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Lower Mortgage Rates - Too Little Too Late?

Will lower mortgage rates really make a difference? It is too little too late? The buzz in real estate today is that mortgage rates are going to plunge to 4.5% 30 year fixed rates for purchase mortgages. That story has been in the news all week this week, and everyone in real estate seems to feel this will stop the fall in prices. It may, but in my own opinion it will it also just prop up super inflated prices that have not yet been priced correctly. Home prices have not bottomed.

First of all I welcome the possibility of lower rates, but I also feel it is too late. We should have had this last quarter of 2007, and first half of 2008. Affordability of a home has to be considered, but so does the ability to pay the mortgage. In lieu of this month’s unemployment report it is hard to think that any of the half a million people will be suddenly looking to buy a home in the next few months even if the 4.5% lower interest rates are too good to pass up. The newly unemployed may have to pass on buying a home right now, but may have to consider selling a home that now they can no longer afford. That is just more fuel on the fire. If we look at the current delinquency charts for mortgage payments for 2008 it looks like a walk up a steep mountain. There will be more delinquencies in the early part of next year. They will rise dramatically, because the average monthly payments will not be able to cover the high cost of excessive living. This is why foreclosures have become so popular. No equity money in the home, declining values makes “Jingle Mail” a good idea. Just walk away from the nightmare. Why reaffirm bad debt? So my question, will lower interest rates just reaffirm wrong prices?

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Posted by Jim Crawford ~ Atlanta Real Estate-ABR E-PRO on 12/05/2008 08:10 PM

Comments (37)

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37 Comments on Lower Mortgage Rates - Too Little Too Late?

DEC

Jim, I agree with you that the home prices have not yet hit bottom. Particularly in some markets. The lower interest rates will help, but certainly won't be a "fix-all" and in my understanding will only be available on "new" loans not on refinanced loans (which doesn't make sense to me - particularly to keep people in their current homes that are struggling to make their current, higher-interest mortgage payments).

Jim, we don't need to see any more jingle mail for sure, and that unemployment news was stunning to be sure. We need to create more jobs. That is a key.

Jim,

We need to see some stability in the Job market people are afraid no one is sure where all

of this is going to end up at. So lowering rates want make that much impact now.

Jim, I agree with John above. People are hunkering down and taking a "wait and see" attitude. In fact, I can't think of an interest rate that would make people jump off the fence right now. The buzz is to stay liquid so few will part with their cash much less take on more debt. Of course buying right now is smart but only to those who have a guaranteed income source and don't own a TV or read the paper. :( Bah humbug.

Jim, I think whats good for the goose is good for the gander, If you (banks) are offering 4.5 for new purchases I want to re-fi at that rate, with my new found lower monthly expense I will spend money elsewhere in the economy. I can live with a 75% loan at what ever the current appraisal is- so current value is no issue so long as we all use the same comps. My history of payments should make any bank making the same rate available to the unknow new buyer an easy dicission..P.S. I don't need a cash out re-fi just the same rate that some-else gets..fair is fair

Jim , I agree, I wish they could have lowered interest rates a year ago or more.

The commodity market ran up as the dollar collapsed. The dollar weakness stopped the lowering of rates. The declining dollar ran up oil and copper etc which are traded in dollars. This all ruled, until the crisis peaked and every one ran to the dollar for safety around the world. This gave the Federal Reserve the ability to lower rates. The dollar and economy weakness has smashed commodities and oil. A total macro reversal.

We are now in a real estate sweet spot to form this bottom. Lowering rates while demand has been laying on the side lines. The parts of the country which had gross over development are going to take a lot of work, but in our area we are of late,(past 2 weeks)very busy. I am bidding more new homes to build in as long as I could remember. My partner in my office for 18 years sold 5 houses in the past two days.

In 1974 when we hit a bad streak into 1975 rates were still high. We are hitting lows and mortgage rates are lowering. Jumbo's are still a bit high, but they will fill in as confidence comes back.

A rough road but there is hope.

Richard

I'm all for the lower rates- it certainly can't hurt anying....4.5% interest plus prices at the lowest they've been in 6 years, its a no brainer that now is a great time to buy!!

BUT what I fear is the immediate impact of hint of lower rates, is that those few that were jumping off the fence ready to buy, are now waiting to see if the interest rates are going to fall lower first.... and if that does happen, I understand it won't be until Februrary. I'm hoping it doesn't kill January sales which is typically one of our busier months here in Palm Springs.

Those rates should be given to current homeowners to help stop the foreclosures.

Marcy Moyer Keller williams Realty Palo Alto

I'm excited because the rate might be in full swing when my house is done being built. But for the most part, I don't think the rates have anything to do with fence-sitters these days. It's everything else going on in the world that is making people not buy, not the rates.

Only for "purchase" mortgages? Bummer, 'would like to see them for re-fi mortgages, too.

Vickie Slade (Real Estate of The Rockies) That is correct. I believe they are playing math games to remove the excess inventory, prop up the price of homes, and allow refi's and workouts above to firm up the banks. My personal opinion? They played the fiddle a little too long as Rome burned. Propping up prices may not be smart, and especially when unemployment is rising as fast as it is. The government interference in free markets may screw this all up royally.

John Douglas (Western Realty G.M.A.C.) This is truly what they call a "Vicious circle!" There are a lot of interdependency's homes, employment, banking etc.

Alyce Martin in Albuquerque - THE Place To Be! (Keller Williams Realty) Not reading the paper is so smart right now! Would be buyers are spooked.

Steve Loynd, Alpine Lakes Real Estate Inc., Loon Mt, NH. The losses are so great right now on the refi's they are going to avoid dropping to the same rate. I am telling you, they are going to screw this thing up big time. I can feel it in my very core. They are going to try to prop up the price of real estate. It cannot be done. The demand and fever has wained. It is way over built because none of this was being regulated.

Richard Stabile Bergen County New Homes Builder Realtor (REMAX real estate associates) Thank you Richard for your insights.

DEC

Paul Kaplan, MidCentury Properties, Condos, 1st time buyers, in Palm Springs (Pacific Union GMAC Real Estate, an affiliate of Christies ) A lot of this is going to take a wait and see position also. I like the thought of low rates... I just hope they are not compouding hte problem or postponing the results.

Marcy Moyer (Keller Williams They are trying to do work outs instead.

Donna Harris, ASP (Re/Max HiNet) Fear has gripped a lot of buyers.

Margaret Woda, Crofton Maryland Real Estate (Long & Foster REALTORS) I think they are taking anohter route on refi's.

Jim -- Low rates are only part of the solution -- There need to be tax incentives for purchasing and as much as everyone hates to hear it Mortgages need to be restructured for those that cant handle their payments -- The problem is SUPPLY -- simply too many homes for sale -- Low rates, tax incentives for purchasing, stop foreclosures and the inventory will dwindle down and and stability to the market --

Great question you have proposed in your post -- best of luck -- JE

Jim, the other piece missing is that mortgage lenders have to actually be willing to do the loans. That is a lot ingredients. Homeownership spiked to unnatural highs during the craziness and have got to come down to historical averages. Not everyone that lives in a house in this country needs to own it. There is a segment of the population that simply does not need to own. So the question of too little too late is appropriate. But frankly it does not matter.

We have a ways to go

Really what good are lower loans if the prices stay up and you can't pay it any way???

Jason Ellis (Legends Real Estate There are so many seperate yet related issues and their impact that have to be considered. There will not be any one fix of the nations problems.

Bo Hussung/ National Title Agent (Cogent Closing Associates) I know you are right. We do have a ways to go. Homes were over sold, over priced and over subscribed. They really missed the point that the primary function is shelter.

John Walters (7824 Real Estate of Louisiana) Exactly! What many have not considered is the unemployment statistics released yesterday were the worse statistics ever released by the Bureau of Labor statistics in its' 125 year history.

So we are essentially going back to 2001/2 when Greenspan lowerd rates...the exact thing many have criticized caused todays bubble bursting! Bad idea unless you want to Bankrupt America.

We know 20% down , 30 year fixed works regardless of the interest rate and it is the HOUSE price that changes (three times annual salary) so the monthly payment is affordable. Anything else is just gambling. We have proven that any more leverage than that is foolish. Do we need to repeat the 1920's and 2002-2008 again before we learn?

Phil I really hope not. The problem is no one has a real plan.

Jim,

Any drop in rates is certainly welcome but as you say it's kind of late. The big hurdle today is the underwriting guidelines. Mortgage applicants have a hard time qualifying for loans.

Esko Kiuru - Las Vegas NV Mortgage Consultant (Sinifox Financial) I also believe it is going to get tighter at least for the short run With looming unemployment,a dn home prices still falling - no one could blame a lender for being cautious.

DEC

Jim, It's way to late to hope for a 2008 or early 2009 recovery, but lowering interest rates would stimulate some of my buyers...

Better late than never. Buyer's need all the help they can get to have confidence in the RE market.

Hi Jim,

As I just commented in one of Lenn Harley's posts, the government has been slow to identify that there is a problem, slow to respond to the problem, and impotent in their response to the problem.

I don't think lower mortgage rates are the solution as I don't think affordability is the real problem. Home prices have fallen the past two years and uncharacteristically, so have home sales.

This is a credit/loan underwriting/down payment problem - none of which can be solved with lower mortgage rates.

I do think that it is in our housing market's and the government's interest for a multitude of reasons for home values to stop their declines - I just don't think 4.5% mortgage rates are the way to do it.

Mark MacKenzie Real Estate Planning I agree. I worked for the Feds at one time, they take for ever to make decisions. They are lethargic, and bureaucratic. There was a story today that well over 50% of those that have received workouts are already delinquent in their payments. Many of these people purchased more home than they can afford, and had no ability to repay the debt. Now as a nation, we are going to pay the price of total greed.

David Slavin, ABR, SRES RE/MAX Grand, Katy, TX (RE/MAX Grand) Every little bit helps.

Paul Henderson (RE/MAX Professionals) I am not sure it is a total fix in itself. But it will help move some of the inventory, and get some buyers off the fence.

I tend to agree with others that it cannot hurt when rates come down. I am happy I am paying 3.0% on my home equity. I have noticed a pick up in showing activity on listings in the last week which I attribute to the interest rate annoucement.

James Lockard - Realtor, Allendale, NJ (RE/MAX Properties - Saddle River) I have had 4 calls today. I hope you are right.

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