By Jimmy Kinley, Denver Home Loans
Once again, we find ourselves saying that the time to buy a Denver home is now. The reasons for this are both clear to see and some other reasons are somewhat hidden behind the mess of politics on The Hill in Washington.
Let’s start with mortgage interest rates. We have been saying that our buyers need to get serious now because rates will not be this low forever. Now, let’s put numbers to that. The national average for a 30yr fixed rate has increased from 4.19% on October 14th of 2010 to 4.87% on April 7th. That is an increase of 0.68% in less than 6 months. That is an increase of $121.41 a month on a $300,000 mortgage amount. That is almost $1500 a year. In my opinion the only reason we are not sitting around 5.25% and climbing is due to the mess overseas. The conflicts in Libya, combined with a few other locations, have driven oil prices from roughly $85 a barrel to $110 as of today. This has a huge impact on the US markets and has been one of the primary reasons that rates leveled off and even moved back a little. (The National Average hit 5.05% on 2/10/11)
In fact is that even the FED took advantage of this and announced last week that they were not only done purchasing MBS (Mortgage Backed Securities), but they were going to start selling them off at a much faster pace. They wouldn’t be able to even think of doing this yet if not for these other economic factors. Long story…short version…Everything from the everyday US economic news(unemployment, home values,etc..) to the way the Fed is handling this should be driving rates up fast. Once the overseas conflicts are resolved and everyone starts to adjust and unfortunately forget about the tragedy in Japan; investors will get back to regular investing in our stock market. All these other things are causing investors to sit tight or put money into more stable investments like MBS. The bottom line is that rates will go up!!
Next is mortgage insurance. The government is putting a lot of pressure on Fannie, Freddie, and FHA to decrease the market share that they have. Think about that for a minute…
How does any company decrease there market share? They do it by charging more and becoming less competitive. In theory they would make more money on the loans they get and decrease market share by the loans they loose to the competition. Wait a second…What competition??? If they decrease the amount of loans they are doing then there will just be fewer loans and less competitive products. There is no alternative lending or subprime market to pick up the slack.
The big picture is that this is a fancy way of saying we are going to charge more, allow less, and lower their risk by allowing less people to buy a home. Take FHA for example. FHA monthly mortgage insurance factor on a 30yr with 3.5% down has gone from .55% to 1.15% in roughly 6 months. (Once the new increase goes into effect 4/18/11) On a 250K loan that moves the monthly costs for mortgage insurance from $114 a month to $240 a month. The increases are happening before our eyes, we just have to pay attention.
Couple this with the increase in rates and costs are going up quickly. On the Fannie/ Freddie side the mortgage insurance comes from 3rd party providers. There competition is keeping the costs from jumping up quickly, for now. I feel pretty certain that once the next jump goes into effect with FHA that the tables will shift as a conventional loan with 5% down will be more competitive than the FHA loan. That means the MI providers will see a huge jump in business. Simple supply and demand says that the costs will most likely go up here too.
Lastly there are many who are trying to push for ridiculous increases in the down payment requirements. Although I feel that this would never happen because it would send the real estate market back 30yrs, the fact that they are trying could mean more restrictions with what Fannie and Freddie will allow. I will finish with this;
“The market is recovering. Especially in metro areas like Denver and the Denver suburbs. Values are starting to go back up in some metro cities. Rates and MI costs are going up. There are talks of more restrictions. The experts are saying that high 5’s for rates are a reality in 2011 and mid 6’s in 2012. IF WE ARE WAITING FOR A BETTER TIME, WE MAY NOT SEE ONE IN OUR LIFETIME.”
Senior Mortgage Advisor
Mortgage License# MB100020560