Low Interest Rates and the Housing Market

In mid-August, Freddie Mac reported that the average 30 year fixed-rate home loan had dropped to 4.15%. That put interest rates at their lowest level on record since 1971. Some say they’re the lowest that they’ve been since the 1950′s.

So while home sales remain slower than normal, mortgage lenders are busy refinancing homes and lowering payments for thousands of homeowners. In fact, some lenders have raised their rates in order to slow the flood of refinance applications.

Others are encouraging their customers to get started. While interest rates are expected to remain low over the next two years, home prices could still see a drop. Thus a homeowner who has equity today could find themselves underwater by next year – and unable to refinance without bringing in cash.

In addition, this shaky economy could mean job loss or a drop in income. By next year, they might not qualify even at a low interest rate.

And of course, if they can refinance today, why should a homeowner pay an extra several hundred dollars per month in interest for even one more month?

Since home prices are back to 2002 levels in many parts of the country, home sales should be booming. So why aren’t more buyers jumping on this opportunity?

Buyers are still worried about the economy. If they purchase a home – even with a low payment – will they be able to pay for it later? Few today feel secure in thinking their jobs will still be there next year, or even next month.

Buyers wonder if prices and interest rates will drop even more. This shouldn’t be a concern for a consumer who wants to own a home and live in it for the next several years, but there are those who want to be sure to hit the “bottom of the market.”

Many would-be buyers simply don’t qualify. Banks are making it tougher to get a home loan even with good credit. And those who have gone through a foreclosure or short sale still have a few years to wait before they’ll be eligible for a new loan.

Appraisals are all over the board. When Federal regulations mandated that mortgage lenders must order appraisals through a third-party service, appraisals soon became the major hurdle to home buying or refinancing.

Appraisals are too often assigned to out-of-area appraisers who don’t know local values and have not viewed the homes used for comparables. Thus, their values seldom reflect the true market value of the homes in question, and that can bring the transaction to a halt.

When they come in too low on purchase, the loan is denied. When they come in too high on a short sale or a bank owned property, the asset manager refuses to allow the house to be sold for the fair market value.

What do we need to make the housing market rebound faster? Jobs – and some faith in the economy.


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