Real Estate Outlook: Impacts of Bailout

The federal government's multi-billion-dollar bailout of bad mortgage debt could be a game-changer for home buyers, sellers and real estate professionals.

But how much may not be clear for months, maybe even a year.

In the short term, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association, the government's plan to greatly expand purchases of mortgage backed securities by the Treasury, Fannie Mae and Freddie Mac, should "provide a signal to the market that there's going to be an underlying floor on (interest) rates."

That's because when the Treasury buys mortgage securities -- and it's pledging $10 billion for this month alone, plus lots more to come - it has the effect of pumping fresh capital into the mortgage market, allowing more home loans to be made at more favorable rates.

Now, although rates should remain low, currently they're close to 6 percent for 30-year fixed rate loans on average -- that doesn't mean it'll be easier to qualify for a home purchase if you've got damaged credit or an income too low to pay for what you want to buy.

Those days are over for years to come.

What about the larger economic impacts of the bailout plan? Again, we're at the earliest stages of this whole process, but if the plan brings a sense of stability to the financial markets, then, absolutely, the net effect should be to restore confidence.

And consumer confidence is an essential ingredient for a home buying recovery. People who are worried about the safety of their money market investments and bank deposits aren't good candidates for purchasing houses -- even at rock bottom prices.

But the reverse is true as well: Greater consumer confidence in the financial marketplace -- along with modest interest rates and attractive prices -- could kick the whole cycle into gear and get housing moving again.

There's another factor here too: Without the big bailout plan, hundreds of thousands of financially distressed homeowners were on a non-stop conveyor belt to foreclosure. But when the government takes over mortgage portfolios, it's likely there'll be at least temporary halts to foreclosures and massive efforts to "work out" the terms of delinquent loans to enable owners to make payments at levels they can afford.

For neighborhoods hard hit by foreclosures -- and the distressed owners themselves -- that will definitely be a game changer.

Nation: 30-Year Rates Fall To Five-Month Low Of 5.93%

The federal takeover of Fannie Mae and Freddie Mac increased industry confidence in their future. Rates dropped sharply this past week, falling to the lowest level in five months as the government's takeover of Fannie and Freddie had the desired effect. The decline pushed the 30-year rate below 6 percent for the first time since late May. The 30-year rate hit a 2008 high of 6.63 percent on July 24 and had been above 6 percent since late May.

Multiple Purchase Offers Can Work To Buyer's Advantage

During the housing boom, where demand was high compared to the inventory of homes for sale, it wasn't uncommon for a home seller to receive multiple offers from different buyers. Then, sellers were in the happy position of being able to pick the best offer that came in. Today, some buyers may find the best value by making multiple, simultaneous purchase offers on several different homes.

Normally, a buyer's purchase offer is valid during the offer period--the time stipulated for the seller to respond, say, 48 hours. If the seller signs the offer, a contract is created.

For a buyer to make several simultaneous offers on different homes, the offers should always include a special clause declaring the offer not valid until the seller approves--again, within a specified time frame. In this case, the offer is validated by the seller and returned to the buyer, but the contract only becomes ratified when the buyer approves it.

In this multiple-offer scenario, sellers compete for the buyer's contract, and the buyer gets to pick the best of the counteroffers that come back approved by the sellers.

Multiple purchase offers are not for everyone. Talk with us to find out whether a multiple-offer strategy could work for you in today's market.

Mortgages: More Documentation Required

The first time Jeff and Dana Prottas applied for a mortgage they weren't surprised that they might have to jump through a few hoops to get an OK from the bank, so they worked hard to improve their credit score.

So when they backed away from a complicated deal in which they tried to buy a house from a borrower who owed more than the house was worth, they thought that getting a mortgage on another, less-expensive house would be a breeze, as they had already been approved.

They were wrong. Between canceling that deal and finding a new house in Golden Valley, the mortgage markets continued to unravel, access to credit tightened and the lender who had approved them several months earlier was now asking for a bigger down payment and more detailed documentation, including photocopies of their Social Security cards.

"I was almost on my way to the doctor to get a finger pricked to give blood," Jeff Prottas said.

Though buying conditions are prime -- mortgage interest rates are still near historic lows and home prices are coming down at a steady clip -- coming changes resulting from the continuing credit crunch are going to make getting a mortgage more time-consuming and costly for some borrowers.