by Jimmy Kinley, Sr. Mortgage Advisor
Yes, I do believe it is. They are writing about it other cities like San Francisco too. It is common to hear the conventioanl wisdom that now is a great time to buy a home. That’s easy to say. But, the real questions why now provides such a great opportunity to buy in Denver.
There are multiple reasons for now being a great time to buy.
First Time Home Buyer Tax Credit
Although there is much speculation as to whether or not the deadline for the $8000 tax credit will be extended; there is nothing solid that says it will. The bill has been shot down more than once. The bill was truly proposed incorrectly in my opinion or it may have already been passed. It was proposed as a $15,000 tax credit for all buyers. This would increase the total estimated cost of the tax credit to tax payers by 10 times the current projected cost. I do think the tax credit should be extended as it is currently, but there is no definitive proof that it will be at this point. The last day you can close and receive the tax credit is November 30th. I personally would avoid trying to close at the end of the month in November with the last second push of buyers trying to get the tax credit and the fact that Thanksgiving will close down most title companies for a few days at the end of the month.
Although the nationwide news continues to show that values are declining; the Denver news is much different. The Denver median sales price for a single family home rose 4% from a year ago. That coupled with the fact that the number of homes currently listed for sale on the market dropped 17.1% in the last year says to me that things have turned the corner.
Rates are phenomenal!!! Most people don’t realize that the average for a 30yr fixed mortgage since being recorded is roughly 9%. In 1982 the average 30yr fixed rate for the year was a little over 16% and consumers were paying A little over 2 points to get that 16% rate. Yes, 16%!! This is a rate we would take on a credit card today. The lowest average rate for an entire year was in 2003 at 5.83% with people paying around 0.6 in points to get that rate. So where are we now? This year we are at an average of 5.08% with an average of 0.7 in points!! This is ¾ of a percent better than the best year we have ever had recorded. With rates currently hovering around 4.75%, I can’t imagine home loan interest rates will go any lower.
When will rates go back up?
The FED announced in November of 2008 that it would start purchasing MBS (Mortgage Backed Securities) in order to keep those indexes at a level that would hold rates at a low enough point to help stimulate the real estate market. The FED has put an estimated price tag of 1.5 Trillion dollars on the amount of MBS’s they will purchase by the end of the program. The FED announced last week that they will start gradually reducing the amount of MBS’s they purchase on a weekly basis in order to make a smooth transition in the markets. The reason for the gradual decrease is so that rates don’t spike all at once. They also announced that they intend for the program to be totally phased out by the end of the 1st quarter in 2010. Therefore there is a really good chance that rates could start rising in the coming months.
In my opinion we are in a perfect storm that happens to be working in our favor. I hear some say that they don’t want to buy that bigger home because they can’t get what they want for the one they currently own. I say, “How much would you have paid for that bigger home 4 years ago?” If we have to sell our 270K home for 250K, that is OK. It is OK because that 350K home would have cost us 400K 4 years ago. If you truly step back and look at the big picture; I believe right now is one of the best times to buy that we have ever seen!!
Sr. Mortgage Advisor