Mortgage interest rates are now the lowest they’ve been in nearly 50 years. The Federal Reserve Board recently took action to lower interest. This should most certainly help both buyers entering the market and homeowners who need to refinance.
For a good part of 2008 mortgage rates averaged 6.3 percent, but some parts of the country are now seeing rates in the 5 percent range with lows reported at 4.75 percent.
Economists with the National Association of Realtors believe that a one (1) percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes. Reduced mortgage interest rates should provide a significant boost to lending, paving the way for would-be buyers to achieve the dream of homeownership.
Trickle Down Theory..and will it work?
Still questions abound. Will we see these significant rate changes affecting our local housing market in a positive manner? How much impact have lower interest rates had on consumers and on their decision to buy a home? Are Realtors® seeing an increase in buyers and local market activity?
In my conversations with a few would-be buyers they feel that lower interest rates will have minimal effect on the housing market. One told me that in his opinion the few dollars that consumers save will not stop foreclosures, nor will they help new buyers. He stated bluntly that “if buyers cannot afford to buy, then a couple of dollars a month will make no difference.”
From a lender’s perspective, it was pointed out that customers who have been seriously in the market to purchase are benefiting. Customers with contracts or soon to go to contract have seen rates much lower than those offered even a few weeks ago. Buyers who have been on the sidelines waiting for the housing market to change or stabilize are still “waiting” and obviously won’t benefit until they jump into the market.
He went on to say, “There have been a high number of inquires for refinance transactions but be comforted knowing that most banks put the purchase transaction to the front of the line. Overall: I am optimistic that the lower rates can be beneficial to the purchase market.”
One Realtors® confirmed my thoughts that as there are fewer avenues for banks to make money these days especially with substantial decreases in written loans in the past year and low CD or money rates causing CD holders to look elsewhere. It is a common belief that banks will begin turning back to consumer lending as relatively good source for revenue generation. She also noted that she, like me, “is seeing a lot of interest in the housing market of late, but potential buyers are watching and waiting, and have been for the better part of 2008. Watch for an increase in sales Spring of ’09 if rates follow suit.”
A “First Time Home Buyer perspective” on this question was submitted by a fellow Keller Williams Associate from the Atlanta area. He states, “I’ve seen a flurry of increased activity but with a very strong eye on the news by the consumer. I’ve seen buyers (mostly first time home buyers) literally pause when news comes out about interest rates. I’ve also noticed increased traffic and sales in my area for lower priced homes. I think First Time Home Buyers are extremely affected by the rates and move up buyers less so.”
It seems that based upon changing economic circumstances, it should be a good Spring ‘09 for home sales especially in certain price points. I would caution Buyers on the sidelines to jump in sooner rather than later. At some point we will hit an equilibrium where our inventory levels are down in the 4-6 month range again. As they continue to fall, Sellers are going to be less willing to provide incentives and bend on price.
If you are thinking about Buying in the near future please contact me for a Free Home Buying Consultation.
