By Jason O’Neil
Sit tight. Last week mortgage interest rates jumped drastically. Some say without warning, but then again, most have been preaching for months, if not years, that rates can’t stay this low. Can they?
Why did they rise? Is Wall Street fed up? Was the Federal Reserve testing the market’s tolerance with some well thought out comments? “The downside risks to the outlook for the economy and the labor market have diminished,” said Federal Reserve Board Chairman Ben Bernanke on June 19. Will the Fed begin to unwind its efforts? Time will tell the answer to all of these questions. But I do assure you that the ride is not over. As we’ve seen in years past, there is always a secondary action to the immediate (usually over-reaction) reaction.
Rates will likely dip again and level off in a somewhat upward trajectory. We have likely seen the record low rates come and go.
This happens. It is the cycle. It is not doom and gloom. Rates are still low and people are still interested in buying houses. In fact, I typically see an uptick in home sales immediately after an interest rate rise as homebuyers fear further increases.
As real estate professionals, we don’t have all the answers when it comes to the future of interest rates, but we owe it to our clients to partner with mortgage professionals who are pro-active and knowledgeable about their industry. Rates will be what they will be, and while they have an impact, they certainly are not the largest reason that someone should or should not buy a home.
Jason O’Neil is an associate broker with Encore Sotheby’s International Realty in Indianapolis. Connect with him at jasononeilrealtor.com.
By Michelle Flaherty
Has the incentive for first-time home buyers to break into the market just gone away?
My non-scientific market research has shown me that it has not. My buyer clients are still excited about the house hunting process, low interest rates, and attractive offerings at low prices – and I’m hearing the same from my peers.
In fact, the drop in interest rates over the past two weeks has created a long-term incentive even more attractive than the first-time home buyer tax credit – and *bonus* – it’s not costing taxpayers a thing.
How does this work? Consider the first-time home buyer using an FHA loan to purchase a $200,000 property. For the first five months of 2010, when buyers were snatching up tax credits like hotcakes, the typical FHA interest rate was 5.25 percent. Over the life of their loan, a buyer who locked in at 5.25 percent would pay a total of $412,621.13 in mortgage payments (including principle, interest, and PMI – not taxes or insurance). Now, with the 4.5 percent FHA rate, that same buyer would pay a total of $380,994.95.
The post-tax credit buyer will save $31,626.18 with the better rate, or $23,626.18 better than they would have done by going under contract in April, closing by the newly-extended Sept. 30 deadline, and collecting the $8,000 tax credit. The caveat, of course, is that their monthly savings only totals $87.85, so they would have to remain in their home for 7.6 years to collect $8,000 worth of savings. But after that, they’re doing better every month!
Michelle Flaherty is an associate broker with Prudential Northeast Properties, serving Greater Portland, Maine. Visit her Web site at www.michelleflaherty.com.