Should I sell before HARP expires?
January 16, 2015
Q: I have a second home that I'm looking to sell, but I've been holding onto it because home prices are rising. Still, I know that some of the recovery has been due to government programs, and that a major one of these programs, HARP, is set to expire this year. Should I get the house sold before this program runs out, or do you think the government will take other steps to boost the housing recovery?
A: While the Home Affordable Refinance Program (HARP) is slated to expire at the end of this year, there are other programs and conditions in place that favor homeowners.
HARP allows certain borrowers who owe more than their loan balances to refinance. With current mortgage rates exceptionally low, this allows those borrowers to take advantage of favorable refinance rates, and thus helps stem the tide of foreclosures. Thus, it does not create new demand for housing, but it does slow the supply of distressed properties on the market.
Beyond HARP, there are three things that favor home prices, all of which are at least in part the product of government initiatives:
- The FHA has slashed mortgage insurance premiums. The 50 basis point cut to these premiums has the same effect as a 50 basis point drop in mortgage rates.
- The Federal Finance Housing Agency (FHFA) has given the green light to 3 percent down payments. By allowing Fannie Mae and Freddie Mac to back these mortgages, the FHFA aims to make low down payment loans much more widely available.
- Mortgage rates remain near record lows. Remember, Federal Reserve policy helped current mortgage rates reach such low levels in the first place, and the Fed is being cautious about how it unwinds its low-interest-rate policies.
The first two items on the above list are relatively recent developments, demonstrating that even with the worst of the housing crisis now a few years behind them, government agencies are still actively finding ways to support the housing market. So, the biggest risk you may be taking by waiting to sell a house is economic risk.
From an economic standpoint, you have to hope mortgage rates can continue to walk a sort of tightrope. Too much economic growth could send mortgage rates sharply upward, whereas if the economy drifts back toward recession, you could see housing demand dry up.
In assessing this economic risk, be sure to take into account the local nature of real estate. If you are in an area that is struggling more than most -- for example, an area whose economy will be hit hard by lower oil prices -- you may not want to risk waiting much longer to sell your home.
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