Archive for the ‘Mortgage Rates’ Category

It is only a matter of time before the major ARM indicies begin to rise.  Once they do, many homeowners who have been trying to time the market are going to get caught in a much higher rate than they should have.  All the signs point to this being the trough for interest rates.  Barring some worldly disaster…party is over.  It is time to lock in your 30 year fixed or forever be an ARM holder.   Most ARMs are tied to the 12 month LIBOR which is down around .8% .  This has been fantastic for most ARM holders who have seen their fully indexed rates be locked in near the low 3’s for another 12 months.  The pain is going to be felt however when the LIBOR trends back to its 5 year average of 3.8%.  Most margins are 2.25% so home owners who were enjoying their 3% rate will be up to 5% and then to 6.25% by the time the rise is over.  I wouldn’t be suprised to see LIBOR hit 5 to 6 and those ARMs restet to the 8% range if any inflation fears come true.  Moral of the story…refinance your ARM asap.

I am not sure why this is not getting more press…

The Fed is winding down their mortgage back securities purchase program which is set to expire on 3/31/2010  The best guestimate as to the rate impact this artificial demand is having on interest rates is somewhere between .5% to .75% in rate.  In addition, the $8,000 tax credit is set to expire on 4/31/2010.  I find it amusing that the two are set to expire so close together.  All we hear from Washington is that they want to “unwind” the stimulus gradually.  Well in the span of 30 days the two main logs in the housing market fireplace are about to be water logged.  I think it will be very interesting to see what happens to housing prices once these two programs come to end.  There are two scenarios:  First, enough people believe the housing market has bottomed and the seasonal spring and summer homebuying demand will carry-on regardless of  no tax credit and rising rates.  This then begs the question…how much of this stimulus was really necessary or did just plain old economics fix the market.    Scenario two, is that we hear a gigantic thud in the housing market come summer.  If the stimulus is pulled out and as a result less buyers come to the table we may see inventories rise and pricese begin to fall again.  There are still millions of homes yet to come on the market via short sale and foreclosure.  In my opinion, the banks have been keeping this phantom inventory tight to their vest and are in no hurry to sell it.  They have already written most of these assets down so when they sell it on the upswing they stand to post some healthy profits. Unfortunately, I beleive this to be the most likely outcome.  Not because there aren’t going to be buers…I think there is just going to ben an ongoing glut of short sales and REO properties coming on to the market as more and more families are wiped out by unemployment and what will soon be rising interest rates on their ARMs and HELOCs.

June and July should tell the tale!