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November 23rd, 2009 by Ed Ross
On November 19, 2009 Freddie Mac recorded an average 30 year mortgage rate at 4.83%, down from 4.91% the previous week. Just over one year ago, the 30 year mortgage rate averaged 6.04%. So long as you have solid credit and a 20% down payment, whether real estate investor or homeowner, this time in history is certain to mark historic lows for home buying. In addition, those who still have equity in their property can take advantage of an incredible refinance opportunity.
Mortgage companies have seen steady rises in applications for refinance, but certainly not at the volumes seen just two years ago. Why isn’t everyone flocking to refinance? The answer is quite simple, homeowner appraisals are often below the requirements needed to refinance and many homeowners are dealing with loss of income due to unemployment or wage cutbacks. The only solution is for the economy to pick up and create more jobs along with more competition for increased wages. Unfortunately such a task, although eventually likely, is not in the near future. Economists across the nation are predicting additional declines in jobs during the first quarter of 2010. Job creation is likely to remain slow during most of 2010.
Yet there is still a silver lining to the doom and gloom. It is likely that the federal government will do all they can to keep interest rates low up until actual job creation becomes more robust. Interest rate hikes over the next 6 to 9 months will only occur if outside-international influences force the hand of our financial markets to increase rates. Although a remote chance of this exists, I for one believe we have another year of healthy-low interest rates within the real estate market. Once rates do inch up it is likely to be welcome, so long as inflation remains tame and not hyper.
The economists that work with edsforecast.com predict some interest rate increase over the next 24 months, but nothing that would be higher than the past 7 years. Therefore each of you who still have variable rate loans can be assured that you have a few years to refinance. Those who are capable of refinancing or buying income property should know that these historical lows will not last and the time to secure financing is now and not later.
Those of you who listen to news broadcast are likely feeling very emotional over what they say. One day they tell you the real estate market is having a vast improvement and the next day they talk about failures in the real estate sector.
Predicting markets from newscasters is next to impossible. The news follows the most sensational story they can find. This past week it was all about housing starts crumbling in October. Housing starts consist of permits that builders take out to build new homes. Such an indicator is wonderful to follow during a stable market, but certainly not the best indicator in a market that has been struggling for the past 3 years. We first have to see inventory levels of “for sale” property decrease and job creation to take a positive turn before we can predict happy days again. That being said real estate investors should not be discouraged by negative reports.
The U.S. real estate market is showing as much positive as negative these days. That means we are at this bottom "L" shaped recovery that is going to linger for a while. Our group of economists, along with most in the nation, do not predict a nationwide home value decline over the next 12 months. In fact, we’ve previously predicted a turnaround this past quarter, of which would be sluggish. In fact our prediction was very accurate. Home prices, on average, have slightly risen over the past 3 months. Certainly not enough to brag about and in some regions it went down while others went up, but still overall a modest increase occurred. This lingering home value will remain for some time to come.
All recoveries move slowly in real estate. Over the past 80 years real estate recessions have always been "L" shaped type recoveries. This is likely due to the fact that homeowners become pessimistic and need time to rebuild equity before speculative-investor buying occurs. Needless to say, true real estate investors love this market and do all they can to increase portfolio holdings. Remember, real estate should be considered a long term asset and not a short term flip. This means at least 5 years of ownership and more likely 7 to 10 year spans of holding property.
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