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December 16, 2008
Nothing gets the markets more excited than the government talking about lowering rates to record levels. Ever since the Treasury floated a plan that would have the government buying loans at 4.5%, it has caused a stir that we have not seen for some time in the real estate markets. Many questions remain. For example, who would be eligible for these loans? Preliminary information would indicate that these loans would be for purchases only. The government could also restrict these loans to those with good credit, first-time buyers and/or low-to-moderate income buyers. The most important question is, what would this plan do for interest rates on other loans? We already have that answer. Rates are going lower and have hit a level seen only a few times in the past several decades. Why? The government backing loans on real estate gives the markets confidence. So, in essence, the markets are already reacting to the possibility and the general public can already take advantage of these great rates. Keep in mind that it is not a certainty that the proposal will even come to fruition. But who cares about that when we have rates that are prompting many to act right now?
Current Indices For Adjustable Rate Mortgages
Teeny-tiny housing is increasingly appealing to buyers and renters, especially when there are spacious common areas packed with amenities. Apartments as small as 264 square feet are a big draw in Legacy Village in Plano, Texas. Developers point to several issues as drivers in the trend. The smaller the place, the cheaper the monthly rent or mortgage. People who don’t have money find low prices appealing. Smaller units also consume less space, water and energy. "People love the social interaction associated with density," said Steve Patterson, CEO of Florida-based Zom, developer of rental housing from Texas to the Mid-Atlantic. The trend is here to stay, said Michael Newman, president and CEO of Golub & Co., an international real estate development and investment firm. "In this economy, people still want to be in cool places, and they’ll trade down size for location," Newman said. Source: USA Today News reports have been packed with stories about declining home values, but a recent government report shows that the situation is not nearly so dire as some reports make it sound. Despite big loses in some areas of the country, the majority of markets continue to show growth in home value over the last five years. According to the third-quarter survey released by the Federal Housing Finance Agency, out of 292 metropolitan markets, 273 showed positive net home values in the last five years. Only 19 percent were negative. While home values declined 4 percent on average in the last year, values were up nearly 29 percent over the past five years. Source: Washington Post Writers Group |
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The 4.5% Solution 
The Markets. Fixed rates continued to fall in the past week, with adjustables up slightly. Freddie Mac announced that for the week ending December 11, 30-year fixed rates averaged 5.47%, down from 5.53% the week before. The average for 15-year fixed fell to 5.20%. Adjustables rose with the average for one-year adjustables increasing to 5.09% and five-year adjustables rising to 5.82%. A year ago 30-year fixed rates were at 6.11%. "Following the release of the November employment report, which showed the largest monthly decline in jobs since December 1974, bond yields fell slightly this week allowing fixed-rates room to ease back a little further," said Frank Nothaft, Freddie Mac vice president and chief economist. "On a year-over-year basis, after rising in both August and September, pending existing home sales fell 1.0 percent in October, based on figures from the National Association of Realtors®. Meanwhile, applications for home purchase loans over the week ending December 5th were up 2.0 percent from four weeks prior."
Five or 10 years from now, when the financial crisis has ended and housing prices are up smartly once more, we will look in the rearview mirror and realize that we missed a golden age for first-time home buyers. Then, everyone who sat on their down payment savings accounts for a few years too long will kick themselves for not taking advantage of what may turn out to be the buying opportunity of a lifetime for those who can qualify for a mortgage. Unfortunately, we do not know when this golden age will begin, because we will be able to identify a bottom to the housing market only with the benefit of hindsight. But as it does with the stock market, the moment will probably arrive when everyone is feeling the most pessimistic. That moment is certainly getting closer. Housing prices have fallen drastically from their peak levels in many areas of the country. Rates on 30-year fixed-rate loans are already close to 5.5 percent, and this week there were suggestions that the federal government might try to drive them down to 4.5 percent, a truly incredible figure to be able to lock in for three decades. Meanwhile, first-time home buyers have the same advantage they have always had, which is that they do not have to sell their old place before buying a new one. That is an added advantage in areas where many available houses simply are not moving, because the people trying to sell them will not be bidding against you. Source: Your Money