Short term view of mortgage rates misleading

The recent decline in mortgage rates does not look so dramatic when viewed over the short term:

Rate drop compelling when put in context

But take a longer term view of mortgage rates and you’ll immediate see why today’s rates deserve careful consideration on a strategic level:

From 2003 through 2008, mortgage rates stayed in a narrow range of approximately 5.7% – 6.25%

Towards the end of 2008, mortgage rates began their historic decline as the economy flirted with a catastrophic new depression.

30 year fixed rate mortgages  broke decisively below 6% in November 2008 and stood at 5.05% in January 2009.  Over a 17% drop in mortgage rates in just two months!

New round of declines

It wasn’t until recently that mortgage rates moved markedly lower.  It is this new round of mortgage rate declines that creates the real opportunity available to you today.

According to Freddie Mac, the average rate for a 30 year fixed rate mortgage loan stood at 5.1% in April, 2010.  When the two Federal home buyer tax credits expired at the end of April, demand for homes hid the skids and mortgage rates turned lower as well.

The average rate for a 30 year mortgage hit 4.35% last September and now stands today at only 4.19%, another 17% drop in mortgage rates since last April!

First time home buyers

If you are looking at buying your first home, the recent collapse in mortgage rates makes buying a home this fall seem especially compelling.  Strategically, now appears to be a golden opportunity for you to buy a home at a ridiculously low mortgage rate.

The mistake to avoid is to assume that mortgage rates will remain low for months to come.  They may well do that, but rates do tend to move quickly with new economic data.

There are signs the national economy is getting better.  A mortgage rate spike in coming months is not out of the question.

So look at the strategic opportunity to buy a home this fall and get a 30 year mortgage at a previously unheard of low rate.

Home owners with equity

If you currently own a home with appreciable equity, you might want to consider borrowing more on the home.

I know this may sound risky.  This is certainly not a move that anyone should take without careful consideration.

But on a very elemental level it makes sense to at least look at increasing your mortgage debt at a time of historically low mortgage interest rates.  This seems especially valid if you would use the newly borrowed funds to pay off credit card balances, car loans or other high-rate debts you owe.

Obviously, a financial and tax adviser would be able to help you decide whether this is right for you, but pulling some of equity out of your property at today’s historically low mortgage rates seems attractive if your employment status is stable.

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Lowest mortgage rates in over 50 years

Financial commentators said Friday that you’d have to go back to the 1950s to find comparably low mortgage rates.

Home buying opportunity

Home buyers might want to lock in these absurdly low rates and buy a home during the current round of economic uncertainty.

Buyers generally have more negotiating leverage at times like these when there are increasing worries about the economy.

Glut of high-end home inventory

As a real estate broker, I have been showing homes in the $700,000 – $1,200,000 price range to a relo buyer during the past few weeks.

There’s a glut of inventory in that price range in MA, at least in the middle I-495 region of Massachusetts.

So if you are fortunate enough to be a prospective home buyer in that elevated price range in the Route 495 region of suburban MA, the time to act would appear to be now!

Outlook for mortgage rates

It’s a given that no one can consistently predict the future with any accuracy.

Regarding where interest rates may be headed, the following is a quote from a report released by Freddie Mac on August 11:

“Looking ahead, fixed-rate mortgage rates may edge down further, though we think it unlikely that they would fall far from where they are today.  But it is also unlikely that they will rise quickly . . .”

Please contact me to explore some of the home buying opportunities currently available in Massachusetts.

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Pay attention to this reform from Fannie Mae

Fannie Mae recently implemented a reform that may cause trouble for home closings across the US.

With so much information and commentary on this topic, I’ll be brief here and provide you with links at the bottom of this post to take you to sites with authoritative content on this if you want to learn more.

And you should want to learn more about Fannie Mae’s Loan Quality Initiative if you’re thinking of buying or selling a home in 2010.  (It may be safe to assume – or hope – that the problems being caused by this new Fannie Mae initiative will be resolved in coming months, so by 2011 this controversy will be over.)

New uncertainties after the loan commitment letter

Fannie Mae is now requiring lenders to re-check the financial qualifications of mortgage loan applicants after the mortgage loan commitment is issued and just before the loan closing.

In essence, Fannie Mae is seeking to improve mortgage loan quality and reduce the chances for mortgage defaults.

This new requirement to re-check borrowers’ qualifications just prior to the closing took effect June 1, 2010 and the complaints were almost instantaneous.

Big change from past practice

Mortgage loans are now suddenly falling through due to this Fannie Mae reform even after the mortgage loan commitment is issued.

This is a sea change from past practice – the mortgage loan commitment in the past was a near-ironclad guarantee that the purchase money mortgage loan would close on time.

Trouble for home sellers

Home sellers now apparently can’t assume that the issuance by the lender of the buyer’s loan commitment means their home sales will actually go to closing as scheduled.

There may now be delays in closings, throwing off moving plans.

Even worse, home sales may be entirely lost at the last minute, imperiling a seller’s ability to buy his next home or start his new job as scheduled.

Buyers need to protect earnest money deposits

Home buyers face extra risks in addition to closing delays and deal fall-throughs.

After all, buyers typically place substantial funds into an earnest money escrow account to back up their home purchase obligations.

These funds may be at risk if the loan can’t close as promised in the lender’s loan commitment paperwork.

Buyers may not want to let their mortgage contingency clauses expire without having some additional language written into the real estate contract (Purchase and Sale Agreement in MA).

Such language would protect earnest money deposits in the event the pre-closing loan qualification re-check finds problems that delay or derail the mortgage loan.

Sites with more information

Please click the links below to learn more about the Loan Quality Initiative:

Massachusetts Real Estate Law Blog

SmartMoney.com

BankRate.com

Copyright ©2010 02038.com

If you are looking to buy a home or refinance your existing home loan, this is an excellent time to take advantage of some very favorable rates.

Super-low rates

Last week, the average rate for 30-year fixed mortgages as tracked by Freddie Mac was an astoundingly low 4.79 percent. 

This is just a hair higher than the modern era’s all-time low of 4.71 percent reported by Freddie Mac early last December. 

Rate decline confounds experts

At the start of 2010, many financial experts were making widely-reported forecasts calling for significant increases in mortgage rate throughout the coming year.

However mortgage rates proceeded to stump the experts by abruptly peaking in early April 2010.

They then fell steadily over the last eight weeks, heading back down to near record lows.

“Whether they move lower or stay where they are, these are great rates,” said Frank Nothaft, chief economist for Freddie Mac in a press release accompanying last week’s rate figures. “These are probably the lowest rates in 50 years or pretty close to it.”

So if you’re thinking of buying or selling a home, there’s great news for you in today’s very low rates!

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Don’t rely on the experts for your near-term plans

That goes to show that it’s risky to base your near-term decision-making solely on the forecasts of experts.  

There are a lot of smart people working in the world of finance and investing.  But as we’ve seen so recently with the world-wide financial crises, they’re only human and people make mistakes.

No one knows for sure what interest rates will do

Here’s just one example of the foreboding interest rate prognostications being made by respected money experts early this year:

 And here’s what rates actually have done so far in 2010:

Volatility in a very narrow range

In reality you could say that the alarmist financial prognosticators got it somewhat right: 30 year fixed mortgage rates in the US as tracked by Freddie Mac did rise from roughly 4.9% in February 2010 to about 5.2% in early April.

But a 30 basis point rise is not exactly a steep, devastating jump.

Mortgage rates near record lows

And after that, 30 year mortgage rates fell right back to roughly 4.9%.

So in mid-May we have interest rate status quo so far this year: mortgage rates have jumped around a bit in 2010, but only in a narrow range. 

Today, mortgage rates remain at near-record lows . . . right where they were at the start of the year.

No one knows the future

For your long-term investment and financial plans, it’s smart to rely on expert advice. 

There are wonderful books and plenty of reliable resources on money and investing that will serve you well in the long run.

Just don’t listen to the pundits on the morning news and on blog posts who make frightening predictions about the near-term direction of  interest rates and the markets.  They may mean well, but they’re often proved wrong by what really ends up happening!

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After bottoming at 4.87% back in early October, the average rate for 30 year fixed rate loans hit a high of 5.14% at year’s end.  Since then the average has backed down to just below 5%.

Mortgage rates to rise?

The conventional wisdom as of mid-January 2010 seems to be that US interest rates will rise later in the year.  The expectation is that the US government will scale back measures designed to keep rates low.

In the prime example of the projected scale-back, the US Federal Reserve will soon be phasing out its emergency program of buying mortgage backed securities.  In March 2009, the Fed committed itself to spending nearly $1.25 trillion buying these securities in order to keep mortgage rates low.

This extraordinary market intervention by the Fed is slated to end soon.  That is one of the main reasons prompting forecasts of an upward bias in interest rates in 2010.

Contradictory view that interest rates may stay low

But there is no clear consensus that rates are in fact destined to rise. 

In fact, some experts point to a likelihood of continued economic weakness and low inflation as the reason rates may stay low in 2010.

Does anyone really know?

A few pronositicators are professing a refreshingly honest lack of any clear idea where rates may be headed in the coming year.

Nassim Nicholas Taleb in his book “The Black Swan” writes about the major role randomness plays in life.

The author cautions against giving much credence to forecasts by experts.

So we’ll have to be content with the proverbial “wait and see” stance regarding what mortgage interest rates will do as the economy progresses further into 2010.  

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Freddie Mac reported on Thursday that the average interest rate for 30 year fixed rate mortgages remained below 5% for the sixth straight week.

Federal Reserve keeps mortgage rates low

One of the reasons behind such consistently low mortgage rates in 2009 is the Fed’s massive purchases of mortgage backed securities this year.  Back in March 2009, the Federal Reserve announced that it would buy up to $1.25 trillion in mortgage-backed securities in 2009. 

The stated goal behind this market intervention was to support the US housing market by keeping mortgage rates low and increasing the supply of funds available to mortgage lenders.

Mortgage applications rise 

Borrowers are acting this December to take advantage of the low rates. 

The Mortgage Bankers Association (MBA) maintains a number of mortgage application indexes which measure a variety of mortgage loan application volume.  In a press release dated December 9, 2009, the MBA said its Market Composite Index, a measure of mortgage loan application volume, increased 8.5 percent on a seasonally adjusted basis from one week earlier. 

Purchase money mortgage loan applications rose 4 percent last week, while refinance applications shot up 11 percent from the prior week, according to the MBA.

Local housing market active

Low mortgage rates are keeping the local real estate market humming this December. 

Speaking informally just from my personal experiences as a real estate broker this month, there are quite a lot of buyers actively looking and buying homes in Franklin and surrounding towns despite the Holiday season. 

Attendance at open houses has been strong.  New listings are selling briskly if the price is attractive. 

Quite a nice change from the situation last year at this time when experts were announcing the advent of the next Great Depression!

Copyright ©2009 02038.com

Low rates stimulate economic growth and help home sales

America’s fiscal policy makers want low interest rates to help the economy regain solid footing and resume employment growth.   

Today’s low rates may remain in place for the next 12 months or perhaps even longer.

Attractive loan rates and the government’s Home Buyer Tax Credits should combine to increase home sales and help Massachusetts home prices head higher.

Copyright ©2009 02038.com

13% decline from May’s highs

30-year-fixed mortgage rates averaged 4.87% in the latest Freddie Mac survey, down nearly 13% from the recent 5.59% high set last June. 

30 year rates near record lows

The current average rate for 30-year-fixed-rate mortgage loans is close to the all-time low of 4.81% reached in April 2009.  This makes homes for sale in Massachusetts more affordable and helps bolster the overall MA real estate market.

Effect on market

Freddie Mac vice president and chief economist Frank Nothaft made the following comment about the effect the rate decline is having on the market:

“Such low rates are spurring mortgage demand. Mortgage applications surged to a 19-week high over the week ending on October 2nd, according to the Mortgage Bankers Association. Moreover, applications for home purchases were at the strongest pace since the beginning of this year.”

What this means for Massachusetts home buyers

Today’s low rates combined with lower home prices make a compelling reason for home buyers to act now.  Smart home buyers know that the best time to buy a home in Massachusetts is late October through December when so many other prospective purchasers are focusing their time on the upcoming Holiday season.

Click here to view a helpful video on how to know what to offer on a home for sale in Massachusetts.

You can view 100s of homes for sale in the Route 495 region here.

Copyright ©2009 02038.com

Freddie Mac reported that the interest rate for a 30 year fixed-rate mortgage averaged 5.22 percent, down from 5.25 percent the week before.

Last summer, 30-year fixed rate mortgages averaged approximately 6.5 percent.

Rates on 30-year mortgages had dropped to a record low of 4.78 percent earlier in 2009.

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