Market Changes, Prime Rate Reductions vs Home Mortgage Rate Increases
There is a very defined difference now from the last six months that has made many of us optimistic for the year. I had many folks last year who wanted to wait with their purchase because of falling home prices, and many home sellers were still hanging tough with their prices. Obstinate sellers who have not kept up with the market, have continued to suffer from falling home prices and are now much easier to work with as they realize their predicament. Home Buyers I have been talking with over the last year or two are now calling me to make their initial consultations. I like that! That did not happen last year. That is another reason why I’m optimistic.
Last Fall, I had a large number of home sales that began escrow but did not finish because of mortgage changes during escrow, and seller’s not willing to compromise on terms. That is changing now. Mortgage programs are beginning to gel and lender standards are stabilizing from the free fall – here today, gone tomorrow – conditions that existed last Fall. Our buyer climate is much different this year and presents fewer fundamental changes. We have a much better chance to make it through each escrow this year.
The next challenge our industry faces will be how to reconcile falling interest rates from the Fed with rising home loan interest rates. Investors are worried about the bond market. As the Fed lowers it’s interest rates, the bond market suffers and mortgage investors in the secondary market raise their home mortgage interest rates. Home buyers will tend to save more money on their home purchases with a lower interest rate than on a modest home price decrease. We have seen interest rates fall in January, then turn around and move up steadily through February. Those rate changes will have a far bigger impact on buyers than a 7% to 10% decrease in home prices. Do the math on any home you care to pick and I’ll bet you see what I mean.
I think we need to carefully watch to see if the cost of mortgage loans continues to increase. If the Fed continues to cut the Prime Rate, the response from secondary investors & the bond market may be to raise the cost of home mortgage interest rates. It is possible that rising home loan interest rates could more than offset falling home prices. Home buyers may pay less and have more to choose from if they buy now.
Sellers will most likely continue to experience an eroding of home prices, with stiff competition from bank foreclosures until the number of foreclosures falls in a year or two.
Just the way I see it today.
Warmest Regards,
Mark Thorngren
htttp://www.markthorngren.com
