We have enjoyed histoirically low Mortgage Interest rates for the past few years . . . so much so that many homebuyers have become “immune to rate” . . .
I remember times when the current rate was a great reason to jump in (or out) of the market to buy a home for many folks. The powers that be have done a masterful job at keeping Mortgage interest rates at insanely low levels.
We in the industry have always known that this could not last forever . . . and many REALTORS and lenders have used this as a nudge to get Buyers of the fence . . . “Buy now because rates will not always be this low.” Home Affordability is at an all-time high.
We know that as we pass the “bottom” of this economic downturn, inflation will likely follow and rates will likely increase. This creates a “double whammy” for home buyers. As Rates increase, buying power decreases to the tune of @ 11% for each 1% increase in rate. So if you’re qualified to buy a $200,000 house at a 4% rate, and the rate increases to 5%, you suddenly only qualify for $178,000 ($22,000 los in buying power).
At the same time, home values will increase as inflation kicks in. We are already seeing some this in areas of Middle Tennessee as we notice a trend of fewer houses sold but average selling prices increasing . . . and the “experts” are projecting a 3% increase (commensurate with annual average historic increases Nationally for a “healthy markets”) in housing values in Middle Tennessee in 2011.
so . . . that $178,000 won’t buy “as much” house as it could before all this.
What’s causing all of this?
These markets cycle . . . turn up and down . . . It’s a normal function of the financial world and can only be “tempered” (not controlled) by governmental action such that the swings up and down are not as dramatic . . .
My bottom line . . . we are now approaching the up-swing . . . and I believe that NOW is likely THE time to buy for anyone who’s been waiting around for the bottom to come . . . Once the swing upwards begins, it’ll be a “boiling the frog” scenario – Rates and Values inching upwards and Home Affordability inching down.
I brought a guest to today’s post (see below). One of my mortgage news resources is the very knowledgable David Perkins with Reliant mortgage. He emailed the below explanation (some of which is Greek to me) which gives the technical talk as to why things are as they are . . . It’s worth a read.
If any of this piques your interest in exploring the market as a home buyer or seller, my hope is that you will contact me immediately . . . We at Pareto Realty stand ready to serve.
I’m just sayin’
From David Perkins:
Good afternoon, I wanted to give you an up to the moment update on the mortgage rate environment. There may be some talk on the news about the rates increasing so I thought I would send out this brief synopsis of the current market. Bottom line the month of November saw mortgage rates increase approximately ½ % and the trend has continued the past week. Here are some of the reasons for this trend:
This morning, stronger than expected economic data hurt MBS (Mortgage Back Securities) markets which can push mortgage rates higher. November PPI (Producer Price Index) inflation rose 0.8% from October, above the consensus forecast of 0.5%, and was 3.5% higher than one year ago. Core PPI rose at a 1.2% annual rate, which was close to expectations. November Retail Sales increased 0.8%, above the consensus of 0.5%.
Also negative for MBS markets, the Senate moved a step closer to passing the tax deal, and a vote is expected today or tomorrow. The FOMC meeting announcement today brought little change from their last meeting with the core interest rate staying the same. The focus of the Fed continues to be on the creation of jobs. They will continue to purchase bonds through the QE (Quantitative Easing) program announced in November. It was their intent with this purchase program the interest rates would remain low however we have seen a continued rise over the past few weeks. From Market Watch: “Since that decision in early November, bond yields have soared, exactly the opposite reaction the Fed was hoping for from its second quantitative easing program.”
Due to these conditions the mortgage industry (for conforming loans) is approaching 5% for 30 year fixed and 4.25% for 15 year with no points. Some companies have already seen their rates move higher than this. The FHA rates have remained somewhat lower with 30 year at 4.75% today.
The good news is historically rates are still at record lows and home prices are probably close to the bottom. Even for borrowers with as little as 3.5% down we can readily find FHA financing and sometimes tie that with down-payment assistance to help cover part or all of the 3.5% investment. For those home-owners looking to move we can still offer bridge loans and/or structure new first and second loans for the new purchase.
Basically with a good credit file (good credit and documented income) the financing options today are still fairly aggressive when compared to the history of mortgage lending. Also with being a Community Bank we are able to reach out to many investors giving your clients the options they need to purchase their first home, the next home or their last home. With these options we are also able to find the lowest rate available in the market. Rates change daily (sometimes more than once) so there could be days in the next few weeks where the rates ease back down.
Please call me for updated rate info and any financing need; including lines of credit, construction loans and bridge loans. Have a safe week (they say more ice is on the way) and a wonderful holiday season.
David Perkins | MORTGAGE LOAN ORIGINATOR
5109 Peter Taylor Park Drive Brentwood, TN 37027
Direct: 615-221-9155 | Fax: 615-221-9156 | Cell: 615-504-5626
www.ReliantBank.com | Become a Friend