Friday, September 25, 2009
Rates on 30-year fixed rate mortgages are only 0.5% above their all-time lows, and the Fed recently reiterated its intention to buy another $700 billion of agency and mortgage-backed securities over the next six months. (They've already bought about $800 billion this year, and plan to buy up to $1.45 trillion by March of next year.) Whether Fed purchases of MBS are causing borrowing rates to be lower than they otherwise might be is an issue over which reasonable men can disagree (I don't think they do, but there are many who would disagree with me). Regardless, the Fed's actions promise to ensure that there will be no shortage of money available for those wanting to finance the purchase of a home at historically low interest rates, at a time when prices in many areas of the country are sharply lower.
If this isn't nirvana for homebuyers, I don't know what is. Interest rates are virtually at rock-bottom lows, money is plentiful*, and prices in many areas are back to levels we haven't seen for over six years, according to the Case-Shiller home price indices.
Yet many people are still worried about a coming wave of foreclosures. I don't get it. I think the public is smart enough to figure out that we have the makings here of the deal of a lifetime. It's not at all surprising to hear of bidding wars for foreclosed properties. And it's not surprising that homebuilders' stocks have more than doubled from their lows, and that existing home sales have risen to a 2-year high.
* Jumbo mortgages are not as easy to get these days as they used to be, because banks are requiring down payments of up to 30%. But if you can meet the down payment requirement, you should have no trouble getting a loan.
UPDATE: This is completely anecdotal, but very interesting: On Friday I spoke with a good friend who is one of the heads of a well-known design/construction firm specializing in remodels in the San Gabriel Valley, and he mentioned that his business turned up significantly starting about 8 weeks ago. A lot of customers had put things on hold last year due to all the uncertainty, but now with the economy doing a little better and the market up, people are reconsidering. Business had brightened so much, in fact, that he had just rehired the two architects he laid off last year.
Posted by Scott Grannis at 8:37 AM