Why Are Interest Rates So Low and What Does it Mean to Me?

Unasked2 copy Whether you are thinking of buying or already own a home the current historically low interest rates may help you save thousands of dollars.

Rates in the last week have averaged the lowest point since records were first kept over 30 years ago. Refinancing today may help you save hundreds of dollars in monthly interest payments but even more important are the long term savings.

Rates are low right now because the financial crisis in Europe is driving the appetite for U.S. bonds which in turn raises the price and lowers the yield (interest) payment. And since mortgage rates roughly track the 10 Year Treasury Bond you can see where rates are headed and why. Rates are the lowest they’ve been–period.

If you think about the past 30 year trend of interest rates, which have averaged around 9%, it’s easy to guesstimate that the odds are good rates will be higher in the future rather than lower. What does that mean to you? If you are considering a purchase it means that there are two ways to look at it: if you buy a home at today’s rates either your monthly payment will be substantially lower or you can buy a considerably larger home for the same amount of money. In fact a payment on a $1,000,000 home ($800,000 loan) would be around $4,234 per month as opposed to $6,437 at the average historic 9% rate. But that doesn’t even begin to tell the whole story.

Not everyone stays in their home for Fhfb_contract_rate30 years but this offers up a substantial savings in interest payments. Most people aren’t aware of the long term costs of home ownership so you’ll be interested to note that at today’s rate your total interest payments over 30 years would total $725,000 and at the historical 9% rate it would be as high as $1,517,000–over double the interest payment for the same home. What could you do with an extra $793,000?

Perhaps rates will never be as high as they were back in the late 70’s and early 80’s but rates have still averaged 6.7% over the last 15 years during a time of historically low rates.

Case-shiller MSANow combine this with the recent decrease in home values and it’s hard to argue that waiting to buy a home will significantly benefit you.

Belmont’s Beautiful Mountain Blog Revisited

 

In 2008 we began several new series on our blog site. Most of our content centered around the turbulent real estate market on the Peninsula, but we also endeavored to comment about the market in general and small town happenings in Belmont.

Some of our posts simply required too much time away from the business of selling homes, and we’ve decided to eliminate a few of those.

What we will be discontinuing is the weekly update of new listings and sales. Rather, we encourage you now to subscribe to our automated system for getting listing alerts in real time—including new listings and recent sales; we just felt that we were being a little redundant and this trade-off will allow us more time to concentrate on our business.

You can still count on getting a monthly wrap-up of homes that have sold. We feature Belmont home sales in detail on this blog site and you can always get surrounding cities and the entire San Mateo county stats at our MorganHomes.com web site under “How’s the Market”; we also implemented the Fusion style graphs that are more interactive and interesting.

We’ll continue to add occasional posts in our series “Frequently Unasked Questions” Unasked3 whenever we stumble across an issue we think you should know about, and probably don’t.

 

The Podcasts we began in 2008 will still be around when we want to discuss the market in general and we hope that you continue to stay tuned to those.Podcast

We think this more focused and succinct blog format will help our readers get the real estate information they want, and know that they can rely on our regular posts whicht have attracted the most readership.

Thanks for being patient as we enjoy an exciting 2009.

Market Update-11.24.2008

Drew & Christine Morgan



 


Housing Update–November 2008

(650) 508-1441


dmorgan@morganhomes.com


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San Mateo County continues to out performed many of the nine bay area counties but a protracted deep recession could change all that.


Join us for our Podcast series now available at BeautifulMountainBlog.org


 












 


We’re very excited to bring you a new animated version of our graphs depicting the various housing market trends in San Mateo County and the cities which lie within.


Each month we download data from our Multiple Listing Service and analyze the market indicators. We provide this in-depth analysis for several of the many cities we serve on the Peninsula.


We’ve also added short audio tags to describe what we are depicting and help put the information in perspective.


Another feature will be our “Weekly Graph”. We’re not saying it will change each week but when an interesting trend develops you’ll find it under that tab.


We hope you’ll take a moment to check out our new graphical interface on our “How’s the Market?” link and give us some feedback.













Renters Hit Hard As Prices Climb

You’ve got to admit, renters have had a hard time. After being squeezed out of the homeownership market for years they now face getting squeezed out of the rental market as well.

But more to my point…ever notice that plane crashes come in three’s? Do they, or does the media just report them that way? Ever notice after a plane does crash you hear nothing but planes crashing all day. Are planes suddenly dropping out of the sky in some fit of protest? Hardly.Puzzled

I’ve also noticed a distinct pattern to the San Francisco Chronicle’s Sunday Real Estate section. Each week they organize this section into a theme. Last week’s “theme” was the bad news for renters with headings such as these: “Bay Area rents still rising”, (James Temple, Chronicle Staff Writer, Friday, April 18, 2008), “Apartment rents throughout West still rising”, (MICHAEL LIEDTKE, AP Business Writer, Thursday, April 17, 2008), “A look at apartment rents in western United States”, (The Associated Press, Thursday, April 17, 2008).

The San Francisco Chronicle’s recent reports on the rental market have been rather telling in regards to the overall housing picture. With more buyers unable or unwilling to buy, competing with homeowners thrust back into the rental market due to either voluntarily or involuntarily leaving homeownership, it will be just a matter of time before rising rents and lower home values make owning vs. renting a no brainer. I’ve seen it before and I’m sure I’ll see it again.

But then I read what appeared to be an op-ed piece by Marcie Lewis of Bankrate.com. That headline read “Rental Market Hit by Mortgage Crisis”. I thought I was going to read more of the same—doom and gloom for renters. But the piece ended by stating the opposite of what all the other articles had to offer about the dwindling supply of rental units by saying:

“Other homeowners have opted to rent out their entire home because they’ve relocated, but can’t sell the home for enough money to pay off their debts, which might include a home equity loan or line of credit in addition to a first mortgage. This trend increases the supply of rental housing.” (Lewis 4/2008, p K11)

And…

”Many cities experienced a boom in conversions of apartments into condos, but now, due to lower condo prices, some builders and owners have opted to rent out units they’d intended to sell. This trend also adds to the supply of rentals.” (Lewis 4/2008 , p K11)

So wait a minute; do we have more available rental units or less? I guess they’ll follow up next week with the answer.

IF WE AREN’T ALREADY IN A RECESSION, WE COULD BE SOON

Bad_news A front page article in the Sunday edition of the San Francisco Chronicle titled "Lenders Retreat as Market Plummets" (Sam Zukerman-staff writer April 6, 2008) may frighten some people into cashing their home equity line checks fast.

The article states that many banks such as Bank of America, Country Wide Financial and Washington Mutual are freezing homeowner’s equity lines in fear of losing more money to foreclosures. Let’s hope Wells Fargo continues to believe in the Bay Area like Bank of America used to.

This could spell a downward spiral as lenders cut back on honoring equity lines that might just be the thing which could keep some folks from losing their homes. The opportunity to tap into existing equity to forestall a foreclosure, even just pay the bills may be just the shot in the arm credit worthy people might need yet now many banks appear poised to pull the plug.

Of course bank don’t want people spending their equity line of credit like they used to-especially if home values in their area have dropped significantly; but cutting them off may just send many more of their customers to the front of the foreclosure line.

IF WE AREN’T ALREADY IN A RECESSION, WE COULD BE SOON

This could spell more doom and gloom in the economy as less available cash for spending-or simply knowing that emergency cash flow could be cut, will likely be the nail in the coffin for economic growth this year.

It’s a calculated risk on the part of the banks-at least we hope they have calculated it. They don’t want to throw good money after bad but by freezing equity lines when people need them most they could mean they end up taking back more property than if they left these loans in place.