Princeton, NJ Real Estate Articles

Has The Interest Rate Train Left The Station?

March 26, 2010 By Scott Kelsey

Many of the macro issues that negatively impact mortgage interest rates

have begun to take hold in the last few days.

 

Consider the following:

 

1.  The First Time Home Buyer Federal Tax Credit expires on April 30,

2010 (no extension, must be under contract by April 30, 2010) - this is

going to put downward pressure on home prices as there will be fewer

buyers going forward, and thus lower prices for real estate, and bonds

backed by real estate will be worth less, making rates higher.

 

2.  Home (unit) sales over the last 4 months have fallen each month -

lower unit volume is placing more pressure on sellers to reduce their

prices in order to sell their homes.  This too, makes mortgage bond

buyers skittish, and raises rates.

 

3.  The Fed is ceasing the purchase of mortgage backed securities - in

some cases, for certain bonds, estimates are the Fed has accounted for

90% of the buying activity.  Without that activity, bond rates are

likely to go up.

 

4.  The Fed is signaling they will be reducing liquidity in the system -

less money supply means fewer dollars to buy things, including bonds

backed by mortgages.  Fewer buyers of debt securities generally mean

higher rates.

 

5.  Federal officials are publicly questioning whether or not Fannie Mae

and Freddie Mac are needed - with many trillions in securities issued by

both Fannie and Freddie, who will want to own such securities if the

companies behind them don't exist?

 

6.  The foreclosure rate is continuing to grow, not shrink - more supply

of homes by motivated sellers portend lower valuations of homes.  Lower

valuations for real estate are not good for mortgage rates.

 

6.  Stocks are going up - many market participants sell bonds to use the

money to buy stocks, when stocks are rising.  That's good for stocks,

but bad for bonds, and bad for rates.

 

The above analysis has very negative connotations for home buyers and

borrowers, so where are the opportunities?

 

15-year fixed mortgages are still in the low to mid 4% area.  Large

loans ("jumbo's) have not moved up rate-wise, as yet.  Reverse mortgages

(where you make no payment) are still available on a fixed basis for

5.5%.  And, there are 7-year ARM's with interest only options in the

4%'s for the "right borrower". 

 

If you have not owned a home in the last 3 years, and get under contract

to buy one for less than 800k by the end of April, you may still be able

to get an $8000 reduction in your Federal tax bill.  If you've owned a

home in 5 of the last 8 years, and go under contract to buy a new one by

April 30, 2010, you may be able to knock $6500 off your tax bill. 

 

Long-term rate locks, at today's rates, are available up to 12 months in

time.

 

If you want to hop on the train before it leaves the station, it might

be wise to examine all your options now.

Click Here to Apply Now!  https://www.arlingtoncapitalprinceton.com

Scott Kelsey

VP/Branch Manager

Gateway Funding Diversified Mortgage Services

d/b/a Arlington Capital Mortgage

 

33 Witherspoon Street

Princeton, NJ 08542

609-945-7507 direct

866-331-8528 fax 

609-577-4164 cell