Let me make a statement, and I hope you truly digest what I am about to say: the interest rates on mortgages here in Brevard County, Florida are about 1/8% off of their lowest levels in history. That means that if you qualify for a mortgage, you could potentially get a better rate on your loan than just about anyone in history. With interest rates and home prices as low as they are, and with the first time homebuyer tax credit extended into 2010, people should be lining up to buy homes. However, these rates have only one way to go, and we are headed there soon.
One of the biggest factors in our low rates right now is not the Fed's decision to keep the overnight rate as low as it is, rather it is from their decision to continue to purchase mortgage backed securities in the many Billions of dollars per week. When this purchase program ends, the demand for Mortgage Backed Securities will be less, therefore the price will decrease, and the yield (or interest rate) will increase.
Another factor that is keeping rates low, has been the low threat of inflation. While inflation is not happening right now, there are many concerns of inflation coming once the economy starts to improve. We are already seeing signs of inflation as the Core CPI (Consumer Price Index) came in higher than expected, and a little higher than this time last year. It is inevitable that when you dump as much into the economy as we have, and when the cost of money is as low as it is that we will see inflation. In inflationary times, bonds are not as attractive because they become devalued.
So, with Inflation around the corner, and the Fed finishing their Mortgage Backed security purchasing program coming to an end in 2010, interest rates are going to increase. The increase in interest rates will affect buyer's purchasing power, as well as their cost of money. I have said it before, and I will say it again: Now is the time to buy! Rates are low, but rising; home prices are down, but will go up; sellers are generous, but they will be greedy. Please take advantage of this opportunity, before it goes away. If you are currently renting, talk to a professional to see if you can buy; if you know someone who is renting, encourage them to see if they can buy.