It is getting very frustrating telling our buyers that now is an incredible time to buy with interest rates still near all time record lows and having them react with no sense of urgency. I firmly believe that we will be looking back on this time in 10 years as being the best environment to buy a home there was over the next 10 years. With an improving economy and the eventual end of the Treasury Departments efforts to arttificially keep interest rates down, rates have nowhere to go but up !!
The following are some excerpts from an article published in the Wall Street Journal about the direction of interest rates over the near term:
"For homeowners who have been waiting for interest rates to fall even further before refinancing, it might be time to pull the trigger on a deal. Rates are moving up—and could stay higher for a while, experts say.
The average rate for a 30-year fixed-rate mortgage climbed to 4.08% for the week of March 22, up from the record low of 3.87% it hit in February, according to Freddie Mac. Rates on 15-year loans were up to 3.30% last week from the record low of 3.13% reached earlier in March.
While rates still are below where they were a year ago, some economists say they are likely to keep rising throughout 2012 and into 2013. That means your window of opportunity to lock in a rock-bottom rate might be closing soon.
"If you're considering refinancing, there's really no point in waiting," says Frank Nothaft, the chief economist at Freddie Mac.
Freddie Mac, Fannie Maeand the Mortgage Bankers Association all are projecting that rates will keep ticking higher this year and beyond. Freddie Mac and the Mortgage Bankers Association predict the average rate on a 30-year fixed-rate mortgage will reach 5% next year.
The biggest culprit in rising rates: the spike in yields on 10-year Treasury notes over the past two weeks, which mortgage rates generally track, says Mr. Nothaft. This comes as investors who stashed their money in Treasurys as a safe haven are beginning to sell and move into riskier holdings now that the U.S. stock market and European economy are looking a bit healthier.
Rates could go even higher if the Federal Reserve's so-called Operation Twist, which temporarily pushed down long-term interest rates, ends in June as planned, or if inflation rises, eroding the value of bonds, Mr. Nothaft says.
"It's a good-news, bad-news situation. The economy seems to be finally getting its legs back under it, and as a natural course interest rates are going to be back up, too," says Keith Gumbinger, vice president at mortgage-data provider HSH Associates. But if the fledgling economic recovery falters, rates could hold steady or go back down, he says.
If you wait until the end of the year to refinance, and the average 30-year rate goes up to 4.7%—as Freddie Mac projects—you will be paying $1,877 more per year on a $400,000 mortgage than if you refinanced at last week's average rate. "
Many buyers out there are still on the fence as to whether to buy now as they are still concerned that we have not reached a bottom in the market. What they are forgetting is that an increase in interest rates of 1%, say from 4% to 5% would basiclly offset a 10% decrease in price of a $500,000 home when looking at the effect on the monthly mortgage payment. A $500,000 home with a $100,000 down payment and a $400,000 looan at 4% interest, would have a monthly payment of approx. $1,909. If property values went down antoher 10% to $450,000, assuming the same downpayment and a $350,000 mortgage but at a 5% mortgage, the new monthly payment would be $1,878. a savbings of only $30 per month.
So buyers, why are you still waiting????
For more information about Palos Verdes and South Bay Real Estate and buying and selling a home on the Palos Verdes Peninsula, visit my website at http://www.maureenmegowan.com . I try to make this the best real estate web blog in the South Bay Los Angeles and the Palos Verdes Peninsula. I would love to hear your comments or suggestions.