Wednesday, December 14, 2011

Fixed rate mortgages hit another all-time low

30-yr fixed rate mortgages have never been cheaper. The latest data show that the nationwide average for conforming, 30-yr fixed rate mortgages is 3.99%, and the rate for jumbo mortgages is 4.28%, both at new all-time lows. Plus, the spread between conforming and jumbo rates is now down to just 30 bps, which in turn is the average spread during times of relative market calm. It doesn't get much better than this for homebuyers.

Anecdotally, I was talking with a prominent realtor friend the other day and remarking about how incredibly affordable housing has become. She agreed, but noted that the problem as she sees it is that most people are just plain terrified of buying a house these days. That's one very good reason why houses are so cheap.

This chart comes from Mark Perry, and is the best one I've seen when it comes to housing affordability.


McKibbinUSA said...

The expanding US depression is creating once-in-a-lifetime opportunities to buy real estate cheaper than ever, including commercial properties -- stocks also on sale at bargain prices -- unfortunately, dollars are in short supply along Main Street, so financing and leverage are essentially infeasible -- nevertheless, those with cash in hand or from earnings should be buying into these US declines in equity prices with enthusiasm -- we are witnessing and experiencing the best buys I have seen during my lifetime (since 1955).

PS: Remember that depressions are not "armageddon," but rather, just another opportunity to add to one's estate and make money, albeit under different terms than periods of growth and prosperity -- many people made fortunes during the 1930's -- the lessons from that period are instructive for investors, today...

Benjamin Cole said...

I am not sensing people in Los Angeles are terrified to buy a house--the down payment is more the problem.

That's an oddity about real estate. Banks will lend aggressively at the top of the market--when risks are greatest.

Banks are tough lenders now---at the bottom of the market.

Regime Uncertainty: Obama? Maybe, but also the Fed is famous for its lack of clarity. Will the Fed "fight inflation" and crush your investments? Or promote growth?

No one knows. That is regime uncertainty too.

I gotta say, if you can buy real estate today, do it. This is a bottom.

Benjamin Cole said...

Not to beat a horse, but this does not strike me as inflation.

And a low exchange rate for the dollar seems to have not decreased purchasing power at all.

If you have a job and are buying a house, you have more purchasing power than ever.

Public Library said...

Once you move back to basic banking and require 20% down payments, a large swath of the market is simply priced out or unwilling to drop that kind of money into an illiquid long-term investment.

It was great at 0% - 3% down with prices rising 7%+ per year. Leverage is great huh! However, those days are long gone so afford-ability metrics need adjusting.

Scott Grannis said...

FHA loans requiring down payments of 3-5% are still available.

Unknown said...

Why would anyone buy a house in Southern California right now? Median prices are down 7-10% YoY and are continuing to fall. There is a massive amount of distressed inventory and more coming at record rates. The banks are sitting on a huge shadow inventory. Days from NOD to foreclosure are at record lengths. High unemployment, a bankrupt state that is only going to raise taxes which has been chasing jobs out of the state for decades. Move up buyers are underwater, first time buyers have no savings and massive amounts of personal debt.

Monthly payment affordability might be at record highs, but it is only going to get better in the next couple years and will not rebound at any quick pace but rather bounce along at the bottom. Japan when through this for 20 years.

As a potential first time home buyer I am sitting back and waiting. We have a couple more years of aggressive deflation in home prices and I would guess 10% to go in the bottom median quartile(in SoCal) and 15% to 20% to go in the upper median quartile through 2013. After that it will be a slow decline on nominal terms.

Unknown said...

"FHA loans requiring down payments of 3-5% are still available."

Factor in 6-8% realtor and move in costs and 8-10% decline in YoY prices around here and you are 10% underwater in less than a year.

What a great use of funds.

It needs to be far cheaper to own than rent around these parts and we are not there for a couple more years.

William said...

Monday, on a Holiday tour of the White House in DC sponsored by the Department of Agriculture, I met an official who was summarizing the department's activities, emphasizing how broad they were. He said that over the past 4 years it provided 450,000 "rural" mortgages - some with 0% down payment. News to me!

It is incredible how involved various federal departments are in residential real estate. The VA is another well known example.

William said...


During the GREAT Depression, U. S. GDP fell > 20% and nationwide unemployment was 25% at one point. The past 3 years don't even vaguely resemble the GREAT Depression. In fact, in terms of unemployment rate, it is not as bad as 1981 - 1982 - although more people are "unemployed" now because the population is much larger.

Scott Grannis said...

Reminds me of Reagan's famous quip: "The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'"