Mortgage rates are historically low – under 5% for a conventional loan. Why you ask are they so low? The US Government is “subsidizing” our need for low interest rates to help boost our anemic economy. Once the economy starts to blush again, economists start to worry about inflation, so they want to stave that off by raising interest rates again. How is the government subsidizing our mortgage rates – they have been buying mortgage backed securities for quite a while now – no one else wants them; they have purchased over $1 Trillion already. This is what has been keeping interest rates low. March 31st is the next meeting of the Federal Reserve and this will give us a good direction for where interest rates will go. If they decide to stop buying mortgage backed securities, then we will see a rise in interest rates. The overall idea is to get the securities market going again for outside investors and the way to do that is to raise the interest rates to make it more attractive to these investors. Low interest rates as much as we all want that is not really a good thing. Low interest rates are tied to bad economic news – higher interest rates are typically associated with good economic news. If unemployment stays high, we may see more of our low rates. Only time will tell. The overall outlook however is that interest rates are due to rise. If you are planning on buying a home or refinancing, now or in the near future may be the time to pull the trigger.
Here’s a great article on the above topic – click here.
Good news for buyers (and sellers) – 30 year mortgage rates are still low – they have been hovering around the 5% mark pretty much all year. Currently, the rate is just below 5% – which means you can buy a 30-year fixed mortgage of $600,000 for approximately $3,200 per month – that’s not bad. Basically, for every $100,000 worth of mortgage you pay a bit more than $500. Of course, there are fees involved – typically up to 1 point – or 1% which is paid to the mortgage broker for their services. Other fees include those for escrow and title services and those can add up to another 1% sometimes in fees. These mortgage fees are a write off on your taxable income (check with your accountant for specific scenarios.)
Last year at this time mortgages were averaging 6%. The Federal Reserve has pumped $1.25 trillion into mortgage-backed securities to try to lower rates on mortgages and loosen credit. Rates on 30-year mortgages usually track yields on long-term government debt.
So, if you wanted to buy a house here in the Hollywood Riviera that cost $850,000 – and you had $250,000 to put down – you would need a $600,000 mortgage to consumate the deal. If you could get that 30-year fixed mortgage at 5% (see above example – your payment would be approximately $3,200 per month (+ taxes and insurance, of course) VS. that same mortgage at 6% or $3600 per month – as you can see there is a $400 difference every month or $4800 per year. That can make the difference between buying a house or not for some people. So this year vs. last year is all good for you if you’re a buyer – lower prices for the home you are buying along with a lower price for the mortgage as well!
The bell could be ringing signalling the bottom – we all know there is no bell to signal the true bottom. But let’s see if Ben Bernanke can ring the bell for us. CNBC.com and Jim Cramer are looking toward Bernanke for his Plans to Buy up Long term government bonds – a new step aimed at keeping the country out of recession by lowering rates on mortgages.
Jim Cramer of CNBC’s Mad Money fame – is urging homeowners to refinance and get those potential homebuyers to get their mortgage applications started.
Do I hear the bell ringing??
Oh my gosh… they must be kidding! The new budget is calling for a reduction of the mortgage interest deduction. This reduction in deductible expenses will be for high income earners making more than $250,000 a year. This group will see the deduction fall to 28 cents per dollar down from the current 35 cents for every dollar of their deductible expense. In our area, this will effect a vast majority of home-buyers, which will further erode sales. Please, please call your congressperson, your Senators and tell them no way, no how. Here is today’s news release we received from the National Association of Realtors, who plan on fighting this all the way, and why they are doing so:
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Dear Fellow REALTOR®,You may have seen news reports about President Obama€™s budget proposal that was released today at 11:30 AM Eastern Time. A small section of the sweeping budget plan has the potential to become a major impediment to a recovery in real estate markets across the nation. NAR is 100% opposed to the provision that modifies the Mortgage Interest Deduction and is prepared to use its formidable array of resources against its enactment.As currently drafted, the plan changes the Mortgage Interest Deduction by reducing the amount of mortgage deductibility on families earning over $250,000. This proposed change in the Mortgage Interest Deduction will result in further erosion of home prices and home values. If this proposal is enacted it will lead to a new round of price depreciation, will cause greater distress on the balance sheets of banks as the collateral value of mortgage backed securities declines. A second credit crisis could emerge before the first one is resolved.As you read this NAR is launching a multiphase plan of action to eliminate this provision from the budget plan. In the next 24 hours, NAR will be expressing our concerns directly to President Obama, to all members of the United States House of Representatives and the Senate, placing advertisements in the publications read by Washington, DC decision makers. Additionally, NAR will be forming a coalition with other groups affected by this proposal. This communication is the first part of our response, we will continue to update you as the situation and events warrant.Sincerely,
Charles McMillan, CIPS, GRI
2009 NAR President
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