Upscale neighborhoods in California, New Jersey, Connecticut, and Massachusetts are getting set for another dip in home prices as the government plans to stop backing mortgages there by the end of the summer. For the past three years, federal programs have acted as a government housing entitlement by promising to reimburse private lenders in the event a home owner defaults and, in the process, have found themselves on the hook for loans going as high as $730,000. Obviously, this has kept the prices artificially high in these areas since private lenders wouldn’t have loaned money on them at all if Big Brother hadn’t promised to hover in the background and pick up the pieces.
But in a strangely common sense joining of forces, both Republicans and Democrats have decided that the American taxpayer should no longer be on the hook for loans in swanky digs and high-priced neighborhoods. By some time in August, the Obama administration plans to end government housing entitlement on these types of loans and test the waters with a new plan that turns the market back over to private lenders.
Get ready for a housing price crash say some experts like loan broker, Rick Del Pozzo: “We’re looking at more price drops, more foreclosures. This snowball that’s been rolling downhill is going to pick up some speed.”
In Monterey County, California, regulators are expected to drop the maximum amount for which they will guarantee loans to $438,000, a far cry from the near million dollar home prices residents are used to. As prices tumble, investors should keep an eye peeled for great income property deals which may or may not materialize – it all depends on the loan terms, which are likely to get much more stringent, beginning with higher down payment demands, perhaps as much as twenty percent.
The bottom line here is that some housing markets have a lot more pain to go through but we tip our hat to the politicians who, at least in this instance, are treating taxpayer dollars with a bit more respect by ending this nonsensical government housing entitlement.
The Solomon Success Team
Flickr / mnsc
