Pinellas Property Online

A recent news article about whether now is a good time to buy a home shared this startling statistic: The average home owner is worth 35 times more than the average renter.

REALTOR® David diCecco blogs about why now is precisely the time to take advantage of the joys of home ownership.

“The market conditions and economy have scared a lot of people from experiencing the joy of home ownership. But you should be looking at the other side of the coin in this as well.

OVERVIEW ~ for March 29 through April 2, 2010, the stock markets improved while Treasury security yields ended lower. Mortgage rates rose along with Treasury note rates.

FOCUS ~ Three reports brought cheer to the markets.

 

1. This was the week, of course, when the Federal Reserve ceased its purchases of mortgage-backed securities (MBSs), a move that had been awaited with some concern by investors. The Fed has been buying up MBSs so as to make sure there is adequate demand for the huge supply available for purchase. If demand were to decline, yields to investors would rise, very likely taking other interest rates higher as well. However, the markets have had plenty of time to digest the fact that the Fed was going to stop making the purchases. No panic ensued this week, therefore. But no one is certain that private investors can fully take up the slack left by the Fed’s exit from its purchase program. Still, the initial mild reaction calmed the markets.

 

The era of record-low mortgage rates is over.

The average rate on a 30-year loan has jumped from about 5 percent to more than 5.3 percent in just the past week. As mortgages get more expensive, more would-be homeowners are priced out of the market – a threat to the fragile recovery in the housing market.

And if you wanted to refinance at a super-low rate, you may have missed your chance. Mortgages under 4 percent are still available, but only for loans that reset in five or seven years, probably to higher rates.

Rates are going up because of the improving economy and the end of a government push to make mortgages cheaper.

For people putting their homes on the market this spring, rising rates may actually be a good thing. Buyers are racing to complete their purchases and lock in something decent before rates go even higher.

“We are seeing some panic among potential buyers who have not found houses yet,” said Craig Strent, co-founder of Apex Home Loans in Bethesda, Md. “They’re saying: Man, I should have found a house three weeks ago or last month when rates were lower.”

It’s all about affordability. For every 1-percentage point rise in rates, 300,000 to 400,000 would-be buyers are priced out of the market in a given year, according to the National Association of Realtors.

The rule of thumb is that every 1-percentage point increase in mortgage rates reduces a buyer’s purchasing power by about 10 percent.

For example, taking out a 30-year mortgage for $300,000 at a rate of 5 percent will cost you about $1,600 a month, not including taxes and insurance. But the same monthly payment at a rate of 6 percent will only get you a loan of $270,000.

Good economic news is the first reason rates are rising: U.S. government debt, a safe haven during the recession, is losing its appeal as investors turn to stocks and riskier corporate bonds.

Lower demand for debt means the government has to offer a better interest rate to sell its bonds. The yield on the 10-year Treasury note, which is closely tracked by mortgage rates, hovered above 4 percent this week, the highest since June, before falling back slightly.

The second reason is the Federal Reserve. Last week, the Fed ended its program to push mortgage rates down by buying up mortgage-backed securities. When demand from the central bank was high, rates plummeted to about 4.7 percent for much of last year. And business boomed for mortgage lenders as homeowners raced to refinance out of adjustable-rate mortgages and into fixed loans.

As of Wednesday, the Mortgage Bankers Association put the national average for a 30-year fixed-rate mortgage at 5.31 percent. One week ago, it was 5.04 percent.

Many analysts forecast rates will rise as high as 6 percent by early next year. If they go much higher, the already shaky housing recovery could stall. And that could slow the broader economic rebound.

In a normal market, with home prices steadily rising, a jump in rates doesn’t cause a big dip in demand. That’s because people know their homes will eventually rise in value, and are willing to accept a higher mortgage payment.

But now home prices are flat nationally and still falling in some places. Potential buyers are nervous about jumping in.

Pending home sales rose in February, potentially signaling a second surge of home sales in response to the homebuyer tax credit, according to the National Association of Realtors® (NAR).

The Pending Home Sales Index (PHSI) (http://www.realtor.org/research/research/phsdata), a forward-looking indicator based on contracts signed in February, rose 8.2 percent to 97.6 from a downwardly revised 90.2 in January. The Index is 17.3 percent above February 2009 when it was 83.2. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.