Last Friday I blogged on the topic that the Denver real estate market may soon become a Seller's Market instead of a Buyer's Market. Why? Inventory is dropping especially on homes priced under $200,000 where inventory is under 3 months.
A second great reason to buy a home in 2009 is the exceptionally low mortgage rates we have this year. They are not as low as they were in the first 5 months of the year; but rates in the 5's are hard to complain about. My wife and I bought our first home in 2000 when rates were above 8%.
There have been 2 primary reasons why mortgage rates have been so low. First, is the recession we have been in. Normally, during every recession bond yields and mortgage rates drop as investors seek "safe haven" investments with a fixed return on their investment.
But, the second reason is more important as the Federal Reserve has taken never before seen actions to help our economy recover. One action has been the purchase of mortgage backed securities or mortgage bonds. They have purchased nearly $800 billion of mortgage bonds this year! Their plan is to purchase $1.25 trillion this year. This "temporary" demand has caused bond prices to rise and thus rates to fall. This "temporary" program ends in December.
A second action by the Fed has been their purchase of the Treasury's new debt issues such as 10 year T-bills and 30 year T-bonds. The Fed last week in their Meeting Minutes reminded the market that their purchase of the Treasury Securities will end in October with no plan to extend this "temporary" program.
Everything else being equal when the Fed quits buying the Treasury's new debt in November it is expected that Treasury yields will have to RISE to attract new buyers. Remember the Law of Supply and Demand? If supply stays the same and demand drops, what has to happen to prices? Just as with flat screen TVs, cars, and other consumer goods, prices MUST DROP. And with bonds when prices drop, RATES OR YIELDS RISE.
Thus, I expect in November mortgage rates will rise by 1/4% to 1/2% at that time. Come January, people smarter than me are estimating that mortgage rates will rise by 1% or more from today's super low rates. Ouch!
On a $200,000 home, your payment just increased by $123 a month if rates rise 1%! I will end with this maxim, "time is money". In this case taking your time could cost you a lot of money.
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