4.5% Interest Rates?
Interest Rates are DroppingThe last two weeks have been a frenzy for mortgage interest rates. Thanksgiving week the Fed announced a move for the treasury to purchase securities backed by mortgages. This announcement caused interest rates to fall 1/2% on Tuesday alone! Mortgage lenders were going nuts. I had several clients that rushed to lock in t
he new rate rate before there were any bounce back. Wednesday was up
a little and then back down to Tuesday's closing rate before closing
for Thanksgiving. Things seemed to be settling down this week. This week I had one client lock in at 5.375% interest on a 97% loan with no PMI!!!Now news is spreading that the Fed will unveil an even more extensive plan that will drive mortgage interest rates (not refinances) to historic levels under 4.5%. As with any economic news these days, editorial responses are immediately varying widely. Of course some are worried that the Fed should not be artificially affecting market conditions. Others fear that even this won't matter and will not be enough. And frankly, we can worry all day long about how this or that may or may not affect us as a nation on the whole. But, at the end of the day you are responsible for you. And the question to really ask yourself is if this provides you with an opportunity?
Who Can Get a Loan?
The most ironic thing amidst this news is those that would have you believe that you can't even get a mortgage right now. Not true! The historic standards have not changed. What changed was how loose the standards were for the last few years. Now that they have tightened back up, they are merely back to where they have been for a long time. All you need is a job, a 620 credit score, typical debt to income ratios and a 3% down payment. And there are community grants available that can cover the 3% down payment for you.
When Should I Buy?
At this point you simply have to evaluate the cost of buying a home and if it is a wise way to spend your money. There are two costs to consider. The cost of the home and the cost of the mortgage. We are now seeing that the cost of the mortgage is now approaching record low levels. The difference on a $250,000 mortgage at 6.5% interest versus 4.5% comes to a savings of about $315 per month or almost $3,800 per year! So, that question is clearly answered. Yes, it is a great time to get a mortgage. But, is the cost of the house right?
Some consumers want to buy a house, but they want to make sure that we are at the absolute bottom of the market so they can get the absolute best price before they decide to buy. And this is a great strategy for those who are good at predicting the future. This also requires an assumption that mortgage interest rates will be the same or lower then as they are now. If they are any higher then the increase cost of the mortgage may offset any potential decrease in purchase price. It also requires the ability to perfectly time the day on which you purchase. Most experts agree that their is a lot of pent up demand to buy houses with a lot of people waiting on the sidelines for just the right moment to rush the field. With this in mind it is very likely that once home prices begin to rebound they will rebound very quickly and those buyers will have lost their opportunity to buy in a down market. Also, we need to question their long-term strategy. If you are waiting to buy and are renting instead, then you are giving 100% of your housing budget away to someone else, with no return on investment. If you buy and even if your home value goes down some in the short-term, you are still better off overall with an asset that will appreciate overall in the time that you own it. Statistically, anyone buying a home will be likely be there for at least 5 years. Now, if you think you are buying a house, but might sell it in the next 3-6 months then definitely do not buy right now. But, if you know you will be living there for at least a few years then, except for the future tellers, there is not a better time to buy than right now.
Is Charlotte a Safe Place to Buy?
We keep hearing about how sharply home prices are dropping every month, but is this really happening in Charlotte? Yes and no. Consider this NYT article that describes how 25% of mortgaged homes in the US owe more than they are worth. This sounds horrible. First, realize that this is only addressing mortgaged homes. There are enough homes without a mortgage that aren't
significantly losing value to skew these numbers
differently. But, more importantly we should consider how grossly
concentrated these numbers are by geography. The article also points
out that "Of the 20 ZIP codes where this condition, called negative
equity, is worst, 13 are concentrated in just three counties." These
are Clark County, Nev; Lee County, Fla; and Riverside County, Calif.
As a matter of fact, you will notice on the interactive map that these
three states (Nevada, California, and Florida) along with Michigan,
Arizona and a few others grossly skew this 25% number. North Carolina
is only 10% and on the low end of this spectrum.But, how does that 10% breakdown and affect Charlotte? We can see this same skewed affect locally in Charlotte. The good neighborhoods are withstanding this downturn just fine and are holding their equity steady. Primarily the negative numbers are outcomes of new construction (since ~2004) neighborhoods that attracted a lot of the low quality loans in the past few years. It is unfortunate that these neighborhoods are getting hit hard, but do not let it fool you into thinking that all of Charlotte is suffering equally. If you used a good buyer's agent to help you purchase in the right neighborhood then you are pleased to see your house doing relatively well. And if you use a good buyer's agent then you can buy with confidence, now you are getting a great deal on a home that will hold its value and with a great low cost mortgage!
Matthew Tringali
Broker/REALTOR
704.517.3906
matthew@kristinedearmon.com
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