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Bruce McCoy
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It has been a LONG time since I was able to be upbeat about mortgage rates and real estate; but the time has come. The mortgage fiasco is starting to clear up - albeit at the entire country’s expense- and mortgage rates are beginning to react. Finally!
The two tier pricing for conforming fixed rate loans, one price for loans under $417,000 and a higher price for loans between $417,000 and the TEMPORARY higher cap of $729,750, has been improving over the last month. Instead of adding 2 points in fees for the higher limits, that add has been reduced to as little as a half point in some cases!
Now, let’s look down the road only a few months. The first window that could close is the temporary increase in the loan limits on December 31 of this year. Quite honestly, I think that this limit will become permanent, but I wouldn’t bet the house on it - literally. The other “window” that will close, and perhaps before December 31 is the low rates we are seeing now. Interest rates are near 40 year lows across the board, and in a healthier economy this will cause price increases. Indeed inflation is strictly defined as an increase in monetary supply (which is what lower interest rates result in), and that increase of the monetary supply causes prices to rise. When prices rise, the Fed raises the rates that they have control over and that causes a ripple effect up to and including mortgage rates.
If you are in a position to buy, now is the time, as even a slightly lower price won’t overcome the jump in interest rates that we will see down the road. If you need to refinance, you have only a few months before the window slams shut on lower interest rates and the temporary higher loan limit.
That’s the way my crystal ball looks today.
Fixed Rates for conforming loans (under $417,000) as of 5/23/08 (a.m.) are:
(rates quoted are for 0 point loans, reduce rate by about half point for 2 points in fee)
30 year fixed: 6% (APR 6.06%) payments are $2,500.13/mo.
15 year fixed: 5.5% (APR 5.60%) payments are $3,407.24/mo.