Readers: I am on my way home from the office in a minute and will return to answer comments.

 I want to mention this to those who are thinking many mortgage applications will "fall out" anyway because of a low appraisal.

Lenders are beginning to ONLY accept applications that already have the appraisal done upfront.

 In other words, if the appraisal is too low, the application never gets submitted.

They have done this because they do not have enough time to qualify the borrower if the deal is going to fall apart because of the appraisal. Too many applications!

Caren: Sorry for the long post. I edited it like crazy and it was still long. I felt strongly I needed to set the stage with a story, then inform with stuff my readers can use. It is a little formula I use when writting.

Neal: Lower rates do bring out more buyers. This is where Lenn and I disagree. It is also true, as you point out, that a bank is willing to give a lower rate when there is a larger downpayment. Understanding banks is actually not that hard: the bigger the risk, the more they charge (the higher the interest)

Lenn: You wrote this:

For me, the success or failure of a market is the number of eligible consumers who can consume within that market place.

My market is the same as yours. In fact, one of the reasons we are so busy is we need to talk to 5 people who CANNOT refinance to get one person WHO CAN. I was mad about this last year, fought it, and refused to believe it. Now I just realize it is part of the drill, and go on. Reality sets in.

Who ever said people were entitled to equity just because the bought a house? If 20% of the market is dead, yes, that impacts business. But if rates go down, the market increases in other areas. Maybe 10% MORE first time buyers come into the market. Maybe 10% more investors are willing to invest. (When one door closes, another opens?????)

Qualification is not easy. It will never be as easy as it was before. Again, my job takes alot more time because for every loan I close, I had 2 that were turned down. Again, part of the drill. But more importantly, part of why we are so BUSY. Any mortgage broker too busy to answer the phone when a Realtor partner calls is just plain stupid. Refi boom or not.....

I think an appraisal up front is brilliant as well.  It will save us all time and energy. I will address this in my next post.

Emily:

You should compliment Lenn. She is the one here on AR that stirs things up so much. And I love it! Her perspective always makes me think.

Kevin and Monica:

Super busy is a good thing for us, not complaining. But loans taking so much longer! UGH! So hard when you have buyers in contract.

Hey, ENJOYGAME:

I will check out your blog. And thanks for being a reader. Please feel free to comment. Perspective from outside of our industry is important.

Trey:

Thank you for those links! I will definately go back and read after I have answered comments. I hope this post came across as something more than the standard "Now is the time to buy". It was intended to give an insider look at the response we have had to lower rates. I know as Realtors, it is not always obvious that movement has begun in the market.

Naturally, the refinance market perks up before the purchase market. But if these rates stick, the spring selling season could blossom.

Let us hope!

Amber:

How I wish I would have thought of that myself! And I so hope you are right about crow leading to dough!

Justin:

IF the refinance frenzy is here so will the purchase frenzy trickle soon, if not now.

Exactly! That was the point I was trying to make to the Realtors!

You are very right that marketing can get lost in busy times. In the past I have been guilty as charged. But not this time! I spend the last 2 hours of every day working on marketing.

It really helps to do it at the end of the day because you can update your database (from talking with people during the day) and do marketing pieces based on whatever is on people's minds.

This is what works for me!

Gerry:

Here's the thing: lower rates may not be the savior of the economy or our industry. But do they help or hurt?

DUH!

George:

Hectic does not describe it. But I will take a hectic day over a boring day ANYTIME>

Sheldon:

You said:

I think lower rates are a first and necessary step to, albeit a slow, recovery. I agree! Rates are not a magic bullet, but a great first step. Rates are already in the 4's!

B & C:

Have better rates in Arizona brought out more buyers yet?

Dean Team:

You are correct. These rates do not apply to everyone. You are also correct that the credit score bar has been set higher. It is sometimes hard for me to imaging someone with a 715 score will not get the best rate. But it is true.

Having said that, let me also say this: It doesn't matter. What does matter is that 4% will attract people into the housing market. I am reminded of car dealers advertising a car for a $199 payment.

How many people really WANT the car with that payment, and how many can actually QUALIFY to get it? None of it matters because for the one guy who got a $199 payment, 100 more walked into the dealership.

THAT is what we need to hopeful for in our industry.

Lisa:

Buyers will wake up. I promise you. Add some spring days and a few consumers out there who actually got loans at 4.5% blabbing about it, and there will be interest. Hang in there.

Vickie:

That's right. They want good credit (or for FHA...acceptable credit)

Nelva:

Let's hope lots of buyers fall right off of the fence. I'm all for that.

Diane:

Seriously, no need to dream. Rates are this low.

Kent: You are welcome. Nothing like a dose of optimism going into the New Year!

Unusual: What is your name? Went to your profile but could not tell. Would rather be at the beach, but gotta make hay while the sun shines.

Karen: most people don't understand funding can be depleted (have you checked Wells conforming jumbo? They have funded all of those they care to, I guess!)

Buyers need to understand and feel a sense of urgency. I guess when we say that, they think we are like used car salesmen...but it is true!!!!

To the comment above that starts with Lenn Harley is my heroine:

I am a big admirer of Lenn myself.

I am trying to understand what you have written so that I know how to respond. If rates spike, your rate will not assuming you get a fixed rate loan. That is why everyone is rushing to "fix" their rate.

If you feel you do not want to be stuck paying off a house you should not buy a house. If you feel the prices are too high, then you should not buy a house.

There is a risk you assume whenever you invest in anything. If you don't feel like the rewards justify jumping in, you can continue to rent. You could also buy in a cheaper locations.

PS You also assume risk if you do not buy. The risk rates will go back up, along with the price of the real estate you would like to buy.

It is my belief that home prices in any area are kept high by the desirablity of the location. Places with desirable real estate will always sell for more than places with less desirable real estate, no matter what rates do.

When rates go down, prices go up. The reverse is also true. Not saying prices will go higher, only pointing out that lower rates are a far better scenario for price stabalization and a market turnaround than higher rates.

So if I buy a house now, I am assuming a risk that the value of the house will go down. Agreed. I have never looked at anyone's closing papers and read a thing about guaranteeing that the VALUE of the house will HOLD or go higher. Investments carry risk.

 I do not agree that rising rates always lead to a drop in home prices. A drop in DEMAND, yes.

But I would rather be stuck in my house with low payments than with high payments, wouldn't you?

Your options would be to rent it out (in my area house payments are cheaper than renting in most cases), or to stay in your house.

You know. The house you were able to buy in a high demand location because rates are low, and houses have already devalued alot.

PS your risk of having a house drop in value is far less in the better location. That is also why it is more expensive. The lower the risk, the higher the price.

No, I would not consider a 6% devaluation significant.  That would mean that the $500,000 house was now worth $470,000.

But I would be interested to know what you would consider a big enough loss of value to jump in?

I am not certain what a pre-bubble trend is. Maybe you can explain? But you are saying that if you felt certain prices would appreciate 3-5% then it would be time to jump in.

The ultimate price paid for a house with a mortgage is the price of the financing along with the price of the home. If the theory holds that rates will go higher when homes begin to appreciate, then you may just cancel out your appreciation by paying a higher rate (higher because economy has begun to turn around..demand for houses is higher) to get your financing.

This scenario often happened to me while in the car business: buyer negotiated long and hard to get the lowest possible price on the car (even people like doctors and lawyers who charged hundreds per hour for their time!)

Then they never even considered the financing as part of the deal, never shopped, walked out of the dealership with a rate 2 points too high on their $50,000 Lexus loan.

PS I never worked at a dealership. I was in competition with the dealer on every transaction, however, since I owned a leasing company. I lost a lot of deals this way, but usually got them the 2nd time around.

The deal that makes the most sense is the one where rate (cost of the money) and price (cost of the asset) are blended together and at their lowest point.

Waiting for your appreciation theory to kick in could cause the overall cost of the transaction to be higher. Maybe you think you would still be in a better position because you waited 3 years and watched houses drop another 25% BEFORE things turn around and appreciation potential appears on the horizon.

And to that I would say, maybe you are right.

But maybe you are wrong.

LHIMH: Actually, I don't think I misunderstood you at all.

I just don't agree with you.

To make a judgement that a house is overpriced based on how much the house has gone up (or down) from the last selling price just doesn't make sense to me.

It is like the guy at the garage sale this weekend that says " I paid $50 for that blender when it was new and never even took it out of the box!"

It doesn't matter what he paid, only what the market will bear for like-new blenders in garage sales, on the 3rd weekend of January.