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Ready to go back to normal? I know I am!

I am sitting here at the office waiting for a customer and, as usual, I started thinking. More like reminiscing about rates.

I started in this industry right out of college in the mid 90's. Yes, I have been at this for a while now. Back then, I worked for a finance companies (Commercial Credit and The Associates). The mortgage rates I had to offer were double digits for A borrowers. When I started offering mortgages, it was at a fixed rate of 10.99%.

I purchased my first home in 1997. I had to put money down, and I had excellent credit. My interest rate was 7.75% for a 30 year fixed rate. To top it off, I had to pay PMI. There was no other option. It was 20% down, or you paid PMI.

Then rates started coming down. And down. And down. At one point, rates were half of what they were when I started.

chart

This chart shows the 30 year fixed rate for the past 5 years. I know, many may not agree with this. However, interest rates have been ridiculously low! Too low.

Suddenly, everyone wanted to join the industry in some way shape of form. Weather it was a loan officer, REALTOR®, a house flipper, lender...many believed this was a get rich quick job and they wanted to join the fun.

Lenders started giving money to everyone. They had to stay competitive. People no longer needed money down. And you could get up to 6% in seller assist! Suddenly, people didn't have to plan. They didn't have to save. They just went out and purchased. Many of those people are now looking in the face of foreclosure.

I will admit it. I am glad to see rates on the rise. I am glad to see that it is getting harder to impulse buy a house. If you want a house, save your money. Plan. Know your financial status and what you can afford. This is what is 'normal' for buying a house.

The best things in life may be free, but you get what you pay for.

I am ready to go back to normal.

**Chart courtesy of MSNBC**

Posted by Ann Guy on 08/24/2007 05:50 PM

Comments (24)

mortgage, refinance, purchase, rates

This post has been included in Pennsylvania Information

24 Comments on Ready to go back to normal? I know I am!

AUG

2007

I like that lenders are less likely to give people loans that will just end up in foreclosure. I don't know about higher interest rates.

The thing that surprises me is that anyone is surprised by this market. I also bought my first house back in the early 90's, and I agree that people need the trial by fire that saving and even being hungry for a house give them. Good point! although it would be nice to have a bit of both worlds, but that will come. This too shall pass.

I'm ready for normal. :)

Ann I couldnt agree with you more! I've been an originator since 1997 and anyone who is overly concerned about rising rates just needs to remember that about 7 years ago the rate on a 30yr conforming fixed rate mortgage was about 8.125%. People still bought houses at a steady pace. It wasnt the cardiac arrest market that we've witnessed recently but it was a healthy one. We all know what happens to a heart that beats too hard and too fast for too long. Unfortunately, we all just had the triple bypass and are now in recovery. True it wont be he same speed we're used to, but I for one look forward to getting back to "normal".

AUG

2007

I would LOVE to see the rate hit 8% and stabilize. This is 'normalcy' in my book. I hear what you are saying Ann, but I also hear a LOT of 'Mortgage Consultants" wanting the rate to drop... wallets getting thin I guess and they don't know how or don't have the DESIRE to push the envelope and garnish business that HAD been FALLING on their laps.

When does the Fed meet again. Sept........16th?

Do you think the Fed will drop their interest rate on money?

Ann, I think you are SO right!! When people don't have to discipline themselves to save up for a house, I don't think they're as cautious with their money. Maybe they just don't know how to save. It gets a little "easy come, easy go." If it were a little harder to get into a house I think people would appreciate it more and work harder to stay there. I also wish people didn't feel that their first house had to be a showplace. Start small, build up!

Ann, I was speaking to an A/E yesterday about this exact thing. We all knew how easy it had become to buy realestate. We also knew it was just a matter of time before it would change back.

Ki-I do think that rates went too low and greed set in. So I have no issue with the rates going up a bit.

Michael-I agree. Many times we would get new niche sheets for lenders and try to figure out how long before they went under. Now everyone is surprised?

Chris-It is a loose term but the best I could come up with. Not sure I will ever be normal ;-)

Rob S- I like the cardiac analogy! Good one

Excellent perspective. It looks like settling in may require a couple of bumps but the landing should be ok and we'll all be safer when we're on the ground.

Ann, I agree that people need to be more discipline with the use of their money, and with the decisions they make. Responsibility for ones own actions seem to be disappearing. But I guess I am going to have to disagree with you about welcoming an increase in the interest rates. I don't agree that higher monthly mortgage payments will make people more responsible, if anything I believe that it will cause them to stretch even more than they are already.

When I bought my present house in 1981 the interest rate was over 15%, and yes people like myself were buying houses even then, but those interest rates contributed to bad economy and much tougher living conditions. That does not benefit anyone.

The answer is not in higher interest rates, but a reality check on the crazy ratio's that borrowers are allowed to borrow at. When loans are being approved at 65% back ratios, it is only a matter of time before the foreclosure notice is in the mail.

AUG

2007

I remember when adjustable interest rates weren't capped, and approached 20%. That was when the bank called me a year AFTER the loan was funded to ask me to sign an application!

Hi Ann,

Great Post.. I can totally relate to your experience. I got into the business around 1989 and in retrospect, I bought my first house with a VA loan at 12.5%... Back then the gov't loan rates were actually controlled by the gov't!

I'm with you! I hated the option ARMs, I hated the 2/28's, .. I think that there is a place for 100% financing, but not for someone with a 580 credit score on a stated income/stated asset loan! This mess that we're in was not created by us, it was created by bakers and investors on Wall Street who saw a way to make a quick buck in the market!

I also can't wait to get back to normal!

AUG

2007

Rob R.- Who knows what the Fed will do.

Sarah-It does seem as though people appreciate things more when they have to work for it.

Matthew-Yes, it was only a matter of time. And thanks for the shout out on your Week in Review

Don-Nice summary. I like it.

SEP

2007

Well real estate is a career change after 20 years of social work. Kind of hard to save on that pay scale. So I see the the benefit of low rates. But I agree that accountability and responsibility are important. Normal rates where most home prices are these days would kill the market (IMO). A 7.5 or 8 may have been fine before home prices became over valued compared to median income. I think my first home was at 7.25% That same home today would be priced out of my range at a 7% or higher rate. I think it is more important to regulate the lenders and demand that people have respectable credit ratings before lending. I am glad to see it happening but think rates need to sink a bit to get most of the country out of the mess the past few years created.

i think the rates are okay, even though they are low, but i don't have any problem with having to have a vested interest in the purchase. it's apt to make you THINK before you buy.

also having to work to clean up your credit, if necessary, is okay too.

Rising rates? it looks rates will be a tad lower - my opinion

I have been a LO for 21 years and I have seen rates as high as 22% (back in 1987) We can not look at historical charts or look back to to see what "financial period" we are in. What is happening today is a direct response to the happenings over the past 7 to 8 years.

SEP

2007

Ann: I guess everything is relative. I was in real estate in the 1970's, and after nine years being a Realtor and a Broker in Ohio, I moved to Texas in 1982. I went to work for a New Home Builder in August of 1982. The mortgage loan rates were at around 13%. Then they started to go UP. First came 14%, then 15%, up to 16%, and they finally stopped at 17.5% (the PRIME rate went up to 21.5%) It was absolutely crazy, but I was in an incredibly hot neighborhood in Mesquite, TX... and weekend after weekend, buyers crowded the sales office keeping us busy just writing contracts. No offers... just full-price contracts. How things change! And for me, it gives listening to buyers complain about rates when they start getting close to 7% a very different perspective. Take care... Karen Anne

I remember the days. We bought our first house at 9 %. These days some buyers are waiting for rates to come down to below 6.

This is a very interesting viewpoint, I sort of agree. I don't know about rates going up, but lenders should certainly NOT lend to people in high risk situations.

Chris Roberts
Bank of America

http://www.raleighmortgagepro.com