4.5% mortgage rates?

Real Estate Agent with RE/MAX Ability Plus

An idea intended to spur the housing market may actually be hurting it right now.  I had the chance to sit down with Scott Weghorst, President of Pinnacle Mortgage Funding, LLC , to talk with him about the idea of "government backed 4.5% mortgage money."  Here are some of the questions I asked him with his answers:

Tom:  An interest rate of 4.5% is obviously an attempt to spur home sales.  In addition to that how does that rate help the economy recover?

Scott:  Well first, as of yesterday U.S. Treasury Department secretary Henry Paulson denied rumors of a 4.5% mortgage rate plan.  However rates in general are down and whether it's this plan or low rates in general, if low rates can help homebuilders increase their sales it should help the economy in general.  If builders have more homes to build the framers will have more homes to frame.  Therefore the lumber companies will have more lumber to produce and the nail companies will have more nails to produce and the hammer companies will have more hammers to produce...etc.  You get the point.  Then apply that to the roofers, plumbers, dry wallers, and on down the line with other jobs that are tied to the industry.

Tom:  Indeed interest rates have been dropping in general.  What have you been seeing as a result of that?

Scott:  First, we have seen almost a 500% increase in refinance activity from last month.  People are locking into secure rates that will save them money or give them funds to invest or spend once their confidence levels are back up.  Secondly, the drop in rates is encouraging news in a climate of constant negative news.  Eventually low rates like this will entice buyers to move forward with purchasing homes.

Tom:  Do you think the hope of potential lower interest rates is hindering today's home sales?

Scott:  We are hearing a lot of folks that want to sit tight and see where the interest rates end up. Many projections for 2009 are indicating rates won't go any higher than 6-6.5%. We have seen them hit 5% today. What most people may not realize is there are two factors that could drive interest rates off the 5% floor we are seeing. One is inflation. With the amount of dollars that are being spent on all the stimulus programs we could see inflation rear its ugly head. Secondly, a bill introduced in the house this week could allow judges to re-write mortgages. If either of those happen it could mean higher rates. We are hearing 6-6.5% for 2009, but if people act quickly they can be at a full point lower.

It's my opinion that interest rates can go even lower either by the government's actions or by natural market activity but until people have confidence they will have a job tomorrow or the ability to pay their mortgage many buyers are holding off.   It's definitely a, "which came first the chicken or the egg" dilemma.

Jenniffer Lee
RE/MAX Complete Solutions - Boca Raton, FL
Broker/Owner/Realtor at RE/MAX Complete Solutions

Great post.  I know some buyers are waiting to hear that the bottom has come and priced won't go any lower but I hadn't thought about the fact that they might be waiting for that interest rate drop too.

Dec 20, 2008 03:19 AM