A good reason to buy now? - Rates up - Frustrating loan processes

October 25, 2010

"I'm going to wait for the market to hit bottom before I buy" - a common stance prospects take. Below is an argument for buying NOW. The key question is this: "if rates go back up from the current all-time low (and prices stay the same) how much more will you be paying?". Answer: as high as 17%. See below. /// The mortgage application process can be a frustrating process nowadays. A bit of perspective below. /// Make it a good week folks. - Paul :)

An argument for buying now?
Consumers often focus on price and interest rate. Not wrong, but not always right either. "I'm going to wait for the market to hit bottom before I buy" is a common stance. Ok, so what if we have hit the bottom (let me know when we are there please), the economy improves also, and rates go back up from their current all-time lows? Here is a historic mortgage rate chart, fyi. I created some useful tables and a calculator to run your own scenarios. As you will see, If property values remain the same and rates increase by 1% you will be paying 8% more over a 10-year period, 17% more over a 30 year period" (at 95% LTV). Or conversely, you'd need to buy at as much as 15% lower price to "break even".
Consider the cost of ownership, not just the purchase price! It's a buyer's market now, you can hunt for bargains now and get financing at all-time low rates. Once things turn (and they will) the shoe will very quickly go to the other foot.

Rates up a little Rate survey
Mixed inflation signals kept fixed mortgage rates at bay last week. The headline producer price index jumped 0.4%between August and September, which was quadruple the market consensus, while the consumer price index fell below the market forecast. Rates on the traditional 1-year and 5-year hybrid ARMs eased to all-time record lows.
Meanwhile, the housing construction market is showing some signs of promise. New construction on one-family homes rose 4.4% in September to the strongest pace since May. In addition, homebuilder confidence rose in October to the strongest level since June, according to the NAHB/Wells Fargo Housing Market Index."

Frustrations getting financing
Getting financing is a frustrating experience for virtually everybody nowadays. Have a look at this article. It describes the current state of affairs quite well. "When Ginny Shipe decided to buy a new home earlier this year, she was confident her experience as an industry insider, stellar credit and debt-free status would make it a snap": That is not what happened.
And here is why lenders dot every "i" and cross every "t", twice - at least. If there are losses investors will examine mortgage files with a fine toothcomb to see if a repurchase (buying the loan back from the investor) can be demanded. Mortgage buybacks may cost banks $120 Billion.

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