest rates, and what that in turn might mean for home buyers and sellers. Mortgage interest rates are tied to the yields on U.S. Treasury Bills. If the Treasury market becomes volatile, mortgage interest rates will likely follow suit. If the yields on Treasuries spike upwards, we can probably expect mortgage interest rates to do the same, particularly if the Treasuries go up and stay there for any length of time. And if mortgage rates go higher and stay higher, it is likely that home prices will fall in response to the rate hikes.
As dire as this sounds, and despite what you may have heard, this may not necessarily signal the beginning of Real Estate Armageddon, at least not in Northern Virginia. We are lucky to be living in an area of the country where the crash of the housing market has had less of an impact than in other areas of the country. The employment situation has not been as dire, and the local economy has not been quite as sluggish as it has been elsewhere. So people who need to sell their homes will likely still be able to sell them, and people who need to buy may have a little more difficulty securing a loan and buying, but the well qualified buyers will still be likely to find lenders willing to make mortgage loans. It will just be a different market than we have gotten used to in the last few years, potentially very different.
If the worst does happen, and housing prices start falling, there will be more homeowners facing the prospect of little or no equity in their homes. For some, it may even be negative equity, if the value of their homes drops below the amount they owe on their mortgage. This sounds scary, but here’s the good news: if you weren’t planning on moving, and you have a fixed-rate mortgage and a secure job, nothing much is going to change for you, at least not instantly. I heard an otherwise very intelligent pundit talking about this situation the other day on the television claim that mortgages would cost as much as $400 per month more if the country went into default. This is simply not true if you don’t have an adjustable rate mortgage. Even if you do have an ARM, it can only be adjusted according to the terms of your loan. Even in a crisis, a contract is a contract. If you have an ARM, now would be a good idea to review the contract and understand what your “best case” and “worst case” scenarios would be, in terms of increases or decreases on your interest rates. Every loan has a specific formula for calculating the new rate, and you can either do it yourself, or call your lender and have them explain the terms to you, something that they should have done when they made the loan.
So is there a reasonable strategy for someone who may, despite all the uncertainty in the financial markets, need to buy or sell a home right now?
The strictly factual answer is simply that nobody knows right now what the future may bring. That’s always true, but if there can be degrees of trueness, it’s even more true now.
So if you’ve been thinking about maybe getting into the housing market and buying your first home, right now is a good time to learn what your mortgage options are, and to find out more about the whole home buying process.
If, on the other hand, you’ve just been transferred into the area and need a place for you and your family to live, or you have some other pressing need to buy right now, you will want to proceed with caution, work with a local lender, and make sure any offer you make on a property includes both an appraisal contingency and a financing contingency.
As for selling your house in this market, if you really need to sell then don’t shilly-shally around. Get your house listed at the price your agent believes will bring you an offer in the next ten days. Yes. If you do have to sell, make sure you get it done quickly, if prices are on the verge of dropping you want to be under contract as soon as possible.
If you don’t really need to sell, but you’ve been thinking about it, proceed with caution. There is no guarantee prices are going to drop, but there is also no guarantee that they won’t. So take some time to give careful consideration to what you hope to achieve by selling your house and then decide on your course of action based on what is actually happening in the housing market locally.
Despite my worry and the near-hysteria in the media over the debt-ceiling “crisis”, this is likely not the end of the world as we know it. It may even be as big a non-event as Y2K (remember that?)
Or not. The point is, no one really knows what’s next.
I would love to end this post by saying something like “I worry so you don’t have to”, but maybe you should, just a little bit. Enough to approach any real estate transaction you may be contemplating with caution and careful thought. Then again, you should always do that in real estate.
Peace.