One popular housing theory is -- before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.
If that belief is true, a national return to rising home prices may be in store for 2009.
Falling home prices and falling mortgage rates have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.
This is the exact 18-year historical average and not since 2001 has the gap been this small.
As reported by the Wall Street Journal, though, the study has some flaws. For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies.
But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.
This is thought to be a key element of the housing recovery.
In many markets (but not all), home prices are expected to move even lower through 2009. Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.
(Image courtesy: Wall Street Journal
Consumer confidence reached an all-time low and 100,000 Americans were issued layoff notices last week. For the 3rd consecutive week, mortgage rates rose and average loan fees increased.
Amid all of the negative economic news, however, there were two bright spots worth identifying.
First, the supply of "used" homes for sale fell from 11 months to 9 months nationwide. This suggests homebuyers are re-entering the housing market in force and signals home prices are nearing equilibrium.
And, second, the nation's GDP -- a measurement of the country's complete economic footprint -- didn't fall by nearly as much as experts predicted. A positive surprise like this makes us wonder what else the Doomsday Economists may be wrong about.
We won't have to wonder long.
This week we have a large amount of data, legislation and rhetoric to influence mortgage rates. Some of the news mortgage markets will digest this week include:
The biggest impact on rates, however, could come Friday with the release of January's jobs report. Employment data is always a market-mover and with the press giving so much attention to layoffs lately, expect Wall Street to be extra jittery it.
With rates at record lows, all lenders have recently seen a sharp increase in loan applications. Remember also, lenders have dramatically reduced their staff over the last 18 months to cut cost. This means timeframes needed for underwriting, approvals and closing have become longer than normal.
There are a few things you can do to protect yourself. First, consider longer lock in time frames. 60 days instead of 30. I have several lenders who've recently priced 60 day locks the same as 30 days. They realize 30 days isn't enough and incent customers to select 60 day locks.
Next, responding quickly to requests for information or documentation is important - the faster the file is submitted and approved, the better off we are to keep that great interest rate protected.
Finally, be aware it may be a smart idea to pay points to gain the best interest rate - and sometimes is even necessary in today's market. Fannie Mae and Freddie Mac have recently imposed more "risk-based pricing adjustments", meaning even credit scores and loan to values which in the past would have been considered very low risk, may now be subject to mandated fess by Fannie and Freddie.
Right now is still an excellent time to act, before the great low rates of today get away from us. Don't try to squeeze every last drop out of rates. It's an impossible task. If you are within a quarter percent of the lowest rates offered in the history of our country, you did very well. And rates always shoot up higher at a much faster pace than when they dip lower. But let's be smart - call or email for information on how we can get started right away.
Mortgage Bonds are off to a great start in 2009, as the Fed begins its planned purchase of $500B Mortgage Backed Securities. This process will continue gradually through June and should improve Mortgage Bond prices. What does this mean in plain English. LOWER RATES!!! For today, there are no economic reports due out, so Mortgage Bonds will likely respond to today's Fed announcement.
In other news, President-Elect Obama's new stimulus package will reportedly be worth $775 Billion and will include hundreds of Billions of dollars worth of tax breaks and credits for individuals and businesses. This is good news for the economy and should help with consumer confidence over time.
Currently, I recommend floating, as Mortgage Bonds ride a nice long-term trend higher. Remember, with today's continued volatility and sharp swings in the market, trusted market knowledge is as important as price in your rate decision. If you have any questions or concerns, please contact me. I'll be happy to help.
Best wishes for a safe and happy Holiday Season!
With home loan rates at historic lows, there has never been a better time to examine your own home loan situation and plans for the future. Sometimes human nature drives people to be a little greedy and attempt to wait for even lower rates before acting...but the opportunity cost of missing the savings that could be benefited from right now - by waiting for something that may never happen - could quickly mount up into thousands of dollars. Take a minute and get in touch with me. Let's take a look at your situation, and ensure you are saving all the money that you can, and positioned correctly for your future home and financial plans.
Looking ahead to the new year, I do see Bond prices revisiting the highs seen last week and for rates to improve, but it will likely continue to be volatile. For now, I recommend floating. Merry Christmas!
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