Last week, Freddie Mac reported that the average 30-year fixed interest rate was 6.01% for loans originated between May 9 and May 15. Mortgage rates hit their low-water mark for the year the week of January 24, when grave concerns about the national housing market and speculation about a severe recession drove 30-year fixed rates down to 5.48%.Since then, the Fed has cut short-term rates seven times in seven months, creating a season of "cheap money" that is pumping up the stock market while speeding recovery to the housing market in many parts of the country (FYI and to be reported soon - market time for homes in Southern California has fallen from 15.6 months in January to 5.88 months in April... and 26% more homes sold in April of 2008 than in April of 2007).
Because of this, in my opinion, the Fed is done with rate cuts.
So what does it mean?
Any conversation about housing prices really needs to be looked at two ways. First, there is the issue of what a home costs... but just as important is a discussion about monthly payments.
And that's where todays fence-sitters begin to lose if and when rates start to rise.
Ponder this excerpt from Time Magazine's February 2008 article "Ignore the Headlines":
Consider a typical home that sells for $210,000. You put down 20% and get a 30-year fixed-rate mortgage at today's rate of 6.0%. Monthly principal and interest come to $1,007. Let's say that 12 months from now the same house goes for 10% less, or $189,000. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 7.0%, your monthly payment would be $1,006 and you'd have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you'd rather not be.
Can you see the risk you run by trying to time the market? Homes are plentiful, rates are low and sellers are motivated because they see no good news in the headlines... yet.
It's coming, though. And when it does, what will it mean to you?
