Freddie, Fannie and Dallas Real Estate – Does It Matter?

In a nutshell…yes. The recent move by the government to bail out mortgage giants Freddie and Fannie is designed to accomplish several things including:

1. Make loans less expensive. Interest rates on mortgage loans have been rising in part due to the risk and uncertainty associated with “bad loans” and rising foreclosure rates. Higher interest rates make it more difficult to buy or sell homes since fewer people can afford the total PITI. By reducing interest rates, potential buyers will be able to afford homes and sellers will not be forced to reduce prices as dramatically to offset interest rate increases.

2. Slow the rate of foreclosures. By lowering interest rates, it also allows current home owners yet another opportunity to refinance into fixed rate mortgages rather than face foreclosure. Of course, other criteria still need to be met in order to qualify for refinancing but it keeps the option on the table for those that are border line.

3. Stop/Slow price depreciation. In order to reduce the inventory of existing home sales and compete against Dallas foreclosures, many sellers have been forced to lower the asking price to painful rates. In turn, this causes a reduction in comp values and asking prices for other homes creating a downward spiral effect. The government bail-out can now offset the rising cost with lower interest rates while maintaining the price of existing homes until the “glut” or excess inventory is absorbed by the market. Since the United States government doesn’t need to file quarterly profit reports to the taxpayers, the additional time required to deplete excess inventory doesn’t “hurt” the bottom line nearly as much.

So, what does this mean to Dallas home buyers and sellers in plain language? While there isn’t any guarantee, if things play out as intended these are the most likely outcomes:

1. Interest rates on mortgages will temporarily drop however, credit will continue to tighten due to additional restrictions on lending standards.

2. Prices on existing home sales should begin to stabilize throughout the nation.

3. There will continue to be excess inventory but a slowing of liquidation as banks are no longer forced to immediately remove the assets from their books.

4. Excess inventory will eventually give way to scarcity in growing areas like Texas, Nevada and other states as demand outstrips new building starts.

Coleen Dovovan is a full time professional Dallas Realtor specializing in Dallas real estate and Plano real estate.