Thursday, June 21, 2012
Time 2 buy?
Despite a slight uptick this week, mortgage rates are still pretty much rock bottom, and unarguably at ridiculously low levels. This has sparked yet another refinance boom, with mortgage application volume rising to its highest point since May 2009, per the latest data dump from the Mortgage Bankers Association. This is great news for existing homeowners with plenty of home equity looking to refinance to a lower rate. It's also working out nicely for those who don't have equity thanks to programs like HARP 2.0. All in all, it's a gift to these borrowers who are experiencing some serious monthly mortgage payment relief. But what about new and prospective home buyers? Are People Buying Because of the Low Rates? With rates this low, you have to wonder if it's all a big trap (whether intentional or not) to lure would-be buyers off the sidelines and into the game. If you've followed the housing market lately, at least in certain regions of the country, such as Los Angeles, homes are speeding into pending status just days after being listed. In fact, many are pending just one or two days after being listed. It's looking like a serious seller's market, though obviously a very unconventional one. The low rates have increased affordability so much that a new pool of buyers has essentially been created, which has facilitated both standard and short sales. Again, great news for those who have waited very patiently to sell their homes; many can finally do so! And perhaps even better for the housing/mortgage market, with seemingly bad loans being replaced with better ones. Heck, I'm even seeing a ton of flips that are actually selling for a tidy profit. I thought flips were dead? Reminder of the Homebuyer Tax Credit But it all seems reminiscent of the boost seen with the now infamous homebuyer tax credit. That "free money" created a short-lived, yet steep run-up in home prices as first-time home buyers came out in droves. Just a short time later, it became clear that those who purchased a home did so at a premium, and their tax credit was quickly eclipsed by a larger loss in home value. If you take a look at this home price chart, you'll see how the homebuyer tax credit stoked demand, but its effect was clearly fleeting. In fact, those who purchased before the tax credit expiration were actually worse off compared to those who bought later on. To bring it all together, home prices were pumped up as a result, similar to what we may be seeing with the record low mortgage rates. With rates so low, homeowners and their clever real estate agents probably feel they can list their homes for more than they could have six months ago. And the whole "it's never been a better time to buy" adage is back. Economy Still in Disarray The big problem is that the economy is still a huge mess, with the European crisis hanging over our heads, and domestic unemployment still far from unresolved. Then there are the millions of homes in the process of foreclosure, or knocking at its door. So is this artificial stimulus actually going to help the real estate market long-term, or is it just another quick fix with no staying power? My gut tells me that this recent run-up in prices and virtual 180 in consumer sentiment is bad news. Getting into a bidding war over a house just months after no one was interested seems really fishy. Additionally, all these calls of a "housing bottom" are concerning as well. You always have to wonder when every single media outlet (including your local news channel) is claiming that the worst is behind us. Of course, the low rates have led to lower mortgage payments, even with the recent home price increases factored in. So there's some serious power behind those rates. The question is will you be able to buy a home next year at an even better price with a similar (or even lower) interest rate?