If you were in a store with loaves of bread for 67 cents, would you buy? If you were driving by a gas station and you saw 97 cents per gallon, I know you’d stop, fill up and then call everyone you knew.  Even go back with jugs.  Those were 1989 prices. Seems impossible doesn’t it?

Put It In Perspective

Now, what if I told you that at current interest rates (below 3.85% - “we’ve never seen it before, never this low in history” - Jay Papasan) what you get for the money is unprecedented?  Comparing the payments on a $94k mortgage in ‘89 at those 10% rates with a mortgage today of $166k at a rate of 4.45%, your payments would be $825 and $837 respectively for a difference of $12.  $12!!!

The arguments we hear from buyers is they are waiting for lower rates or they fear prices will drop again.  I learned a long time ago that you can’t time the market.  Economists and professionals have been trying for decades and they’ll tell you the only way to know prices have bottomed out is when they’re going up.

First off, can rates go much lower before banks are paying you?  Their margins at the current rates are low which is why qualifying for a loan is so hard.  But take a moment to consider this fact.  A 1% rate increase is the equivalent of a 10% price drop.  Which is more likely to happen?  Rates increase by 1% or prices drop by 10%?  While we’ve seen that kind of price drop, the reaction of Wall Street should tell you how rare that was.

So you’re a buyer and you’re waiting for prices to drop another 3%.  You’re preapproved at today’s low of 3.85%.  You find a property but want to wait for the seller to drop their price.  Rates rise a 1/4 point and you’ve essentially got a wash because the mortgage payment is going to be the same.  If they raise a 1/2 point then you’re paying more than had you put in an offer and asked the seller to pay closing costs.  You’re only at an interest rate of about 4.35% but you’ve lost a lot of buying power.

Mortgage Rates

Say you’re a seller and you’re waiting to put your property on the market when prices rise.  You’re waiting for them to rise 10%.  Historically, we’ve seen prices rise about 4% per year.  Our area rose 1.4% last year.  That’s a long time for the appreciation you’re talking about. But I’m going to give you the benefit of the doubt and say you’re going to see 5% increases over two years which would give you slightly over the 10% you want but what an amazing market that would be compared to now.  Well how many buyers do you think are going to be able to afford that house in 2 years if interest rise 1/2 pt, 1 pt or God forbid 2 pts?  That would still be only 6% interest rates but is the equivalent of a 20% price drop for you.  The buyers are there.  Take advantage.

If you’re thinking about buying or selling, call Brandon Green Companies today and let’s do an assessment and get you moving.

Rates are stunningly low … now is the time to refinance or get into that mortgage you’ve been holding off on.  Don’t wait for them to go lower as lenders will make it harder for you to qualify if they can’t make real money off of your loan and as we all know, the lower the interest rates the less money you’re paying the banks.

Check this out:  http://money.cnn.com/2011/12/15/real_estate/mortgage_rates/

I can’t tell you how many calls I get from exited buyers when Ben Bernanke and his crew cut the Fed Rate. Fed Rates tie to home equity lines of credit, credit cards, and car loans and do not directly impact mortgage rates.

Do you think the rate cuts have a physiological effect on the housing market?