Hello everyone: I arrived in the office about 8:30 this morning to hear that mortgage interest rates were in free-fall and 5.125% O.A.C. on a 30 year fixed was available. I crafted an email which I then sent out to my email list about the good news. By this afternoon, I had several responses asking me further about loan programs. All in all, an amazing day and one that will probably garner a few more loans.
So will this trend of low rates last? For the time being, I believe so. Remember we are entering into a slower time of year so I expect the days of several price changes/day to diminish somewhat. Plus, in spite of the stock market gaining back some of what it lost, I think the market is still prone to weakness. Remember this is the number one reason that mortgage interest rates have stayed low as people seek security in safer havens such as bonds.
The other reason I heard is that with the banks being able to borrow money at often less than 2%, their margin is high at 6% on a mortgage. Supposedly the Federal Reserve lent banks money to stay afloat and originate new loans. But the banks didn't do this and so the Fed. lent more money to try and free up the credit markets. I've been told lately that mortgage interest rates were artificially 1% higher than they should have been due to the banks building in risk. With the Fed. now guaranteeing more money for banks, interest rates may be closer to what they should be.
Will this help unfreeze the market? I don't know. Today I heard about how many new loan submissions there were in my company because of the lower interest rates. That's great news but I'm going to remain sober about it. Many of my brethren still don't seem to understand how to get a loan done. I know alot of you do and bless you for that. I just know alot of loan officers are stuck in the past and don't necessarily realize you can't just lock a loan these days. The loan has to be researched because, if it's submitted and doesn't go through, the lender keeps score.
In closing, I still expect we're going to experience our share of ups and downs before it gets smoother in the Spring of 2009. Is it an excellent time to buy or refinance? Absolutely. Will alot of people take advantage of this. Probably not. Obviously, I'm hoping people will. That's my job and that's how I get paid! Enjoy your evening!
Paul McFadden
What percentage does the buyer have to bring to the table to get these loans? The pool of buyers with good credit and a down payment can't be that large. Are there any market studies that tell us how big a pool of able buyers we have under the stricter rules? The rule changes have cut demand and is a factor in lower home prices.
Peter: These days a borrower needs a down payment. Honestly that should have always been the case. The very best loans out there are for people who have a large down payment (20% or more). I realize the pool isn't very large and I'm not sure how many borrowers there are that fit into this scenario. I'll do some checking. However, first-time homebuyers still comprise a big part of our market and always will. A person with less than 20% down can still buy or refinance. They just need mortgage insurance. There are more rules these days but generally either 3 or 5% down (depending on the type of loan (FHA or conforming) can get a buyer into a home. And if you're a veteran or buying rural property 100% financing is possible. Thanks for the question. I appreciate it. Have a nice Thanksgiving!
Paul
P.S. There is also a $7500 tax credit that can be used by the borrower. Again, there are some restrictions but it might make a difference if necessary.
So do you think rates will increase in 90 days or so? I've sent out emails to my clients to remember 1% less in Mortgage rates = 10% more housing purchasing power. New Home affordability is now the best it has been since early 70's and prices have come down to levels that are great for investment in the future
Janice: Perhaps. They've been low for awhile now. If the federal Reserve ups the rate it lends banks money then rates could increase. Plus, if the stock market starts correcting, rates could be affected. I'm glad you're keeping your clients posted. I have a feeling eventually they'll start to listen. You are right; it's a great time to buy. Good luck in your business and keep me posted!
Paul : Appreciate the response. I'm so strugglying with clients from China (with CASH) but who believe media and not our local market stats, which on the Main Line in Philly don't change too much unless we're talking homes over $3 Million or tear downs which are rare. They keep making these low bids, not heeding the stats I give them (let alone feedback from the sellers ) Guess I am just to let experience be their teacher. Janice
Paul oh, an additonal note, I have received one response back from the email blast I did to "buy now" and at least it was a client who has some money to spend, wanting at least 10 + acres. So we will see if this (finally) turns into a sale. Janice
Thanks, Janice. Good luck to you. Enjoy your Thanksgiving day today!
Agreed, Paul! What a day! The news has stirred up some interest from some clients. Hopefully, the downswing will last a month or two!