Will 2012 be better?
By now all of the predictions for the New Year are starting to circulate, and since it's an important election year, the soothsayers will be out in force. But what are the crystal ball readers saying about the real estate market or more importantly how will events that are already in place influence the outcome?
Mortgage interest rates, as most of us are aware, are at an all time low. In mid-December the 30-year, fixed-rate, conventional mortgage was below 4 percent, and the 15-year, fixed-rate, conventional mortgage was below 3.5 percent. It is anticipated, based on recent actions by the Federal Reserve, that these rates will remain at an unprecedented low during 2012.
However, there is one little issue that could have a negative effect on the rates. As of this writing, the Senate and Congress were still kicking around how to extend the so called payroll tax reduction. Whether this negotiation results in a two-month or one-year extension is one of the issues being debated. However, one of the sources of revenue to pay for the reduction in tax revenue is not being debated. Both the Congress and Senate have agreed to increase what is termed "guarantee fees" on Fannie Mae and Freddie Mac backed home mortgages.
These fees are always passed on to the borrower in the form of higher interest rates or a direct increase in borrower fees averaging around one-quarter of one percent of the loan amount. Since the federal government now is the major shareholder in Fannie and Freddie, it's proposed that these funds go directly to the U.S. Treasury to offset the payroll tax reduction.
As can be expected, the Mortgage Bankers Association, the National Association of Realtors and the National Association of Homebuilders indicated their concern. These associations felt it is counterproductive to direct revenue from Fannie and Freddie for purposes unrelated to housing and would further undermine the soundness of the housing finance system.
Also on the horizon for next year are changes to Florida's never ending insurance saga. Representative Bill Hager, of Boca Raton, introduced HB 833, which would presumably shape up the Florida Hurricane Catastrophe Fund, that is the state run reinsurer, with increased premiums. In 2007, the Cat Fund was expanded from an emergency reinsurer to a major player in the market. Nevertheless, should the state be hit with a Category 5 hurricane or a series of storms the fund would not be sufficient.
Hand and hand with the Catastrophe Fund issues, Gov. Rick Scott is also attempting to reform Citizens Insurance which would also have a short fall in the event of a big storm. Of course, the Florida Catastrophe Fund is Citizens' reinsurer in the event of a major event.
One of the proposed reforms to Citizens is to eliminate homeowners coverage on almost 8,000 coastal homes valued at two million or more which are the current limit, as well as reducing the amount of homeowner liability coverage. This is of course an attempt to reduce financial expo sure on high risk properties. Reducing the two million cap to one million would take effect next year and would not require legislative approval. So far, similar limits on condominiums and small businesses have not been approved. Scott has not made it a secret that he would like to see Citizens privatized or to create an environment in which private insurers will come back into the Florida market in order to relieve the state of some of its massive liability.
Many of the real estate forecasts I read are actually reporting the market stabilizing during 2012 as consumer confidence goes up. Although it may not be a totally boom year it also doesn't look like a total bust. So let's ring in the New Year with positive thoughts, wishing everyone a happy, healthy and prosperous 2012.