Putting Mortgage Rates Into Perspective

I’ve heard some folks saying, “Uh oh…mortgage rates are up!” and “Mortgage rates went up a lot (1/4 point) since last week and I’m going to wait for them to go back down.” Yes, mortgage rates may have gone up since last week. Yes, they may (or may not) go back down (though, in my humble opinion, the only way from here is up).

But seriously…do you realize how good we have it right now when it comes to mortgage rates and points?!

Let’s put things into perspective…

Several of my home buyers with good credit recently got sub-5 percent mortgage rates with no points (a point is equal to 1 percent of the loan amount). Not too long ago, people could only dream about single digit rates, let alone sub-5 percent. Here’s the pudding…

- In July 2006, the average 30-year fixed-rate mortgage was at 6.76 percent with .5 points

- In July 2001, the rate was 7.13 with .9 points

- In July 1996, the rate was 8.25 with 1.8 points

- In July 1991, the rate was 9.58 with 2 points

- In January 1982, rates were 17.48 with 2.2 points

When is the last time mortgage rates were below 5 percent with less than 1 point? They haven’t been this low since Freddie Mac started tracking mortgage rates in 1971.

Let’s crunch the numbers on a $400K loan…

• At a 5.0 percent mortgage rate with .7 points, your principal and interest would be $2,147.29  and your points would equal $2,800
• At 8.25 percent with 1.8 points, your principal and interest would be $3,005.07 and your points would equal $7,200
• At 17.48 percent with 2.2 points, your principal and interest would be $5,858.79 and your points would equal $8,800

Aren’t you glad you’re buying a property at today’s mortgage rates rather than those of the last two decades (especially with prices at pre-2000 levels in some areas)?!

And don’t forget the icing on the cake…the $8000 first-time home buyer federal tax credit.

So next time you say, “Rates just went up” remember that it could be worse…MUCH worse.

For a complete list of the average mortgage rate and points per month since 1971, click here.

Mortgage Rates Down…Again

Mortgage rates continued their downward trend over the last few weeks and are down an average of 1.2 points since November 1, 2008. The last time they were this low was in 2003, which was near 40 year lows.

Though the graph above shows the average 30 year fixed rate mortgage at 5.20 percent, I've had several buyers with excellent credit get sub-5 percent rates. One buyer client was quoted 4.875 percent with no points and another was quoted 4.625 percent with .25 points within the last 2 weeks (both were through Darran Anthony of Suntrust Mortgage in Loudoun County).

Though the Fed would love to see rates at 4.5 percent, I don't think that'll happen (without points). The Fed has fired their last shot by lowering their fund rate to pretty much zero and it can't go negative. What you see right now is probably at or very near the bottom so take advantage of it if you can.

Photo credit: BankRate.com

Loudoun Mortgage Rate Round-Up – November 28, 2008

If you're a home buyer right now, you're loving life. Prices are down and mortgage rates have  plummeted over the last few weeks. The national average is back under 6 percent - 5.91 percent with .13 in discount and origination points, to be exact.

Locally, rates tend to be slightly better with the 30-year fixed rate mortgage being around 5.8 percent with .13 in points (as of Wednesday). But, one of my buyer clients was just quoted 5.875 with no points and no origination fee…on a "jumbo-conforming" loan (above $417,000). The fact that it's a jumbo-conforming loan at that rate with no points is huge! (Those types of loans usually cost .25 to .75 more in interest than "conforming loans")

The reason for the plumetting interest rates? The effect of the Fed bail-out and continued influx of money into the credit markets is finally being felt. The move on Tuesday by the Federal Reserve to buy $500 billion of mortgage-backed securities over the next year and a half also helped. In fact, immediately after the Federal Reserve made the announcement on Tuesday, rates fell to as low as 5.25 before coming back up to just below 6 percent.

A drop in rates is exactly what the Fed was aiming for. In its announcement, the Fed said,

"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally."

If you're looking to buy real estate or refinance right now, you're sitting in a great seat when it comes to interest rates.

Source: Bankrate.com

A Look At Mortgage Rates In Virginia

Here’s a look at the average 30-year fixed rate mortgage and 5/1 ARM rates in Virginia over the past 3 and 12 months. (Click on any chart to enlarge)

Here’s a chart showing the average rate on a 30-year fixed rate mortgage in Virginia over the last 3 months:

Now here are the past 12 months:

As you can see, rates shot up almost a full point earlier this year, came down a bit in late February and are around 5.9 at the moment though pointing up.

Now let’s compare the average 30-year fixed rate mortgage rates to the average 5/1 ARM rates.

Read more

Why Are Interest Rates Going Up?

Many consumers are wondering why interest rates are going up (click on image to enlarge) despite the approval of the economic stimulus bill and higher loan limits on Feb 13. To help answer this question, here is an article from Cathy Jones, Senior Mortgage Lender with OlympiaWest Mortgage Group:

"The short week turned out to be one of the most volatile in recent years. Early in the week, mortgage rates surged to the highest levels of the year, before they turned around and recovered nearly to their starting level, leaving only a small rise for the week. With the Fed cutting rates and pumping liquidity into the economy, and the government implementing fiscal stimulus programs, mortgage investors became increasingly worried that the stimulus would lead to higher inflation, which is negative for mortgage markets. The major inflation data released during the week amplified those concerns, as the January Core Consumer Price Index rose at a 2.5% annual rate, which was higher than the consensus estimate.

Perhaps contrary to what one would expect, the recent Fed rate cuts have led to higher mortgage rates as opposed to lower mortgage rates. To understand why, it’s important to understand that the Fed only controls short term interest rates. When they cut rates, it generally has the effect of increasing bank lending and consumer spending, which leads to more economic activity. Long term rates, such as 30-year mortgage rates, are determined by trading in financial markets and are highly impacted by expectations for future inflation. To a mortgage investor, a Fed rate cut increases the risk of higher future inflation, and that has been the dominant sentiment in recent weeks. This explains why 30-year mortgage rates have jumped 0.75% since the Fed’s aggressive January 22 rate cut.

In the housing sector, the news was mixed. January Housing Starts rose slightly from December, while Building Permits, a leading indicator of future activity, fell to the lowest level since November 1991. The National Association of Home Builders (NAHB) Housing Market Index showed a small increase. According to the NAHB, builders have been attempting to reduce the inventory of homes on the market, and there has been an increase in the flow of prospective buyers."

As we mentioned last week, you shouldn’t base your decision on whether you buy or sell primarily on the economic stimulus bill and higher loan limits. And as you can see, rates went up in the last two weeks despite the bill being approved so the bill and the higher loan limits are not the "cure" that many thought it would be.

Further Reading:

"Interest Rate Roundup" – BankRate.com

Fed Chair Ben Bernanke’s response to the question (video)

New Loan Limit Announced For Washington, DC Metro Area Including Loudoun County

New loan limits in the Washington, DC metro area including Loudoun County will be $562, 200, according to this podcast by Dick Gaylord, President of the National Association of REALTORS® (the second half of the podcast does not necessarily apply directly to this issue).

For more information on how the bill and new loan limits may affect buyers and the overall housing market in Loudoun County, check out this post.

Are You Waiting For The Higher Conforming Loan Limits To Hit Loudoun County?

Are you waiting for the higher conforming loan limits to hit Loudoun County before deciding to sell and/or buy?

Are you betting that the new limits in Loudoun County will be increased to $729,750?

Are you you hoping that the new limits will bring down the rates on "jumbo" loans?

Many buyers are waiting, betting and hoping while sitting on the sidelines. But are they waiting in vain and do they have a false sense of hope?

1. According to preliminary reports, the new "jumbo conforming" loan limits would be somewhere around $547,500 in the Washington, DC metro area (including Loudoun County). Some executives and lawmakers say that it will be closer to $600K, if not a bit higher. But the majority believe the new limit in this area will not be the maximum amount of $729,750. (Click here for more on this)
2. The way that these new "jumbo conforming" loans are structured may actually increase the rates on those loans and/or current conforming loans under $417K. It could also potentially freeze up loan markets due to illiquidity. (Click here for more on this)
3. By the time Fannie, Freddie, Ginnie, SIFMA and everyone else involved work all this out, it could months, if not a year before we see this come to fruition. And who knows what the effects will be once we do.

So before you base your decision to buy and/or sell on the economic stimulus bill or the new loan limits, know that it’s far from being realized in the manner it was intended by anyone in Loudoun County. Remember…there is no magic pill, I mean bill that will "instantly save us all".

Mortgage Rates End Week Higher

Mortgage rates inched higher this week despite a lack of strong economic news, Freddie Mac reported yesterday.

The average rate on 30-year fixed-rate mortgages rose from 5.67 percent to 5.72 percent, and the average 15-year fixed mortgage rate jumped from 5.15 percent to 5.25 percent.

Points, the fees that lenders charge for loan processing expressed as a percent of the loan, averaged 0.4 on the 30- and 15-year loans.

"This week was relatively light on the number of economic data releases, which painted a mixed picture regarding the current state of the economy," Frank Nothaft, Freddie Mac vice president and chief economist, said in a prepared statement. "On a positive note, labor productivity rose higher than market forecasts in the fourth quarter of 2007 while gains in labor costs slowed."

Read more

Fed Makes Huge Drop in Rates!!!

In the face of a huge housing crisis that is threatening to drag down the entire economy, the Federal Reserver dropped the widely followed Fed Funds Rate .75.  This puts the Fed Funds Rate at 3.5o%.  The fear of a recession is obviously higher than the fear of inflation. 

This size adjustment was not anticipated by many.   Most people felt they would lower the rate by .25 or .50.  This was the first .75 point cut since October 1984.  With the stock markets around the world falling and our stock market deteriorating on the fear of a recession the Federal Reserve has decided to make decisive moves.

The timing of the rate cut was not anticipated either.  This was an emergency cut ahead of their regularly scheduled meeting. 

Will it keep us out of a recession?  Only time will tell.

T

How The Mortgage/Credit Crunch Affects You As A Home Seller or Buyer

If you’ve looked at any news pages online or picked up any newspaper recently, you know all about the subprime mortgage fiasco and how it’s caused investors to flee, money to dry up, the banks to inject money into Wall Street and the government to step in. But how does it really affect you as a home seller or home buyer here in Loudoun County, Virginia? To find out, let’s look at two real life scenarios that I ran across in the past 2 weeks:

1) I am representing sellers who have their town home up for sale. It was originally listed a few weeks ago at $449,900 and during that time, buyers that went through it said that it was just outside of their budget. This was based on the asking price and the interest rates (at that time), which came out to a certain monthly mortgage payment. The buyers asked that we let them know if/when the price was adjusted because they were very interested in the property, but just couldn’t afford that much.

Fast forward two weeks…

Based on market conditions and recent comps, we adjusted the price to $432,000 this past week. I immediately called the buyer’s agent to let her and her clients know of the new price and to see if her clients were still interested in the property. The buyer’s agent told me that due to the interest rates going up a quarter point the week prior, that her clients went from affording $430,000 to only affording up to $410,000.

The buyers lost $20,000 in purchase power and a chance to purchase the home they really liked while the sellers lost a potential buyer and sale and possibly, market value. All in just one week.

2) I am representing buyers who are looking to purchase their first home. We originally started our search almost a year ago, but something came up that made them put off purchasing a home until this month. Prior to searching last year, they spoke with a reputable lender and were approved for up to $360,000 based on their financials and the interest rates at that time. They spoke with the lender again two weeks ago and were told that the rates had gone up, but due to their financial situation improving since last year, they were approved up to $350,000. They weren’t thrilled, but they weren’t as upset as they would be shortly.

Fast forward two weeks…

Due to the interest rates going up almost a quarter point on conforming loans last week, they are now only approved to $340,000. They lost $10,000 in purchase power in one week.

But wait, it gets worst.

Due to the price points of town homes in Ashburn, the difference between a town home that is $350,000 and one that is $340,000 is huge.

• One car garage versus no garage
• Move in condition versus $5,000 to $10,000 in work and/or sweat equity
• New appliances versus original appliances
• 1700 square feet versus 1900 square feet
• Backs to common area versus backs to another town home
• More desireable location versus less desireable location (based on buyer feedback)

The list goes on. And yes. All for $10,000.

The buyers had their eye on a particular property and decided that they wanted to place an offer on it. After speaking with the lender and finding out that they could no longer afford to buy it, they were heartbroken. Every property they’ve seen since then (at the lower price point) is compared to the one they liked and now, they all "don’t work".

Though they will eventually get past it, it’s not fun to go through it for anyone. It hurts the buyers and the sellers whose homes the buyers saw and now "don’t work" because they’re stuck on the one they now can’t afford.

Well, it could be worse. According to some, there are consumers out there that may have been approved for a loan in the past, but may no longer be approved even if their financial situation stayed the same. Are you one of them?

Related Articles

Who Can’t Get A Mortgage Now – CNN Money

Mortgage Mania – Part 10, The Credit Crunch – 3 Oceans Real Estate

You Think The Subprime Mortgage Fall Out Won’t Affect You? Think Again – Loudoun Stats

Washington Mutual, National City and Now IndyMac – real/diaBlog

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