Good news: The $8000 tax credit for first-time homebuyers can be applied toward your down payment or closing costs at the time of purchase.Â YAAAY!!Â I believe that warranted the bold-print.Â Realize, however, that FHA still requires 3.5% of the down-payment come out of your pocket, so unless you’re getting a grant, still no free homes.Â But still, good stuff!Â Great things are continuing to happen to make homeownership for you 1st-time homebuyers more and more affordable.Â
And now the bad news: Remember last week when I said that rates would â€˜eventually’ head higher?Â Well, â€˜eventually’ arrived last Wednesday, when the 2nd consecutive long-term treasury bond auction drew a weak crowd.
Evidently the old “two strikes and we PANIC IN THE STREETS” rule seems to be in effect.
So here’s what’s up: If no investors bid for bonds at a certain yield (let’s say 4%) then bond sellers (like Uncle Sam) have to jack up the interest rate to attract greater attention.Â Since Treasury bonds (the bonds our government issues in order to finance it’s debt) compete on the open market with mortÂgage bonds (the bonds that determine the rates that I can offer you), an increase in one will usually mean an increase in the other.
Why aren’t investors biting at these bonds?Â Two reasons: Dollar Weakness and Inflation.Â They think that we’re printing too much money and that the global economy will rebound soon.Â Too many dollars chasing too few goods drives prices up (let us not so easily forget how much paying $4.00 plus per gallon sucks).Â So if I own a bond that’s paying me 4%, and I think everything I buy is going to be 5% more expensive next year, then I just lost 1%.
And nobody likes losing money for no good reason.Â That means, unless bond rates go up, no bonds get sold.Â
And if bonds don’t get sold, we don’t get to do nifty stuff like offer General Motors $30,000,000,000 more in taxpayer dollars to play with.
Makes it look like a lot when I put all the zeroes after it like that, eh?Â
So, it’s going to become a battle of how much money Obama feels like devoting to keeping mortgage rates down.Â But eventually it’s going to become a contest of how hard he can push against the ocean of debt that these various bailouts are creating.Â
I’m not here to say whether it’s a good idea or bad idea that this is happening the way it is.Â That’s for politicians to decide.Â I’m just saying that big-time market manipulation historically rarely ends well.
A lot of moving parts, to say the least.Â This is why I always recommend you work with professionals who understand these market moves (for example, um… me).Â Without a good understanding, you have no chance to capitalize on the up-side benefits or shield yourself from the down-side risks.