LoanCentral's Real Estate Lending Blog

Mortgage Interest Rates hit ANOTHER record low

Monthly Freddie Mac tracks the national interest rates for mortgage loans in it’s Primary Mortgage Market Survey. This week mortgage rates hit ANOTHER RECORD LOW !

This is the 4^th time in 2009 that Mortgage Rates for a 30 year fixed established a new record low.

The new record for the week ending in the first week of April was 4.78%, beating the previous record of 4.85%.

Remember that these are the average for rates nationally and LoanCentral has consistently beaten the average rates for our customers every single month since the inception of the company in 2006.

Fed Report: Real Estate Stabilizing in Key Cities
So here’s what the Fed says in their “Beige Book” for economic activity yesterday (April 15, 2009)

They state that real estate among several other industries continues to remain week. This is true across all 12 of the Federal Reserve Districts (See Color Coded picture above of the 12 Federal Reserve Districts)

With that said - here is reason for being optimistic based on their recent report. On the east coast – The Boston Fed reports that there are “Early signs of improvement” in the residential real estate sector. They also stated that the news was good in other areas around the country – in fact, the Beige book reports that we are experiencing “the most widespread rise in demand for residential mortgages in more than seven years”

Pending home sales is an important leading indicator for home sales throughout the US and here in Washington State. Pending sales looks ahead at closing which will occur in the next 30 to 90 days. Often “Closed Home Sales” is reported by the media – but in my opinion, that number is important, but is like looking in the rear view mirror.

This latest report on Pending home sales have increased which means that sales activity in the next few months, including reports on “Closed Home Purchases” will reflect an upward trend. The National Association of Realtors reported increases throughout most of the country for Pending Sales written in February. It was a slight increase of 2.1 % over January – but we can take all the good news we can right now.

Remember that reports on home sales and “Pendings” is simply a report on activity. This leads to important psychological conditions in our housing markets as we’ve seen when the media reports on the doom and gloom – sales decrease as buyers sit on the sidelines. Good news like this could lead buyers down the path to home ownership but there are no guarantees. If we can take the emotion out of it, forget the reports about what other buyers are doing around the country… and focus on the incredible HOME BUYING OPPORTUNITY that we are currently experiencing – the early adaptors who see the benefits will likely be rewarded handsomely as these are the times when wealth transfers.

Watch for my next blog post which I will go into more detail on why now is such a great time to buy.

The housing market is looking healthier. Here are some reasons why the opportunity has never been better to purchase a home or investment property.

Mortgage Rates are at Historic Lows – As mentioned in a previous blog, interest rates on FIXED rate mortgages are at all time lows. Look at the graph below – the red arrow shows rates as of December 2008 compared to the recent market – and RATES HAVE DROPPED FROM HERE! (For a current interest rate chart click on the menu above “Interest Rate History”

Population Growth - I already covered this below in a prior blog post

It’s a HOME – we all have to live somewhere. - Kid’s happen. Deaths occur. Kid’s move out to college and get married. Married people get divorced. Job Transfers… Upsizing / Downsizing – these are all what I call “Life Events”. Every year there are 800,000 new households formed here in the USA. There is only a limited number of homes as the population increases and “Life Events” happen which means that even in a slow economy – houses are bought and sold.

What does low rates mean in terms of buying power? Did you know that if you are looking at a $500,000 home and think the price of the home will drop 5% ($25,000), that if rates increase only ½% while you are waiting – the end result will be that your payment will actually INCREASE at the lower sales price? Check out our interactive “Should I buy Now Calculator” and see for yourself!

CLICK on the above image to go to the "Should I Buy Now" Calculator

Leverage – know and understand the power

Caveat first – don’t EVER buy something you can’t afford. Now, with that said – leverage can be your friend. Tough times like these that we are in is when wealth can transfer. No doubt that the side do you want to be on is the receiving end… rather than the giving side right?

Simple analysis.

Option A - You buy $300,000 worth of stock – (it’s on sale right t now too right?)

• The stock goes up 10% - you’ve earned $30,000
• Risks – the stock drops
• 10% drop leaves you with $270,000
• 50% drop leaves you with $150,000
• 100% drop leaves you with $ 0
• Potential Returns
• 10% increase returns you $30,000
• 20% increase returns you $60,000
• etc

Option B – You take your $300,000 and pay CASH for a home

Risks

• The home price drops 5% after you purchase
• Your new value is $285,000
• If you HAVE to sell – you’ve lost $15,000 plus your costs to sell
• If you DON’T have to sell – you’ve lost nothing and can wait for the market to appreciate
• The home Price drops 10% after you purchase
• Same as above – you don’t lose unless you have to sell…
•  If you HAVE to sell or move in the next 2 years – you may be better off renting for the time being
• Note: One of the risks with stock is that a strong company which you’ve invested in may run into financial trouble and disappear (WAMU) leaving you no value left in your stock investment.
• Thoughts – do you think the same can happen with an investment in a home? People always need a place to live whether they purchase or rent. It is highly unlikely that the value of a home in the NW would decrease to nothing.

Option C – LEVERAGE – Take 10% of your $300,000 which is $30,000… and buy a home with a value of $300,000. This 10% investment will be compounded as the home appreciates. Here’s a couple of examples

• 5% appreciation over the next 2 years
• If you invest 10% or $30,000 and the homes value increases 5% over the next two years, the home would now be worth $315,000 or $5,000 more than you invested
• If you invest 10% or $30,000 and the homes value increases 10% over the next two years, the homes value would be worth $ 330,000 or tripling your $10,000 investment.
• Note: Of course you would need to sell and incur some costs to realize this gain, these examples are for illustrative purposes showing examples of how leverage works when buying a home.

There is LOTs of inventory to pick from!

Your choices have been increased as the number of available homes hitting the market increases. Two months ago, the inventory has changed directions and is starting to shrink – look now for the best options

Market Corrections can MAKE you money- There is no doubt that the entire country has suffered from housing prices decreasing. There are very few areas that have increased in price in 2008 (Clyde Hill for example). This presents the homebuyer with a great opportunity – If you purchase a home now while prices are low and inventory selection offers you many homes to choose from – when prices come back up you will gain instant equity in the home. The lower the prices have been driven down due to the credit crisis – the more potential for the prices to snap back giving the new owner far greater returns.

The FEDs are PAYING First Time Homebuyers! First-time buyers (defined as anyone who hasn’t owned a home in the last three years) are entitled to a maximum $8,000 tax credit; interest rates are at record lows; and the Federal Reserve is doing its best to make mortgage loans available

FIXED Rate Mortgage costs – P&I Payments don’t change. If you get a fixed-rate mortgage, the monthly payment stays the same – while everything else, including rent, goes every year.

OWNERSHIP - By the way, yes you OWN it! Putting aside all the investment strategy, sometimes it’s just nice to know that YOU own the house. If you rent now, you know what I mean – it’s nice to have the freedom to fix up the house, colors and yard the way YOU want it. And if you are going to pay someone’s mortgage payment – why not let it be your own!