How low can rates go?

I realize this is good for homeowners, but what sorts of rates are first-time home buyers looking at?

My question is does lowering the rates help homeowners in trouble? Will they be able to refinance? Maybe it doesn't really matter, but I am just curious.

For the rest of us, this is great. Definitely will refinance soon! If / when impending inflation comes, it will be great to be locked in at below 4 %!

Jen,
It's possible to find deals out there for "first time home buyers" but more importantly, it all depends on the home buyers credit worthiness (and financial status to determine loan) for everyone - new, old, first time or last time buyers.

Isn't historically low rates what caused the real estate bubble that got us into this recession in the first place? Seems a bit suspect to me that the way to get out of a bubble induced meltdown is to have another bubble

Looking to refi from 30 yr fixed 6.7% 0 points to under 5% 0 points for 15 years. It looks like I could keep the same monthly payments on a $270k mortgage! Finally, a way to pay towards principal.

My understanding is that these are rates for purchasing, and refinance rates are higher (0.5 to 1 point).

I am a first time home buyer, and while it is awfully tempting when I plug these mortgage rates into the spreadsheet, I also realize that locking myself into a depreciating asset during these rocky economic times is not worth any mortgage rate. So while it may bring some first time home buyers off the sidelines, there are some of us who will continue to wait.

BV,

The homeowners in trouble are usually too far gone for an interest rate drop to matter. They might be helped when trying to sell their home since lower mortgage rates make homes more affordable for buyers.

Locking in below 4% is wishfull thinking, but enjoy the holidays.

once it gets to 4% I will try to refinance, the savings from my mortgage will allow me to purchase a new car..see, its a win win

Jen,
I'm a first time homebuyer and my husband and I have good credit and stable employment in technology and higher ed. If you have reserves, stable income, and good FICO scores you can get these rates, no problem. We're working with Wells Fargo and they've been very helpful.

I imagine if you have credit problems or late mortgage payments or are seriously stretching you are probably not going to get these rates.

Lower interest rates are good for everyone, especially first time buyers...as long as you have good credit, is a conforming loan and of course you can afford payment...these rates are crazy...in the 1990's when I was in my 20's, interest rates were 9-10% for first time buyers...My parents saw rates near 15% in the 80's....It was less affordable to purchase a home in 1990's then it is today...assuming your are financing a home (which I beleive would be the case for 99% of us)...do the math...9.5% int on a $150K home in the 90's vs. 5% int on $280K home today...plus $12K per year increased salary since the 90's....% of gross income is better today...oh ya, rents have probably double since the 90's (if you are renting)...making it even more appealing...on a cash flow basis, first time buyers today, don't have it as bad as they think....the only bad thing today is down payment is higher....but alot of loans allow for no PMI today for less than 20% down payment....that was unheard of in the 1990's...further lowering today's payments...

bv,
It probably can't help much. Rates at even 4% will be still much worse than a sub-prime deal (for the first two-three, of course). Maybe a small portion of homeowners in trouble, currently balancing on the edge, will benefit.

However, refinancing for all other homeowners, especially for those who bought in 2003-2006, will be a relief. Kind of compensation for bubble prices.

You can't refinance if you are underwater........................... there are alot of people heading to foreclosure who will not be helped..........

Subsidized mortgage rates are a windfall for homeowners. But they're an idiotic idea.

The 4.5% program was cooked up by NAR--trusted provider of complete financial ruin to the US and its taxpayers for the last eight years--and Bush economists Hubbard and Mayer, who say houses are no longer overpriced, but said exactly the same thing in 2005.

It certainly won't restart the housing market, other than luring in a few martyrs to the spring market. The overhang of vacant houses is too large, prices are still too high, and an unemployed worker can't make any mortgage payment for long, no matter how low. It will, however, set up a whole new round of underwater mortgages. That's because this program is temporary. The government can't afford to subsidize all mortgages until the end of time. And as soon as the program ends, mortgage rates will spike and prices will fall. A price you can afford at 4.5% is not a price somebody else can afford at 6.5% or 8% or whatever. So buyers who use these subsidized rates to pay excessive prices will make up another, later wave of foreclosures and shortsales. Because goodness knows, we don't have enough of those.

actually, the rates for re-fis have been tracking HIGHER than regular first time 30 year fixed.
I can't find any refi rate near the ones that first timers are getting, (our credit is excellent)

Not so much of "what sorts of rates are first-time home buyers looking at" vs. your credit worthiness. Right now you'd have to have great credit and a good financial picture to obtain the a loan at the low rates.

Gamble away, set your targets, wait for those rate below 4%....greed is good, right?

If you can refinance, and you're saving a reasonable amount of money, and it's not costing you anything, and it makes financial sense to do...TAKE IT!

The government does not set the rates for mortgages. The markets do. When the gov't says they are going to buy mortgage bonds, that adds perceived safety to mortgage paper for investors and they become willing to price it accordignly, hence the lower rates when the gov't says they are going to buy mortgage backed securities. The gov't is *not* setting the rates for mortgages.
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If you want to wait and see if rates go lower...good luck predicting rates in this market. What if mortgage rates don't go appreciably lower? It's entirely possible. Rates are entirely unpredicatable. You can watch the trends and the fundamentals and the technical trading factors all you want, but for the most part all that has gone out the window when it comes to mortgage rates - ever since the Gov't decided to make an example out of Lehman.

It's taken over a year for rates to break through the 6% barrier and become firmly established in the fives. What's it going to take for rates to break into the fours? Will they even?
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Rates tend to move like this: Think of a balloon filled with air, and being held under water. The lower it goes, the more effort required for the ballon to go lower. When the ballon rises up, it rises faster than it goes down. You've expended energy pushing the ballon down now, so it now takes even more effort to get back to the same low level you had the ballon at before. (This is representative of the market being slow to give and quick to take away)

Now think of this - there are differnt water densities that the ballon has to go through at certain layers - these would be the equivalent of declining interest rate resisitance at the even percent levels and to some, but a lesser degree, the half percent levels.

It's not a perfect analogy, but it certainly works to describe how interest rates tend to move, at least how they have for the last dozen years or so - and that's pretty darn consistent..

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To get the best rates, the line in the sand for FICO scores is 720. You can have "excellent" or "perfect" credit ( but those those terms mean nothing and have a score of 701 or 687) It's all about the number - 720 or better.

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Inflation is coming, it's a matter of when not if.

I am locked in a 30 year mortgage at 5.675% How low should the rate drop before it makes sense for me to refinance?

Marcus wrote :"And as soon as the program ends, mortgage rates will spike and prices will fall. "

I agree. The gov't is not setting rates, the gov;t is buying mortgage paper, and announcing their intention to buy mortgage paper. When they are done, have pushed prices up on mortgage paper, everyone will start selling and that is the interest rate spike you will see.

Get 'em now while the gettin's good!

Here's the rub, the way I see it... rates today are at 4.875% for a refi loan and that's a historical low. What that means is virtually anyone who currently owns a home COULD benefit from a refi...COULD! The only way you are going to know for sure is by talking to a mortgage professional -yes, professional...not the same guy who got you the 1.75% interest-only-adjustable-rate-hybrid-MTA you just HAD to have 3 years ago without explaining it to you, he doesn't work here anymore. Neither do the other 70-75% of his buddies that got into the "lucrative" mortgage business when they were hiring anyone with a pulse. The 25-30% that remain consider this their career and take pride in their work and in their clients' satisfaction. They make an honest-day's pay for an honest-day's work. Your mortgage professional can watch the markets that drive the rates and give you sound advice on whether its a good idea to lock or float. All the information you get is great, but CNBC, CNN and even the Globe for that matter don't write mortgage loans. They could tell you rates are going to 2% and not have to stand behind it, their job is to sell stories, not rates. If you continue to listen to the media, your friends, the govornment and your fellow bloggers you'll end up like Dealio will; an 95 year old, POTENTIAL first-time homebuyer still putting potential rates into his spreadsheet. Call a professional and get some professional advice.

Gas was $5 per gallon on Nantucket.

It's still up over $3.

Prices don't fall until they have sold the last of the old bargeful and bought the next.

Tommy Thacher,
Generally, when the rates are 1% below your current mortgage is usually a good time. You would also want to do an analysis of your breakeven point. That is, when the cost to refinance vs monthly savings equals zero. Take into consideration the number of years you will hold the mortgage.

I meant below _5%_ in post #2. Clearly below 4 % would be amazing, but I won't hold my breath!

marcus is right on this one. a first time home buyer is better served buying with a comparatively high interest rate if enough time has elapsed and price equilibrium has reset to reflect the higher cost of capital, provided over course that the rate will trend down over time. a future refinance would be an option at which time you'd have a comparatively low price coupled w/ a comparatively low rate and the equity in the house would theoretically rise w/ the rate drop. buying w/ a low interest rate creates the illusion of affordability but there would be negative price pressure when the rate inevitably rises. best case scenario would be a drastic rate drop around the time of agreement and before you lock in. good luck predicting that scenario.

Mytake is clearly a loan officer srounging for business.

all this chat about home prices, mortgage rates, and affordability has really got me thinking...what is a median town and median home (someone mentioned this in another blog)? It all does makes sense that certain towns need to come down, based on income to price ratios...because interest rates are well, well, below historical levels, I don't think we will see the 3-to-1 ratio however...mortgage rates just make it too affordable these days...compared to average of 9% from 1980 to 1999...I did some research on recent sales however in the town I grew up in (Arlington)...There were a dozen homes in the area I grew up that sold for below $400K in 2008....I don't consider this town a 'median' or a first time buyer town...historically, it never was...my parents were married in their 20's and lived with my mom's parents in the North End (when it was a dive)...they saved money and then bought in Somerville after 2 kids 3yrs later...4 more kids were brought up in this house for about 10 years...until I came along (that's right- 7 kids total)...then they moved into Arlington....we moved twice to get the house I grew up from 5 yrs to 19 yrs old...3 br /2 bath cape, finished basement...at that time, the house was $40K in 1976...beleive it or not, that was 4 times my parents income (with 7 kids!!!)...also mortgage rates much higher...my point is this....not everyone buys houses only 3 times income....there are far more folks that have built up equity and savings to get into a desirable town and neighborhood, then there are first time buyers to the market...always will be...so median home prices can be misleading, because for more people buying above there income...I would consider were I grew up pretty desirable...Stratton Elementary rates off the charts for an Elementary school...very quite area...It took my parents (Postal Worker (plus night security part time at Garden) and Lunch lady at Harvard U) 20 years to get into the house I grew up in...houses of this size in area are under $400K...my friends parents that lived in the area, were either dual income families (engineers, nurses etc...) or did the same scenario as my family...buying up from equity from home in another town...as a first time buyer in this area, I believe your family income should be $130K....if you built up equity or savings for 10 years, your family income can by $65K and live in this area...A Postal Worker today in Greater Boston after 10 years service, makes over $65K (much more if overtime)...so that is the scenario....a mid/late 30's postal worker buying into this area or a engineer and a nurse in there mid/late 20's....this would be the same as the 1970's and 1980's for this area....so where does the median income family start out??? Shouldn't that be the question?? Instead of blanket statements, that all of Massachusetts is overpriced?

just my thoughts...

What if James Joyce had written a comment on a real estate blog?

Just locked in at 3.675%. Believe it.

I'm refinancing a 5.875%, 30 year fixed into a 5.375%, 30 yr. fixed right now. No points, no closing. It will save me about $125 a month. If it falls below 5% early next year then I will be at it again. My wife and I bought at the end of 2007, and while we saved 10% off the initial asking price, I'd say we still overpaid a bit. Do I wish we had waited? Yes and No. Yes, because we obviously could have bought a comparable property cheaper, but no, because we would not have the house we currently have. We looked at sixty properties over a four month span and liked three of them. Average price in late 2007 was 350-400K. I have no doubt that the majority of those houses wouldn't go for 300K right now. We went into our current house with the intention of staying a minimum of five years, barring any life changing events of course. Obviously if things continue to erode as many here think they will, we'll be there a bit longer than that.

Boston08 -was that a 30 year fixed??? Refi or new home? Through whom?

But remember, you'd be better off with a higher rate... ;)

Below 4%? We locked in at 4.75% w/a 30 yr fixed last week. When we started the pre-approval process in early november, our rate was 6.5%.

who did u get 4.75 with? lowest we have found is 4.875, think it'll get doen to 4.5 or 4% anytime soon?

Is it even possible to find these BELOW 5% 30yr fixed with NO POINTS and NO CLOSING?

I've read the fine print of these low interest rate loans and the fees tacked on are ridiculous. I'm eager to be proven wrong, though.

those rates are long gone....

witty... ;) some people operate under this zany notion that cost of capital and price are conversely related. as i'm sure you know, it's far flung and will probably never catch on.

It was 4.75% with Wells Fargo (1 point) a week ago. Its at 5% today though. It'll go lower again, trust me.

marcus, thank god its too late to drink coffee. As it was, my drink almost ended up over my screen.

bv i hate to single anyone out but i've been thinking about this off and on over the last couple of days and had an opportunity to discuss it with a few people. i'm under the impression that you're an agent/broker, if i'm wrong i apologize and disregard. if you are and you do any buyers side work, you have become my poster child for those that "advise" on an enormous personal finance decision w/o a modicum of comprehension of basic financial principles. you do not need to be an economist to be involved in real estate sales, however, to me it's unconsionable to give people "advice" on the financial aspects of a transaction if you've done little to nothing to educate yourself on basic finance. do a little research and find out what the actual long and short term price ramifications are for shifts in interest rates rather than assuming low is good, high is bad. the info is readily available and your "clients" deserve an earnest effort on your part to not blindly perpetuate half and non truths.

still waiting -

Silly response. Never said anything you are saying I said. And nope, not involved in realty. I keep telling people to buy if they want and can _afford_. I never have told someone how to judge if they can afford. That is their assessment. How the heck can you tell someone to do other, unless you are Nostradamus, but maybe you are? Unconscionable is to tell someone that there are absolutes in anything and you or anyone else here know what they are.

This board is a waste of time. All you want is a love in where you all agree. Get some people who disagree and you go all nutty. Goodbye.

Still waiting - By the way, since I am ignorant :) , if I own a house and have a mortgage rate at 5.25 %, am I better having it lowered or raised? My guess is it is better to have it lowered. Please tell me the advantages of having it raised!

bv i apologize. based on some previous comments i assumed (and you know what happens when you do that) that you were in the real estate business. my problem is with realtors who abuse their relationship as a trusted advisor and dispense financial advice when they're ill equipped to do so. the regurgitation of realtorese tends to sound something like "as a homebuyer you need to take advantage of these historically low interest rates. you can afford so much more house now than you will when rates increase." maybe there was a little parallel conversation. i took
"Boston08 -was that a 30 year fixed??? Refi or new home? Through whom?

But remember, you'd be better off with a higher rate... ;)"
to be a realtor flippantly perpetuating the myth that an increase in interest rates is inherently negative for all parties in response to a point brought above that government action to manipulate mortgage rates down will artificially inflate prices in the short term and hinder recovery. if i misinterpreted your comment and the gist of it actually was an individual is better served having a lower interest rate assuming the same principle, strike comment 37 and insert "i agree with bv entirely." don't let me silence you. personally, i prefer constructive discourse to group think.

ps. i knew you weren't ignorant when you put a "m" at the end of who.

still waiting - Accepted. Likewise, I apologize for being cryptic. My post originally was an honest question because I would love to refi for 3.XX or whatever the poster said. Never saw a response and the rate was so low, I am guess it was not a real rate. I added the sarcastic comment and I should have not. It added nothing other than inspiring "hate" posts.

been a while since I did that math, but do remember it showing higher market rates were actually better for most (though any individual is better off lower of course) (bearing in mind that rates affect price, so the real question is high rate-low-price vs. Low rate-high price)

What matters is not how high or low the rate is, but how your rate compares to that market's rates

We refinanced a few years ago, which supposedly brought our total payment down, and did, to some degree . However, after adding in the cost to re-finance, no one has even mentioned the taxes that often make even the lowest mortgage rate irrelevant. In our state/area, that adds at least $500/month to our mortgage payment, a significant difference, even if the mortgage rate were at 4%.