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Government Support of Housing Market Ending Soon
Vero Beach Real Estate | Vero Beach Foreclosures
For the previous year, the federal government has tried to revive home buying by driving down
mortgage rates and providing tax credits. Now that the housing market is stabilizing, the government
is pulling out. The federal support for mortgage rates, is set to end in two months. and the tax credit
deadline is April 30th.
Keeping mortgage rates at historic lows, with a commitment of more than $1 trillion, was a central
theme of economic strategy last year. It helped revitalize home buying in Vero Beach Florida and put
money in the pockets of millions of home buyers through tax credits and low interest rates.
“We did what we thought was necessary to stabilize the market, but we don’t think the government
should continue special efforts forever,” said Michael S. Barr, an assistant secretary at the Treasury
Department. A few federal officials and many industry advocates disagree, saying the government is
exiting too soon. They offer dire warnings of higher rates and a slowdown in home sales.
Over the past year, these programs have enabled prospective home buyers to get cheap loans. An
increase in interest rates, say from 5 percent to 6 percent will add 20% to annual interest costs. A sharper
increase in rates could make homes too expensive for many buyers.
A further extension of tax credits and interest rate control seems unlikely.“This is a worthy
experiment to see if they can begin exiting after providing an unprecedented amount of money to one
sector of the economy,” said Mark Zandi, chief economist at Moody’ s Economy.com.
The Fed’s policymaking body sets a key interest rate at periodic meetings, which in turn influences rates
for all kinds of loans. But mortgage rates also are shaped by the health of the market financing
these loans.
The federal efforts helped push down the rates ordinary Americans pay for a mortgage. The 30-year
fixed-rate mortgage declined from 6.04 percent in November 2008, and hit an all-time low of 4.71
percent in November 2009. Existing-home sales climbed nearly 10 percent in December, their highest
level in more than two years.
Now the government wants to end its support for low rates and has been striving to persuade others to
buy mortgage securities, and fill the void left by the government.
On Christmas Eve, Treasury officials announced a move that would cover losses suffered by investors who
buy these securities from Fannie Mae and Freddie Mac, which together now back about half of the
nation’s $12 trillion mortgage market.
The Fed’s support would end just a month before a home buyer tax credit program, which the real estate
industry has credited with jump-starting home sales. The combined loss of tax credits and higher
interest rates will increase the effective cost of homes for many home buyers.
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