Saturday, January 03, 2009

Low interest rates not stimulating home buying

Via Diana Olick:
Two weeks ago, thanks to more promises from the federal government that it would buy more mortgage-backed securities, mortgage rates plunged to the point where the rate on the 30-year fixed looked like a teaser rate on a subprime circa 2006. It wasn’t quite the 4.5 percent that some housing gurus are calling for, but it was close enough.

One week later, no surprise, the weekly applications survey from the Mortgage Bankers Association showed a surge with volume up 48 percent from the week before and up 124.6 percent from the same week a year ago. Great news, right? Only if you’re into refis.

The refinance share of mortgage activity increased to 83 percent of total applications, from 77 percent the week before and 53 percent a year ago. So that means that the vast majority of people taking advantage of these low low rates are not actually buying a new home, just saving money on their current home. That’s helpful to those who might have been in danger of default, but it isn’t exactly a jumpstart to home buying.

So suffice it to say, it’s going to take more than low interest rates to get people buying enough homes to add more weight to any kind of recovery.

10 comments:

  1. The talking heads on TV were talking about this during the morning news. The claim is that a lot of potential buyers are cautious because they know it would be tough to sell their existing house, or that they are concerned because they are unsure as to how much they could really get for their existing house.

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  2. Unfortunately my friends are unable to refi as the value on their condo near Logan has dropped in value.

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  3. I thikn this is the best explanation I have heard for the real estate bust... very clear, concise, nicely done..

    http://www.mikeknowsomaha.com/home/recent-news.html

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  4. I think that the refi's will be the first step towards housing recovery. It is important to stop the foreclosures as fast as possible as nothing can decrease the value of a neighborhood faster than a bank sale or foreclosure. I also believe in my market sellers have to come to the realization that there home may not be worth what they think it is worth.

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  5. Anything that helps reduce defaults and forced sales is good. Buying now is very chancy. Odds are one can buy the same house more cheaply in a year or so -- why not rent? A 10% decline on a $500K house pays a lot of rent.

    If I had to buy right now, I'd offer 20% below asking. If the seller bites, cool. If not, oh well. Even if the house price falls more than 20%, a low bid takes the sting out a bit.

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  6. It is always essential to speak with an independent financial advisor when looking to refinance your home. This is especially true if you have High value mortgages which need to be looked at in considerable detail.

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  7. To the above poster re: logan circle.

    Your friend's Logan condo may have dropped in value; however, a more likely scenario is that they had 100% financing when they purchased. Even if you refi, banks want to see 20% equity. If you never put any money down, the owner cannot refi.

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  8. Rental rates have gone up in northern virginia. My rent is going up 7% because the apartment management company knows they can get away with it. What we'll see is that rental rates will increase despite additional rentals coming onto the market.

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  9. Anonymous said...
    "Rental rates have gone up in northern virginia. My rent is going up 7% because the apartment management company knows they can get away with it. What we'll see is that rental rates will increase despite additional rentals coming onto the market."

    Over the long run, rents increase at about the rate of inflation. If your landlord is raising the rates faster than that, you should consider moving.

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  10. Anon,

    James is correct about the correlation between rents and inflation.

    "Apr 8, 2008 ... Hyperinflation could be experienced as early as 2010, if not before, and likely no more than a decade down the road."

    http://www.shadowstats.com/article/292

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