As of today interest rate averages are as follows: 30 year Fixed - 5.96% APR 15 year Fixed - 5.82% APR
Historical standards show that these are still excellent rates for you. From 2003 through 2005 rates have basically stayed below 6% for the first time since the mid 1960s. This has served as the fuel for the record sales nationwide. However, affordable housing has really been the issue here in California with some of the highest priced real estate in the country. First-time buyers comprise about 31% of the buying populace as compared to about 40% on a national level. Consequently, repeat home buyers have dominated market sales for several years. To compensate, California home buyers have turned to adjustable-rate mortgages much more than in other states. This particularly applies to new home buyers. In 2005, first-time buyers relied on these adjustable products 57% of the time which is more than twice the rate used in 2003 which was only 22% of mortgage products being used. In conjunction with adjustable rate loans, we have also seen a significant increase in the use of second mortgages which has allowed greater flexibility in loan programs being allowed to qualify buyers and also eliminate the expense of private mortgage insurance.
Interest rates have come down the last 4 months in 2006 after the course of 17 consecutive rate hikes since June of 2004 by the Feds. There has been optimism circulating that we may see an improvement on rates in 2007. However, the latest news from the Feds emerging on January 5, 2007 was from its meeting on December 12, 2006 suggesting a different path. Positive news of economic health has for the present time squashed any hopes of a rate decrease. Any growth approaching the GDP "potential" has been interpreted as a suggestion that the Feds will more likely raise rates than cut them. This is an on-going balancing act and the overall economy and housing market is in an adjustment period. As the saying goes, everything is subject to change.
Rates Versus Prices? Excellent rates have certainly influenced the market and still remain very good, as we have established. However, buyers in our part of the country, California, and more poignantly, the Sacramento Metropolitan area, have taken one giant step back wards and are assessing the matter. What is more important, the interest rates or prices? What should you as a buyer be focusing on?
These are excellent questions and deserve a few minutes of our time. Traditionally speaking, the cost of money comes up when professionals and first-time buyers alike consider a real estate purchase. What if we take it a step further and ask even better questions to replace our original questions? OK. Here is what you should ask yourself:
Why are you buying?
How long will you keep the property?
What is your projected appreciation over that period of time?
As you certainly know, there is plenty of opportunity to refinance once you obtain a loan, provided you select a loan product that allows you to refinance without prepayment penalty. If changing of a loan product makes sense and pays for itself this can be an option. On the other hand, the opportunity to buy a specific property, location and price at a specific time presents itself only once. You must balance this notion, however, with the prospect of inventory supply and the uniqueness of this property.
The very best of investors know that your money or profit is made when you purchase, provided you know how to buy and identify or create a good deal. Hence, your real opportunity comes in the price of the property. Right now, you will most likely pay less for that property than you would when rates are lower. Cheaper money serves to stimulate the economy and encourage consumer spending and the purchase of real estate. It also has the effect of driving up prices and encouraging inflation. This is the Federal Reserve at work to hopefully make the correct and calculated adjustments in interest rates to create a desired balance of growth and sustainable prices.
Call me if you are thinking about buying. Let me help prepare you. As an added bonus, I will be participating in loan origination and will be able to directly assist you in your financing and loan qualification as part of the new VGC Lending Group. This is not required if you select me as your Realtor, but it does provide you with more financing options.