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June 29, 2009 -- To give you a general idea of what it will cost to get a home loan this week, conventional mortgage rates in the Rockford area are mostly in the range of 5.375% to 6% (from 5.5 to 6 last week and 5.5 to 5.125% the week before). STILL LOW -- and holding fairly steady ! A tax credit of up to $8,000 for first time home buyers has put a spark into the housing market. While there is no question that we have a long way to go before the economy recovers, there has been a good deal of optimism growing that we are very near the bottom of this recession and a sooner-rather-than-later recovery. There is no doubt the economy (worldwide) is in bad shape with uncertainty as to how or when the USA and governments worldwide will untangle this mess.
HOME BUYERS TAKE NOTE: Rockford area banks are ready to lend. With all the changes in banking and new guidelines for lending, it is most important that you talk to your lender and get pre-approved early in the home buying process. Discuss the new loan programs available to you, find out about the cash back and annual mortgage interest credits available, and understand your down payment and costs. Once you are assured of a loan and know how much house you can afford, you can search for the best home with confidence.
So what is the outlook for mortgage rates? Market forces are returning to influence rates and reacting to the lack of any increase in near-term inflationary pressures. As a general rule, good economic data coupling economic optimism with rising inflation pushes mortgage rates upward. This weeks poor Consumer Confidence numbers continue to put a damper on the market and are a reminder that we are still mired in a very deep recession. Worse than expected employment data and a decrease in manufacturing activity could push rates downward. Of course, over time, good economic news will again tend to push rates upward, but the Fed and Treasury are expected to continue to hold rates low via purchases of mortgage-related securities. Some housing indicators hint that housing could also be near the bottom. With all the government intervention in the mortgage market the pressure is high for rates to remain low and stable. However, once there is some sort of consensus that the market is ready for a recovery it is possible market pressure will have a turbulent influence in pushing mortgage rates with the liklihood of rates moving upward. The Federal Reserve left its interest rates untouched and indicated that it expected to leave rates exceptionally low "for an extended period." Without more sustainible good news in new housing starts and new home sales we still have a way to go before we can say we're actually on the way up. Continued economic challenges will keep mortgage rates volatile. That said, homes bought in the Rockford area have been extremely price-stable, more so than in most other parts of the country and the government has pulled out all the stops to make buying a home as attractive and easy as it can possibly be for new buyers. For anyone who would like to purchase a home, this is a rare OPPORTUNITY: Prices are still down, rates are way, way down, choices are abundant, value is up ... what an excellent time to buy a home.
In December 2008 the Fed pushed rates down to a range of 0 to 0.25% and maintained this rate at its last meeting. This is the lowest point ever for this rate which banks charge each other for overnight loans. The Fed rate has a greater effect on short term loans like credit cards and adjustable rate mortgages but usually has little influence on long-term mortgage rates. The prime rate is 3.0 to 3.25%.
Regardless of the market ups and downs and national reports of banks holding on to cash to build their balance sheets and not lending to most consumers and businesses, our local banks are telling us that mortgage money IS available and that there ARE PROGRAMS that will help buyers get into a home. Although credit underwriting is tougher and loan terms stricter, borrowers now need to put down 3.5% on an FHA-insured mortgage and 5% on some Fannie Mae and Freddie Mac loan programs with private mortgage insurance. We're being told that there is NO shortage and NO breakdown in funds for the local Rockford area residential mortgage market. As a Realtor I can tell you that there are really exceptional home values out there. There are many, many homes now on the market offering extremely high quality at extremely reasonable prices--and that means those who are ready to make the move will get a great deal and a great value. Check with your lender, visit open houses, talk with your Realtor to see if now is the right time for you.
If you are a 1st time home buyer, ask your lender about new housing and economic recovery incentives, $8000 home buyer tax credit, mortgage interest federal tax credit, and revised FHA guidelines.
More about FHA mortgages.
More about the Housing Stimulus $8,000 tax credit for first-time homebuyers.
Rockford has not been hit as hard as some other parts of the country, but sales are still down compared to recent record-breaking years. For buyers who can qualify for a mortgage, there is exceptionally good value out there. It's still good to keep in mind that current mortgage rates, overall, are well below the 1990s average of around 8% for a 30-year fixed-rate mortgage and 6% for the one-year ARM. (See this weeks local rates at top of this page).
Each Fed rate cut may help with consumer short term rates on credit cards and adjustable-rate mortgages, but also may spur spending and therefore inflation which is the worst enemy of bonds and home loan rates. Keep in mind that already low 30 year fixed rates are tied to LONG-TERM bond yields that move based on the outlook for the economy and inflation and therefore may not be affected much by Fed rate reductions which affect SHORT-TERM (Prime) interest rates and Adjustable Rate Mortgages.
WATCHING THE FORECASTS? According to a Mortgage Bankers Association forecast at the beginning of 2007, rates were expected to rise to about 6.7% by year end and to about 6.8% by the end of 2008 -- with the drastic upheaval in the global economy we ended 2008 well below those predictions. Note: while forecasts and predictions may serve as an "educated guess", they are only good the day they are made and turnarounds and changes should be expected. (We saw rates posted as high as 6.858% in 2008 and while there is a vast improvement with the very low rates we are currently experiencing, it is absolutely impossible to predict the fallout from the current unprecedented financial breakdown or the resulting government fixes that are in progress and to come).
Before the Fed began to push rates up in June of 2005, the funds rate was at a 46-year low of 1 percent. The 1990s average was around 8 percent for a 30-year-fixed-rate mortgage. The Fed Fund rate is currently 0 to 0.25% with the Prime Rate expected at 3.0 to 3.25%. Changes in the rate especially affect adjustable rate mortgages, home equity loans, and credit card interest rates but generally have little affect on long term mortgage loans.
Inflation fell in November 2008 with consumer prices down 1.7%, the second straight month with a record decline in inflation. On a year-to-year basis, consumer inflation rose 1.1% from November 2007 to November 2008. Higher inflation is generally bad for bonds in that the value of the bond is diminished, typically resulting in a decrease in bond prices. Lower bond prices mean higher mortgage rates. Remember, weaker than expected economic data is generally good for mortgage rates, while positive data causes rates to rise. Rule-of-thumb: rates move up quickly and down slowly.
When the US stock market remains relatively stable, the demand for mortgage-backed securities tends to remain stable, resulting in little change in mortgage interest rates. However, as the stock market gains strength, investors seeking higher returns tend to move their money out of the bond market and into the higher yielding stock market. This reduction in the demand for mortgage-backed securities leads to a short-term decrease in bond prices and an increase in interest rates. (When bond prices fall, bond yields and mortgage rates both climb.)
Remember, as a general rule, weaker than expected economic data is good for bringing mortgage rates down, while positive or strong economic news causes mortgage rates to rise. Additionally, short-term weakness in the stock market can bring about favorable short-term decreases in mortgage interest rates. Weakness of the U.S. dollar can result in foreign investors selling off bonds, creating turmoil for bond prices and interest rates. Stocks, too, are likely to suffer from a weakening dollar. Imported oil and other commodities also cost more when the US dollar is weak.
By historical standards we're seeing very attractive LOW financing costs in the housing market. The average of the past decade was 7.3 percent. When rates are low borrowers may be able to afford bigger and better homes -- or simply be able to get the home they wanted at a lower monthly payment than may have been expected. Either way, it still means savings each month and big savings over the life of a mortgage.
Higher inflation is generally bad for bonds in that the value of the bond is diminished, typically resulting in a decrease in bond prices. Lower bond prices mean higher mortgage rates. Remember, weaker than expected economic data is generally good for mortgage rates, while positive data causes rates to rise. Rule-of-thumb: rates move up quickly and down slowly.
The news has covered the doom and gloom of credit issues, but don't let the bleak and scary headlines get to you. There is a new incentive to start fresh. It was done before (in 1991) and once done will make for a more stable, profitable housing and lending market. All markets, whether credit, real estate, stock, or bonds, while being cyclical in nature, are historically self-correcting. For the last 6 to 7 years real estate was booming and breaking sales records. The correction we have now is only natural and a result of the overzealous investors and extremely loose guidelines for lending that developed during the boom cycle. Housing prices also have a history of cycles. Since 1979 residential real estate prices have had two 10-year cycles where prices rose significantly, then retreated by about 15% to 20% over the next year or two. Similar booms and busts can be traced back to the early 1900s.
While many types of mortgage programs and rates are available to you, these comparison rates are based on a 30 Year Fixed Conventional loan with 5% down and 0 points. Rate and/or fee adjustments may apply.
(Click here to find calculators for your monthly payment, monthly income vs loan amount, how much home can you afford, refinancing, home sale net proceeds, and amortization schedule).
Mortgage rates are subject to change daily (and even several times a day), so call the bank or mortgage lender of your choice for the latest information. (I've included a list of many of our local lenders and phone numbers below. Please note that this list, and the figures used for rate comparison, does not include all lenders which provide financing and is not a guarantee of rates or options available). Some lenders will have different rates based on points. Simply put, with points you pay a percentage up-front in order to get a lower interest rate on the mortgage. Terms differ among lenders, so remember to check factors such as closing costs and application or origination fees, and how long the quoted rate will apply.
The most important thing you can do when starting to look for a home is to GET PRE-APPROVED by the lender of your choice, especially with today's tighter and changing lending guidelines. This will help you to focus on homes in your price range, and, when you find the right home, being pre-approved may mean the difference between getting the home, or missing out because someone else was ready and you were not. If you are a 1st time home buyer be sure to ask about special financing programs available to you. Questions? See my page on mortgage and financing information or Call the lender of your choice. If you are planning on purchasing a home in the Rockford area, then I recommend you work with a local Rockford area lender for their knowledge of the market and personal service.
If you are buying or selling a home, please don't hesitate to call me at
815-381-6850 or email. I would appreciate the opportunity to work with you and help you make the right decision when buying or selling a home.
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