Mortgage Rates Dip to Low 5’s
Rhonda Porter on 11 25, 2008
30 year fixed rate is now around 5.375% priced with 1 point (apr 5.470%) based on the criteria that I use for pricing Friday’s rates. Do check with your local Mortgage Professional to see what rate you qualify for. What’s caused this big dip? You can thank the Fed for stepping in to buy $600 billion of mortgage backed securities (MBS) backed by Fannie, Freddie and Ginnie.
I’m off to lock in some interest rates…bye for now! Oh yeah, there will not be a Friday rate post due to the Thanksgiving holiday. I will be posting rates that I’m quoting live via Twitter–you can check out the feed by visiting Rain City Guide’s Mortgage Information page.
About the Author: Rhonda Porter
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43 Responses to “Mortgage Rates Dip to Low 5’s”
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Hi Rhonda, I’m hearing that people are scrambling to apply for a refi and quickly lock. Is it busy at your office this week?
Jillayne, I’m hoping this won’t be dejavu of earlier this year where rates dipped and many home owners were not ready to commit to a lock…hoping rates would go lower only to miss out. A total exercise in frustration. When rates are low, you may not have a huge window of time to decide what you’re going to do…especially when we are currently averaging 3 rate changes per day.
Today was busy for me contacting my clients with transactions in process to lower their rates and sending out a few notices to those it could make sense to refi (depending on their current financial plans/scenario).
Rates began to creep up by the end of the day…I’m on pins and needles waiting to see what rates will be tomorrow.
Unfortunately, low mortgage rates are nothing to be happy about. In fact, they are a flashing warning sign that we are in the grip of a major deflation, with the prospect of massive asset price declines over the coming years.
It would be much better to get a mortgage at a high interest rate when there is a good prospect for appreciation rather than getting a fabulous rate when odds favour a significant drop in values for the foreseeable future.
I have posted a podcast on this very subject at http://msurkan.podbean.com.
Sniglett, the lower interest rates are a result of Fed action, pumping more money into the economy through Freddie and Fannie.
I’ve been concerned about the possibility of deflation too, but I think the Fed and the Treasury are making a concerted effort to pump the economy so full of money that inflation occurs instead. Remember stagflation? We might see it again for a new reason.
Kary wrote: “lower interest rates are a result of Fed action, pumping more money into the economy through Freddie and Fannie”
Actually, I think this is incorrect. It is the tremendous demand for t-bills and GSE bonds that is driving down mortgage rates. Just look at who is buying t-bills and GSE bonds: the US government/fed is a SMALL player.
The recent downturn within approximately the past week is attributed to the Fed move. That might be a temporary downturn though.
Mortgage rates have dropped more this morning. I’m quoting 4.875% for a 30 year fixed with 1 point with low mid credit scores at 740 or higher (apr 5.016) based on $500k sales price and $400k loan amount. Rates will be posted here at RCG tomorrow (Friday) and you can catch my live rate quotes by visiting RCG’s Mortgage Info page to watch the trend.
With rates like this and our Silent Second progarms here in Long Beach. It’ a sure win- win for a new home buyer. I think I’ll run out and start looking for some buyers. Thanks for the information.
Stella
Thanks, Stella. I should mention we have the Jobs Report coming out tomorrow which should also impact rates (one way or the other).
I wouldn’t tell buyers its a sure win. That type of guarantee is partly what got us into this mess.
cautious buyer, when/if you do buy a home, I’m sure you’d rather have a lower rate rather than a higher one.
All else being equal, lower rates are better than high for a borrower, but that doesn’t mean buying right now is a sure thing to raise the quality of life for any buyer.
Maybe I’m reading too much in to Stella’s comment, but I thought the implication was that buying right now is guaranteed to be good for any buyer. Better than paying the same price for the same place with a 10% rate, yes, but better than renting and saving the difference, not a sure win. You need to figure out for yourself if the house, the loan, and the risk tradeoffs are worth the price to you.
cautious buyer, the decision to buy or rent is a very personal one. If someone is planning on staying in their home (not moving in a few years) and if it’s a home they can afford and are pleased with, I have a hard time having issues with that. These days, folks who are paying rent can be faced with troubles when the landlord lets the home slip into foreclosure. There’s no safe bets anywhere.
Lower mortgage rates may current home owners make ends meet in this economy.
I can’t argue with comment 13. My only issue was with the salesperson in comment 8 imlying that buying is a “sure win” for every buyer.
Rhonda,
Silent Seconds have always been illegal. Do you know what “silent second” program Stella is referring to?
That rate is amazing! I have a busy day tomorrow getting a townhome in Greenlake on market, and then off to see Robin Williams. I was running some numbers earlier today, and rent vs. buy came up in the black for some of the properties here on the Eastside. With both prices and rates down, renting is becoming less attractive.
If FHA and VA rates came down that low, I think that would be the ticket for the market to turn around entirely in the $400,000 and under market.
Ardell -
Its way too late for low rates to make any meaningful difference except to save some people who refi from foreclosure. The problem now isn’t just that home prices are still to high (which lower rates would help “solve”). Its that the economy is terrible and there is a huge overhang of supply guaranteeing prices will tumble for a while out. Now that everyone in the world knows this, and not just the folks who read blogs like CalculatedRisk, the cat is out of the bag. How many people are going to make the plunge into a home because they save $200 on their interest rate if they aren’t sure they will have a job next summer?
Ardell, the way Stella phrased her comment, I assumed it was a special program? I know silent seconds are illegal. I took it to mean something more along the lines of a bond program where they have a second (that the lender and all parties know about) with no payments due unless the property is sold within a specific time.
b, if I had any uncertainty with my job, I would definately want a lower payment…$200 less a month you bet. A stopped foreclosure will also help neighboring properties from depreciating further.
I don’t know b, but I do know a lot of people who will clearly get into a house if rates are that low. When my daughter asked me about buying and I told her to rent (forget when that post was) the cost would have been $1,600 a month principal and interest. Now the payment would be $991 for the same thing that she’s renting for $1,350. I honestly didn’t think I’d see a rent vs. buy scenario working itself through this quickly.
It doesn’t sound like there will ever be a time to buy in your opinion, at no price and at no rate. That’s OK. Your choice. But I doubt most of the world thinks like you. People see what the want at a low price and a low monthly, and they’re going to go for it.
Rhonda,
Let’s hope…but they clearly should not call it a “silent” second. It will lead some to think that the practice is now legal. It has not been very long since a major builder was jailed in that area for silent seconds…he’s still building and selling there. Not a good place to have a “silent second program”.
Apparently silent seconds also refer to some programs in CA where the government subsidizes the downpayment. I’m sure that is what Stella was referring to.
http://www.mtgprofessor.com/silent_second_mortgages.htm
Cautious Buyer–That’s what I’m talking about. I’ve thought that instead of lenders forgiving balances, they should modify the first and do a “silent second” meaning that the second mortgage is recorded but no payment due. If the homeowner sells at a certain point, that’s when the silent second gains a voice “hey–I need to be paid off!”
Rhonda, I think if most people had uncertainty with their job, they wouldn’t want to lock in a payment, or a location. With renting, you could downgrade to a smaller place in a month if you lost your job. You could also move across the country for a new job.
But yes, if buying truly got cheaper than renting, most people who qualify would choose to buy.
Ardell, could you try to convince me a little more? Are you really seeing $991/mo 30 yr payment for a $1350/mo rental? Is this just an extraordinary deal on buying with a terrible rental rate?
I stopped by the new construction up in Redmond Ridge that matched the “affordable housing” type of construction I was touting recently. They were pretty much sold old People see what they want at a reasonable price and payment, and this market will change.
Rhonda -
Why would you buy in the first place if there was job uncertainty? That is supreme foolishness. Its a lot easier to find a cheaper rental than it is to get foreclosed, lose your down payment, etc.
Ardell -
I certainly think there is a time to buy, right now I think my time will be probably the end of 2009, we will see how the economy is around then. Can you point me to this rental that is $400/mo more than buying? I am constantly looking on the Eastside and nothing I find is even close to that yet.
Lets put it this way, when rates were at 6.5% prices were higher and still nobody bought and prices declines. Recently rates got down to the 5.5% range, prices declines and sales fell off a cliff in the last two months. Is there something magical about 4.5% that will turn this around? Maybe if the economy does an immediate 180 and Seattle area businesses start hiring like gangbusters, which has the likelyhood of Santa giving everyone free houses at this point.
b- if I was uncertain for my job, I would reduce my monthly outgo anyway possible and save as much as possible. I would not buy without having a minimum 6-12 months of reserves for savings. I would not rent beyond my means either.
b.
I’m calculating as if prices are down at late 2005 levels and rates get down to the 4.5% I’ve been seeing articles about in the last couple of days. It’s not a sure thing, but it can be done with today’s rates and a buydown and a short sale or equally distressed seller. I think it can be done over the next 90 days. After that the market could clearly go either way depending on how many more foreclosures and short sales there are through 2009.
Low rates could keep some from hunting down the bargains, but if they are readily available, the market could go the other way. I think short sales will become fewer and more properties will go the foreclsoure and bank owned route.
The best values as to rent vs. buy are also the oldest properties. Not appealing to everyone.
Ardell wrote: “I’m calculating as if prices are down at late 2005 levels and rates get down to the 4.5% I’ve been seeing articles about in the last couple of days. It’s not a sure thing, but it can be done with today’s rates and a buydown and a short sale or equally distressed seller. I think it can be done over the next 90 days. After that the market could clearly go either way depending on how many more foreclosures and short sales there are through 2009.”
First, please use the term motivated seller, not distressed seller. The sellers I target for buyers are not ones subject to the distressed property law.
As to the market moving either way, I’d agree and point out to others that you really only need a tiny percentage of the population to move to sway the market. Sales of SFR in King County in November were only about 860. Last year about 1500 and the year before that about 2100. Compare that to how many people live or work in King County. How many people will be enticed by the lower interest rates? How many will be affected simply by the person they voted for becoming President? On the other hand, how many people will be unemployed?
Clearly the $7,500 first time home buyers’ tax credit didn’t work, but that doesn’t mean nothing will work. Personally I think the problem with the tax credit was too few people knew about it. That and maybe the fact that it’s really an interest free loan.
Kary says “Clearly the $7,500 first time home buyers’ tax credit didn’t work, but that doesn’t mean nothing will work. Personally I think the problem with the tax credit was too few people knew about it. That and maybe the fact that it’s really an interest free loan.”
I think this is true. Most of the folks who I’m working with that qualify for the FTHB tax credit are surprised to learn about it. It’s more like a “side bonus”. My clients have not had issues with the credit being an interest free loan–I think the key is making sure they understand how it works so they’re not surprised.
The thing is, when they’re already buying and don’t know about the credit, giving them the credit is a waste of resources, but that does seem to be the way it’s working.
Sorry I can’t point more specifically, but I’ll show you how I’m roughing up the numbers for the buyer. I get complaints when I talk about specific property from the buyer’s standpoint as the sellers who live there don’t like the vantagepoint of lowest possible price.
Purchase price $230,000. Using 95% of asking as there are 3 or 4 on market with long days on market. 95% of asking should be more than realistic and none are short sales. Peak pricing $315,000. Rental $1,350 to $1,450. Buyer has $50,000 down.
$315,000 (peak pricing) at 6.25% (rate when they first considered buying) with $50,000 down = principal and interest of $1,631.65. $230,000 with $50,000 down at 4.5% = $912.03. Payment difference by waiting and renting $719 a month.
This is a scenario that I am currently working up for a specific person, not one I beat the bushes to find. Add the $7,500 interest free tax credit. RE Taxes and condo fees (it’s a townhouse) are a 50% wash against deducting the taxes and interest using 20% advantage.
Net cost $1,180 a month. For this young couple about to have a baby, being able to paint, decorate and get new appliances (vs. renting) is making this buy vs. rent even more attractive.
Still, all things considered, it’s possible 4th quarter 2009 might be better unless they get the opportunity to buy the one they are currently renting.
P.S. for those who said “convince me”, I’m not trying to convince anyone. I’m just working on some numbers for a client who I told to rent vs. buy many months ago.
I think the rent vs. buy argument is pretty compelling on the buy side for those with cash. Leverage is actually bad for that calculation. I was planning on doing a piece on that over in P-I Land shortly.
Townhomes are down nearly 30% from peak?!? Why isn’t this reflected in any of the official stats?
Because even at those prices, there aren’t enough selling to reflect in the stats. The best the market has to offer, as in the one you buy, will never be “the norm” reflected in “the stats”.
Sampai’s purchase was 30% under peak pricing. It’s not hypothetical. By the time the stats would say 30% under peak as a median, you wouldn’t want 30% under peak.
Stats are medians…median price is never best possible scenario.
Kary,
In my example the client has a one time gift offer of $50,000 at time of purchase. It’s a use it or lose it proposition. So using it works best in that case.
Can you specify a neighborhood?
A $50,000 one time gift offer would skew the equation much more toward the buy side. I wish I had one of those.
Not to interupt this thread…I’m just popping in to say I have updated rates for this morning at http://budurl.com/ratesDec4am and I’ll be posting rates this afternoon–around lunch time–here at Rain City Guide.
Bili, on average prices are 20% off the peak. With the right seller you can easily get below market pricing. That could easily be the additional 10%. But you can do even better than that. The example I emailed to Ardell was 30% off the 2006 prices of a townhouse just a couple of units over.
Ardell, re 37, $50,000 would certainly skew the numbers, but I was going to use an example where the owner uses their own funds.
Ardell -
Someone with $50k cash and buying a $230k townhouse is so atypical that you may be right, if they got that money from the sky and didn’t care about possibly losing it then they may be better off buying right now. BTW, that $50k in a 5% FDIC savings account would basically even out the equation again, they’d make about $200/mo in interest. Either way, if I had $50k in cash sitting around I probably wouldnt plow it into a cheap townhouse right now unless I had yet another bundle of cash sitting around for emergencies.
To follow up on #34 above, I did my piece on rent vs. buy, which assumes a cash purchase of owner occupied homes.
http://blog.seattlepi.nwsource.com/realestate/archives/156248.asp
The numbers come out with a return of 3.4-3.5%, which assuming a 25% marginal tax rate would put the return at about 5%–tax free.
This is a much more realistic assumption than buying with a $50,000 gift, although neither is obviously something anyone can do.