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Will low mortgage rates stimulate the economy in 2012?
by Annie Christian
Jun 01, 2012 | 3077 views | 0 0 comments | 27 27 recommendations | email to a friend | print
You have been noticing that mortgage rates are staying low, most weeks the mortgage rate is lower than four percent. Most people are wondering how low mortgage rates are benefiting homeowners? Yes. Low mortgage rate is especially good news for homebuyers and investors when they are taking out a new home loan. Low interest rate translates into lower monthly mortgage payment. Low mortgage rate is also good news for current homeowners who can qualify for a refinance to lower their payment and save some money.

Many loan officers in the mortgage industry often turn to economists and experts in the Mortgage Bankers Association (MBA) for their professional opinion on economic forecasts. Although it is strictly an educational opinion based on past and current performances, sometimes these expert opinion does closely resemble the direction our local economy is heading, here are two major points to keep in mind:

• We’ve had record-low mortgage rates for months now, but they’ve done virtually nothing to resuscitate the housing market.

• Despite their prediction for low mortgage rates in 2012, the MBA has also forecasted a decline in home-buying activity next year.

As a potential homebuyer/investor, of course you would love to see interest rates stay low. But, is it a continuation of the status quo? Let’s look at the status of the housing market for the last few years which has been saturated with more and more short sales, more and more people losing their homes. So is this recent prediction something to be celebrated? Hardly.

For our economy to show strong signs of recovery: we must have low unemployment rate in the single digit (preferably around 4 percent), large employers moving in northern Nevada and creating new job — thousands of new jobs are needed to stimulate our local economy. With Silver Legacy and Outlets at Legends Shopping Center in Sparks filing bankruptcy, Washoe County School Superintendent resigning and moving out of the area, it further signifies that the grass maybe greener somewhere else but not in northern Nevada. Is any of the recent publicity good for the consumer confidence and therefore further delay recovery in the housing market? Absolutely not.

Waiting for Home Prices to Hit Bottom

Low mortgage rates are certainly enticing to would-be homebuyers in 2011 and 2012. But it is not enough to overcome their fears of continued price declines. Consumers are more savvy in the 21st century and yet at the same time more apprehensive than before the recession/real estate bust. Home prices are low. But will they fall even lower in the months to come? This is the mindset I am seeing in a lot of my readers, based on the questions they send me.

In May 2012, I surveyed three current homeowners about whether they will benefit from low interest rates. Here are their responses:

Jose in Sun Valley: I have three credit cards, the interest rates are set by the creditors. They will not adjust it down to reflect current low interest rates when I called, they said that I signed up for 9 to 12 percent and there is nothing they can to lower the interest rates.

Kathy and Tyler in Spanish Springs: We have been late on our home loans many times in the last five years, our credit has been damaged. We tried to get a car loan and was told by the dealership that our interest rate will be 12 percent. My husband and I thought long and hard about buying a new car, we have decided against the idea about getting a high interest car loan.

Billie in Spanish Springs: I bought my house in 2011 with an FHA loan, the interest rate was around five (5) percent. To qualify for a four (4) percent refinance in May 2012, I need to come out of pocket for over $3,000 for closing costs. I have decided giving up over $3,000 in savings just to save only $40 a month is not right for me financially.

The opinion expressed by the three current homeowners all have one thing in common, they are not able to derive any real benefit from the low mortgage rates staying low right now.

Will low mortgage rates cause the home prices to go up? Will consumers continue to buy higher price homes? Stay tuned for next week’s discussion on how low will it go?

Read next week for part two of this topic.

My contact information here …

Annie Christian is a real estate broker and owner of The Annie Christian Real Estate Group. She helps with everything from buying and selling to foreclosure and short sale. To submit a question, call 351-5117. Her website is www.anniechristian.com.
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