MORTGAGE LOANS FAR LOWER THAN 5%? Many Experts Say, "Not Likely!"
UNTIL RECENTLY, SUB-5% MORTGAGE LOANS HAVEN'T BEEN SEEN SINCE THE 1950'S!
Have you noticed?
Home Mortgage Interest Rates are down! Way down! For those with the best credit scores and high down payments or equity, quoted rates touched 4.75% last Thursday, in response to Federal Reserve Board plan to purchase as much as $1.25 Trillion in Mortgage Backed Securities by the end of 2009. That figure is down from the 6% fixed rate average last November.
According to Mahesh Swaminathan, Mortgage Strategist for Credit Suisse in New York City, as quoted in James R. Haggerty's article in Friday's Wall Street Journal, he sees 30-Year Fixed Mortgage Rates for those with the strongest credit credentials falling within the 4.50% to 4.75% range for the balance of the year - although other experts feel this forecast too optimistic.
In November, 2008, the Fed began to effectively drive down mortgage rates by beginning to purchase Mortgage Backed Securities - initially, more than $500 Billion worth of them! As a result of this action, average 30-year fixed rates have fallen in the 5.00 to 5.25% range for much of the time since. Rates for the week ending March 19th, however, averaged 4.98%, down from the 5.03% week-earlier average. Rates for 15-year fixed loans averaged 4.61%, down from the 4.64% a week earlier. (All data from Freddie Mac).
The latest Fed action could fund as much as half of the projected home loans to fund for the rest of this year.
Many, however, feel that the lowest-priced loans on the market today may not be around for long. They cite less competition in the lending industry, as the recent credit crisis have forced some smaller, less-healthy banks to leave the business.
Further, lower rates initially spark a surge in the refinancing of existing loans. With the increased business causing a strain on many lenders' loan processing departments, often understaffed due to the economy, these lenders are hesitant to compete as keenly for new loan business on the basis of price.
Some experts quoted in the Haggerty story, however, including Thomas Lawler, a Private Economist in Leesberg VA, and Christopher J. Mayer, a Professor of Real Estate at the Columbia Business School in New York, see continued moderation in mortgage interest rates could re-energize the U.S. Housing Market. Mayer, however, fears the Fed will be faced with large losses if inflation pushes average mortgage rates higher in the future.
Many borrowers cannot qualify for the lowest-available interest rates. Those with lower credit scores, or less than 20% down payment or home equity, face steep fees and up-charges on certain types of mortgage loans. Also, home appraisals are far more conservative than in recent years, and many sales are quashed by under-appraisal these days.
And those concerned about security of their own jobs might be hesitant to buy or refinance at any price, fearing they will lose their jobs in layoffs or cutbacks. Surely, a greater sense of job security will be a prerequisite of a housing market turnaround.
Therefore, it might seem maintaining low mortgage rates alone is not the only answer to the U.S. Housing Crisis.
DEAN MOSS & DEAN'S TEAM CHICAGO
