Mortgage Interest Rates Will Increase on 1/12/2011

I just received the following email from a lender I work with very closely. This is yet another "Big Bank" move that penalizes many people, even if they have great credit. (And we all know how I feel about banks) While I don't particularly think this will have a huge negative impact on our real estate market, I certainly don't think it is going to help matters as we delve into 2011. So, if you've been shopping for a loan, and don't plan on putting down at least 25%, I highly recommend you call your lender immediately and lock-in your rate!

I wanted to send an urgent email advising that rates are essentially going up for all conventional loan clients tomorrow and this is not the result of daily market action. All lenders, including me, will be subject to the new rate structure on conventional loans.

Fannie Mae and Freddie Mac will institute new “risk based pricing” adjustments to rates essentially for all buyers who don’t put at least 25% down regardless of how high their credit scores are. (You read correctly.) The mortgage giants, which account for 75% of the mortgages in the United States, have leveled these “risk based pricing” adjustments in the guise of charging a premium to those that didn’t take care of their credit and “rewarding” those that did. The issue is they seem largely punitive in nature, even for A+ credit individuals. Additionally, anyone with less than a 740 credit score can expect to see the rate rise exponentially the closer the score is to 620. For example, a buyer with a 699 credit score would see a rate that is around .5% higher EVEN WITH 20% down!

The bottom line is the overwhelming majority of conventional home loan applicants will see their rates go up effective tomorrow, Wednesday, 1/12/11. Since rates are still at historic lows, the true effects of this won’t be as drastic. As the rates start to rise due to market forces, this could become a significant impediment to home purchases whereby otherwise qualified and ready homeowners are forced to rent. While no one will disagree that sensible lending practices from Fannie Mae and Freddie Mac must be utilized, there may come a time where we make our voices heard about the potential negative effects on our nations recovery as a result of this action.

Are Interest Rates Really Going To Rise? Experts Say "Yes!"

Consumers, mortgage lenders and real estate professionals are all wondering what will happen to interest rates now that the Tax Credit is expiring. Earlier this year many financial types said interest rates will definitely rise in the second half of 2010. So far this year the interest rates have been hovering around 5%, so will interest rates rise, and if so, how high will they go?

According to Ken Rosen, chair of the University of California Fisher Center for Real Estate, by keeping rates so low, “We are encouraging asset bubbles in the stock market, bond markets, and global real estate,” Rosen says. This Inman News article states interest rates will rise for the next 10 consecutive quarters and will be at an average of 5.8% by the 4Q of 2010.

Here is a very informative spreadsheet from the Mortgage Bankers Association showing the predicted rise in interest over the next 2 years. Spoiler alert - by 4Q of 2012 30-year fixed interest rates are predicted to be around 6.6%. Yikes!

So if you've been sitting on the fence, whether to refinance or buy a home, it might be time to jump off that fence and take advantage of the low interest rates while there's still time.

Check out these interest rates!

My good friend Norma Minnis, a mortgage broker with Travelers National Mortgage, sends me this email regarding mortgage rates:

"Did you know that on a jumbo loan with good credit, 20% [down], you can get a 5 year ARM at 5.625 and a 7 year ARM at 5.875%?"

It's a great time to buy a home and if you're in the market you should definitely give Norma a call. She'll take great care of you.

Phone: 214-887-9544
Email: normaminnis@aol.com

What to Make of the Federal Reserve Rate Cut

The Federal Reserve cut its key overnight interest rate by three-quarters of a percentage point this morning in an effort to stave off fears over a potential U.S. economic recession. That sounds nice. But what does that mean for all of you?

First, please understand while it’s true the Feds cut the interest rate by ¾ of a point that doesn’t mean if rates were quoted at 6.00% yesterday they are 5.25% today. But it does allow mortgage rates to be a little more flexible which typically means mortgage rates will drop slightly – which they have. Yesterday’s mortgage rates were around 5.7% assuming you have decent credit and can put money down. This morning they are at 5.45%!

Second, since this was a surprise move by the Feds and they are scheduled to meet again in the near future to discuss yet another rate cut there is potential for mortgage rates to fall yet again.

Third, if you currently have an interest rate around 6.5% or higher and you plan on staying in your home another 3+ years you might want to look into refinancing. If you refinanced a $200,000 loan to 5.5% down from 6.5% you will save roughly $129/month on your mortgage payment.

Fourth, if you’re interested in refinancing or if you’re thinking about purchasing a home while the rates are so attractive you’re welcome to call me but I will most certainly end up telling you to call the following 2 mortgage experts that have helped many of my clients purchase first and second homes and refinance their homes as well. I wouldn’t be endorsing them in this email to you, the main source of my business, if I wasn’t confident in their abilities to take care of my clients. I can honestly say they are two of the most professional and knowledgeable people when it comes to real estate finance and I encourage you to use them as a valuable resource.

Chris Harris
Coldwell Banker Home Loans
214-521-0044 Work
214-770-2238 Cell
chris.harris@mortgagefamily.com

&

Jerrett Morris
Kanso-Morris, LLC
972-385-1300 Work
469-767-7670 Cell
jmorris@km-llc.com

And Speaking of Rates

This is a great article from Realty Times giving us the low down on how 30-Year Fixed-Rate interest rates have fluctuated since 1971. Cick here for the awesome info.

As many people have been trying to tell those scaredy cat buyers out there for a while now, "Rates are great and if you're waiting for rates to go below 5% you're going to be waiting for a while." These stats show that the average interest rate for a 30-Year Fixed-Rate loan between 1971 and today is 9.31%! But since 1998 we have had interest rates hovering around 6% so if people can't get the 6% or 5.85% rate they are upset and think they can wait until they drop further. This is poor business decision making logic and if they're not careful they are going to miss the boat and then what? Probably complain some more to their Realtor.

Can you tell I'm in a good mood today?

Rates Are Still Going Strong for Buyers

This just in. The principal and interest payment on a $250,000 loan has dropped by $117.44 per month since August 3rd on the 30 yr fixed.

According to Freddie Mac the 30-year fixed-rate mortgage (FRM) averaged 5.96 percent with an average 0.4 point for the week ending December 6, 2007, down from last week when it averaged 6.10 percent . Last year at this time, the 30-year FRM averaged 6.11 percent. The 30-year FRM has not been lower since the week ending September 29, 2005, when it averaged 5.91 percent.

Will they drop any lower? I have absolutely no idea so stop asking. Ask a mortgage lender or a financial analyst. Just kidding. You can ask me. But I'll just tell you to ask a mortgage lender or a financial analyst.

"Fish or Cut Bait" Among Other Things

Dallas is suffering from buyer paralysis. Home buyers have heard about the horrific real estate doom and gloom for so long that now they now are going to "wait it out". Question: What are you waiting for? Interest rates to rise? Inventory to get smaller. Which means not only less homes to choose from but possible multiple offer situations. This article from Realtytimes.com addresses this issue.

"...you have plenty of housing inventory from which to choose. Sales are slow, so sellers are offering thousands of dollars in incentives to tempt you to buy. Prices are flat. Interest rates are still historically low. Sounds to me like the buyer who has been waiting on the sidelines needs to get off the fence and pull out his checkbook."

I couldn't have said it better myself.

Dallas Thinks; Therefore It Is

I admittedly don’t keep track of mortgage rates regularly. (I let my client’s lenders handle that part of the transaction) But while having lunch with a lender friend yesterday he said he is closing deals at interest rates under 6%! Yet people still want to perpetuate what a terrible real estate market we are in? It is getting more and more frustrating to repeat the same information to my clients here in Dallas trying to educate them about the real estate market. I guess I’ll continue to sound like a broken record by repeating the 2 main reasons why it’s a good time to buy.

1. Rates are amazingly low.
2. Inventory is great meaning buyers have a lot of homes to choose from. If you don’t want to get into a multiple offer situation then you don’t have to. There’s plenty of fish in the sea.

So I ask my buyers, “What exactly are you waiting for?” and here’s what some of them are saying followed by my official response.

“Rates might go down!” – Uh, like to what? 4.5%? I doubt it. Some people might be able to get a 5.5% interest rate but if it goes any lower than that I will very surprised. But think about the opposite. If you wait too long you might be looking at a 7% interest rate. If you want to play the wait and see game then you might get burned.

“Inventory is high and I keep hearing how bad the real estate market is so sellers should be negotiating down off their asking price!” – Do you know the sellers financial situation? In all price ranges sellers move for different reasons. If you happen to get lucky and make an offer on a home where the owners are getting a divorce and want to ditch the home for next to nothing then congrats. But just because there is an abundance of inventory don’t expect EVERY seller to give away their home to you because YOU think the real estate market is bad. And what’s the alternative? Wait until there is a small amount inventory on the market? That means multiple offers and paying top dollar. So let me know how that works out for you.

“I keep hearing about all of the foreclosures and pending foreclosures. Find me one of those!” – This is my pet peeve and I could spend an hour answering this but the quick answer is that there are literally THOUSANDS of investors combing the Dallas real estate market for foreclosure deals. So when a true foreclosure deal comes on the market there are multiple offers on the property for over list price and the investors are paying in cash which means they can close quickly. But your typical buyer doesn’t want to pay list price (they want to negotiate) and are financing their loan thus needing at least 20 days to close the loan. Which offer do you think the banks are going to accept? My advice is get over the foreclosures and look for a home you want to live in, not the deal of the century.

People don’t realize real estate is local and not dependant on other states. North Texas has been and is doing just fine. But the national media attention has crept into our minds and we can’t shake it. While pondering the phenomenon we are experiencing with everyone and their dog believing the real estate market is bad, I thought of a real estate analogy. There is a house in your neighborhood. Just your average home and the owners keep to themselves. Not many neighbors have seen the inside of the home but it looks to be in average condition. So one day the neighborhood gossip sees the For Sale sign in the yard and the owners packing outside. She skips over to offer her goodbyes and they politely invite her into their home. Meanwhile she sees a couple stress cracks over a few door and window jambs. “The home obviously has serious foundation problems and I think I smelled mold too!” she says to anyone who will listen. Then they tell someone who tells someone else – you get the point. Even when people are looking at the home neighbors feel the need to tell them about the problems the home has and therefore the home lingers on the market and sells for pennies. But guess what? They actually just brought down their own property values by spreading these untruths.

Dallas has bought into the woes of California, Las Vegas and Florida and is actually hurting itself by perpetuating the bad real estate market story. Our city does NOT have foundation or mold problems yet the terrible rumors persist and only time will tell how our own foolish beliefs will affect our real estate market. In the end we only have ourselves to blame.