Mortgage rates to the rescue?

Lower mortgage rates will slow the fall of home prices, but it won't stop it. A few first time homebuyers will be pushed over the threshold by the lower rates, but most of them will hold out till home prices fall further.

This is probably better news for mortgage brokers and for people who are in a lot of debt and need to refinance to lower their monthly bill.

I don't think the Fed has connected the dots. Lower rates are great for homeowners in good shape credit-wise, but those people aren't the ones who blew up the whole subprime mortgage fiasco and triggered the real estate meltdown. There are 12 million famililes who are most in need of some sort of help, and they won't likely qualify for refinancing, so i think that once again Fed moves are misplaced.

I don't think it would be the catalyst, either. The steps to recovery would be something like, "xxx happens, and, oh, rates are so low, let's buy a home!"

"xxx" may simply be time. There's no way to change perceptions or emotions. No one's going to buy a home if he/she fears the worst is yet to come.

To give you a sense of what that would do for affordability I came up with an example...

Home Price = $300,000
Mortgage = $275,000
Monthly Mortgage Payment on $275,000 Borrowed
@ 6.5% = $1,738
@ 5.5% = $1,561 (Currently)
@ 4.5% = $1,393

4.5% is a HUGE difference from where we were at 6.5% just 3 weeks ago... Thats a savings of $345/month from 6.5% to 4.5%.

Price increases of 100% ~ 200% vs. a small drop in rates? I didn't see any pays but high level executives go up like that. A massive , large price correction is what is needed!

Lower rates may help existing "homedebtors" with sterling credit to re-fi but it won’t drive home sales.

The jig is up... the cat is out of the bag... it’s too late... sentiment and attitudes have changed and, especially in light of the recent and rapid rise in unemployment, it’s no longer sensible or even rational to overspend on housing.

With home prices still wildly elevated, lower rates aren't enough to make a reasonable home affordable.

Looking at the metro-Boston market, prices have come down but still $500K gets you a broom clean 50s era S-box.

Also, looking at the recent deterioration in home prices and what looks to be a significant drop-off in transactions that started in November, the local real estate market appears to be on the verge of another significant leg down in the decline.

At this point, waiting to buy is just as (if not more) sensible an alternative as it was in 2006, 2007 and 2008.

The interest rate cuts would work IF people weren't losing their jobs. I think there is a second wave of price reduction and foreclosures coming in the housing market because we are starting to see a rise in the number of layoffs. I'm experiencing this first hand...losing my job as of Jan 1 in a business that was doing well until the economy crumbled. Other major employers in the area are also laying off hundreds of highly skilled workers from high paying jobs. Now I have to either sell my house very quickly, rent it at a loss (rents are not high enough in this area to pay the PITI), or default on my payments once my savings run out. It's highly possible that I won't find a job before my savings run out because of the poor job market, so I'm focused on getting my hosue sold or rented in the next 90 days. Realtors tell me if I want to sell me house I have to do what everyone else is doing, which is to drop price. It won't take much until the mortgage is finally under water...and then what? BTW...for all those finger-pointers that want to blame "irresponsible borrowers" living beyond their means and taking out ARMs, I'd like to point out that I have a 30 year, fixed rate mortgage at 5%, that I put 20% down on my home, that I bargained hard and got what was considered an excellent price when I bought the home, and that I am a highly educated individual in what was supposed to be a very stable job. Hind sight is 20/20, but with what I knew 4 years ago when I bought the house and took the job, I can't say that my decision to purchase was foolish or irresponsible. Who would have predicted a 25% drop in prices coupled with a catastrophic failure of our financial system?

People have to live some place. As Matt pointed out you can own for about the same price it costs for rent so you might as well build some equity for yourself instead of your landlord. plus you can help turn the economy around.

Unfortunately for the home building/selling lobby, the return of below-inflation-rate home mortgages will not be joined by "fog a mirror" mortgage application standards. What good does a 4.5% 30-year fixed mortgage requiring 20% down and no more than 28% of the gross income of the buyer do in a world in which those buyers are few and far between (and most own a house already)? Home prices rose because of the insane lending standards - only a reversion to insane lending standards will get this party started again. The taxpayers of the United States could be offering 0% 30-year mortgages - as long as the lending standards remain 20% down, no more than 28% of the gross income of the buyer - it still won't return us to the salad days of a 15% growth in home prices. Especially when industries are letting go of employees left and right and wage growth is stagnant. First time home buyers simply cannot afford a $450,000 home when their gross income is $75,000 - even if they've saved up the $90,000 down payment and have no other loans.

So unless we're willing to return to the "funny money" ways of 2001-2007 (and of course, go through the same economic crisis again), there is simply no denying that limiting mortgage debt to more than 28% of a borrower's gross income means that to get home prices rising again the only possible solution is wage inflation on a massive scale - and the costs of that wage inflation WILL be passed onto consumers - along will all the treasury debt this insane plan paid for by the US taxpayer!

One of the major problems with refinancing is that the equity isn't there anymore. If that 300k home with 10% down is now worth $280k, they need to come up with some extra cash in order to qualify for the same program. Also lots of people who qualified for the best rates with a 680 fico score now need a 720-740 score to get those great rates that are quoted.

Accurate figures below in an earlier post, however, these numbers do not include taxes on the property or private mortgage insurance which is needed uness you put down 20% or take out a second.

I do agree with a lot of the other posters that this is too little too late and those under water can't refinance but this will help attract new buyers to the market if their are any left. Those rates are smokinn hot!

To give you a sense of what that would do for affordability I came up with an example...

Home Price = $300,000
Mortgage = $275,000
Monthly Mortgage Payment on $275,000 Borrowed
@ 6.5% = $1,738
@ 5.5% = $1,561 (Currently)
@ 4.5% = $1,393

4.5% is a HUGE difference from where we were at 6.5% just 3 weeks ago... Thats a savings of $345/month from 6.5% to 4.5%.

Citigroup cuts 52,000 jobs. Fidelity cuts 1,300 (so far). State Street announces cuts of 1,800. AT&T announces 12,000 jobs cuts.

And those are just the larger employers that make the news.

Lower rates don't do a whole lot for those out of work, or those worried about joining them. The correction will continue.

It's a great time to buy! And the good RE people I know are very busy and, in fact, happy with the current market conditions. Certainly values have come down and may drop further. But the current buyers are well prepared. 20%+ down is the norm, their credit is rock solid and their closing on properties with strong value and moving in with instant equity in a tangable good.

dropping like a rock overstates things by quite a bit. They are down to January levels. I don't recall things being so good in January.

If rates drop far enough, that will affect the fundamental price that we end up with. But it won't stop prices from falling till they hit fundamentals - bubble prices won't last no matter what.

To make a real difference, I think we need rates decently under 4%. Remember, a lot of people WERE paying under 4% on their ARMS.....

Anybody know what this means for jumbo mortgages, not just conforming ones? Thanks.

It's a great time to buy!

I was going to address the idiotic Treasury proposal directly.

Instead, I want to direct attention to a white paper you can find on the website for Greycourt wealth advisors in Pittsburgh, PA, which blames some of the current crisis on the complete collapse of ethics in the financial services industry.

To which I add, not just the financial services industry.

There is far more to consider in the example Matt used; someone mentioned taxes and pmi. Also VERY significant, the $345 "saving" is significantly reduced when you realize that the interest that can be deducted on your income taxes is greatly reduced. I didn't calculate it out, but I bet that reduces the saving to 150..
It doesn't get you as much as you think once you sit down and figure everything out.

This is a timely topic for me, because I bought my house 5 months ago and I just got an offer to refi with no closing costs at 5.5 for a 30 yr fixed. Should I wait, or can I do better, even?

For us, this is great news. We are first time homebuyers with excellent credit who plan to put 5% down with a 30 year fixed. And yes we have already been pre-approved by a bank. Just a month ago we were looking at interest rates of 6.5%- but as of last Friday we were at 5.375%! That is a significant savings per month even with PMI and taxes. Droping the principle + interest payment is certainly helpful. A further drop would be even better.

newbie - odds are you can do better.

"It a great time to buy".... I'm a bit at a loss to respond to this. Along with "Build equity in a tangeable asset". This is the kind of advice that one gets for a 6% commission?????

Its a gawdawful time to buy, as a quick glance at the financial pages of any newspaper should show anyone. Its not even subtle anymore. Where do these people hide from all news?

Newbie writes,

This is a timely topic for me, because I bought my house 5 months ago and I just got an offer to refi with no closing costs at 5.5 for a 30 yr fixed. Should I wait, or can I do better, even?

The Treasury's "plan" is to lower rates for new purchases only. Not refis.

That is a significant savings per month even with PMI and taxes.

The Treasury's intention is not to help you save at all. It is designed to push up the cost of the house you buy. The benefit is not supposed to flow to the buyer, but to the seller.

lower rates dont help at all. its estimated now that over 20% of people are upside down in thier home mortgages, that is the hme is now worth less than the outstanding debt against it. therefore you cannot refinance no matter if it was a zero rate.
so lets readjust that little refi example.
300k home now worth 270 k
275k owed on current 6.5% mortgage.
refi-not possible unless you have about 30k lying around to pay down your owed mortgage, but then again if you did have that, youd wouldnt need to refi anyway.
(remember rfinancing almost never goes over home equity value of 90% sometimes as high as 95% but usually with a rate higher than the advertised rate, so you would have to ay down your mortgage to have your equity at around 5 to 10% more than your current mortgage in order to refi.)
course the government said they may be helping peole who have mortgages that are ovr 37% of the owners overall income. so unless the person who owns the 300k house makes less than around 40k a year total gross, you cant get that help. and if you made 40k a year you wouldnt have qualified for a 300k house loan in the first place. so its an empty promise.

This will help current home owners to save but if you are counting on this savings to keep your home, then you shouldnt own one.
Its that simple.
And what about across the board, the if the Government is going to cut the rates for the Fannies and the Freddies (which translates to the the Mannies and the Frediericos) then do it across the board, Why should individuals who cand and shouldnt own a home get a better rate than others who do.

"This is a timely topic for me, because I bought my house 5 months ago and I just got an offer to refi with no closing costs at 5.5 for a 30 yr fixed. Should I wait, or can I do better, even?"

From the sounds of it, you may be able to do better in a month or two. There was an article on the front page of the WSJ yesterday talking about how the big wigs in Washington are formulating a plan to lower mortgage rates to 4.5%. In this case, the plan is being designed for new borrowers, not existing homeowners, but I have to imagine that it will push down the cost of mortgages for everyone. If it were me, I'd wait a bit.

Marcus I understand what you're saying- but the rates have already fallen by more than a point and home prices are still falling. If you're ready to buy now, there's not going to be an immediate uptick in prices. The 3 houses we have our eyes on have come down in price over the past month- and if rates continue to decline over the next month or so we will be able to purchase a house at a lower price and a lower interest rate. If the rate is 5% in two weeks, the $450k property isn't suddenly going to change it's asking price to $500k.

MRW - You are making a mistake to buy now with only 5% down. Your mortgage will be underwater within 3 months. You will owe more on the house than it is worth. With 20% you may possibly stay above water. Wait for the prices to drop - they have a long way to go....

Thanks for the thoughts.
That's what I'm leaning toward as well. I realize the new 'plan' won't apply to me but now I want to know who MRW's bank is because I couldn't find a rate that good even on bankrate and our credit scores are around 800, no other debt. I would think we'd have pick of the litter in terms of mortgage rates, but I guess not!

Newbie if you are really getting a TRUE 0 point 0 closing cost loan at 5.5% 30 yr fixed I would probably take it .Without knowing what your loan amount is it is difficult for me to tell if you could do better , but if you went 0/0 on the purchase at 6.5% on 500k .( i assume you are the newbie who posts on the forum and buys multi -families) you save $322 per month. IF rates are lower in 6 months do it again. Rember "Bulls make money and bears make money but pigs get slaughtered". You should discuss your situation with your mortgage broker or banker they he do not have a crystal ball but should be able to give some guidance.

Are they really offering people mortgages these days with only 5% down? Maybe it's just me, but I would be nervous about getting into such a geared situation, unless I had reserves well in excess of that 5% and it was a matter of managing my cash.

There is at least another 30% drop coming for houses in the Boston aree, wait at least another year or two to buy.

@ #30 - I just love how people are so CERTAIN prices will fall another x% and just throw advice like that out as if they have a crystal ball. Can you tell me when the stock market bottoms out too and what stocks to buy, and when to sell??? *rolls eyes*

Steve-
No, I'm not the person you're referring to. I should pick another name, huh? :)
I should probably provide more details too. I bought a 400k house with 20% down at 5.875 (30 yr fixed, no points, or any funny business.) The new loan is offered at 5.5 with no points and no closing costs, 30 yr fixed (There's just an appraisal fee). I did read the fine print and I couldn't find any 'gotchas' - believe you me, I was very skeptical because I've always been taught there's no such thing as a free lunch. But I really can't find the catch here, if there is one, and I'm looking hard for it!

There are still loans available for 5% down for applicants with stellar credit and comfortable income/debt ratios and no "bad" debt (just student loans, no credit cards, no auto loans, etc). First time home buyers in MA are hard-pressed to come up with 20% down if they wish to get into a home before they are in their mid 30s. Even a soft market hasn't changed the reality of needing $70-80,000 for a down payment. If the market were still trending upwards, we would continue renting because we would have no other choice. A soft market provides more options- especially if you are purchasing a home you plan to stay in for 5-10 years.

No one can predict where the market is headed- but if you purchase a home you can afford and plan to stay in, it's better to make a decision based on that rather than trying to time the market.

MRW - Agree with much of what you are saying. Yes, there are loans available with 5% down and you should plan to stay in the home that you by for many years. Just because those type of loans are available, does not mean it is wise to get one, With the volume of layoffs happening and many more to come, more people will be forced to sell. Read #7, that person did everything right and is still in a bind. Not trying to predict where the market is heading, but the economy is really bad shape. If I were you I would keep saving toward that downpayment. Unless you have additional money saved and very safe jobs you are taking a big risk.

#31 Mike, I am not just throwing that number out there, a 30% drop in the median price of a home in the Boston area is what is needed to reach the historical range of home affordability on a price vs. household income basis. And like any asset market, an over-valuation will ALWAYS lead to a mean reversion. Right now the government is wasting it's time trying to prevent home values from reaching this mean. The free market forces will overwhelm any government policies. Sounds like you may be underwater on a home and are frustrated with your sitaution (don't fret too much though, there are millions out there, like you

MRW sounds like you may be a realtor or broker, why would anyone want to lever themselves up to a 95% loan to value on a declining, illiquid, "assest". People have lost sight of the fact that housing is an expense, not an asset. Historically when real estate has put in a bottom, prices have flat-lined for several years, so contrary to your statement "no one can predict where the market is headed" it is actually quite easy with residential real estate. Use household income to home price affordability ratios, they are an excellent benchmark. In addition, the illiquid nature of housing vs other asset classes (stocks), make cycle bottoms long lasting, allowing buyers to take advantage easier.

Newbie, That's still I good deal but they should pay appraisal fee or rebate back to you at closing to be a true no/no , MAKE SURE house will still appraise. A true no point no closing cost loan should rebate appraisal. I see a lot of offers on the internet that have you pay fees outside of closing ( application fees, recording fees , appraisal fees etc. etc.)and call themselves no point no closing cost loans TECHNICALLY true but definitely misleading .

Good point househunter16 - just because someone can get one, doesn't mean they should. I'm an extremely conservative first-time homesearcher, and I'm planning on putting down 30-50% (mostly to keep fixed costs down, and to not have to worry about waiting in the long FDIC line if things get really ugly), and I will have a few years worth of expenses in reserves after that. I know this isn't typical, and I'm not trying to gloat, but putting down 5% without hefty reserves at this point in time is extremely risky. Consider this. You lose your job, you exhaust your savings, and you can't sell your house for what you paid (with 5% down, you're immediately underwater if you have to sell in the near future). What are you going to do? There's no wiggle room with 5% down.

"No one can predict the market"? People love to say that, but its simply not true. You are implicitly endorsing the perfect case of the efficient markets hypothesis and the evidence is clear that it simply isn't true - where do bubbles fit?

Feel free to look back through here at my and Marcus predictions, from way back, and then look at what happened. Not saying this to pat either of us on the back - many other people did the same thing.

Truth is, you can assess the fundamentals of the market. Which is not the same thing as market timing. Though if you don't instantly understand the difference, you would be well advised not to do either.

More accurate would be to say predicting the market takes work, and knowledge, and is not something to be done lightly