Lower Mortgage Rates May Help Real Estate Market to Rebound
Despite the fact that home prices have been falling for some time, many
buyers have remained reluctant to seize the home buying opportunities
that abound. As current mortgage rates fall to even lower rates, it is
anticipated that this could be just the stimulus that is needed to
encourage more home buyers to purchase home and existing homeowners to
refinance that current mortgages.
The national average of fixed rate 30 year loans has fallen below the 5%
mark for the first time in more than 30 years. It is widely anticipated
that this will be a pick-up that the market desperately needs.
For awhile now there has been rampant speculation regarding when exactly
the real estate market would hit bottom. The fact that it has been in
what seems to be free fall led many to speculate that the end might not
have been yet reached. Consequently, a large percentage of home buyers have
been sitting back and waiting. The proverbial fence has become quite
crowded. Others believe that 2008 was the much awaited bottom and that
the coming year could mark the rise many have been waiting for.
Certainly, there have been signs which would indicate this could be the
case. In November of 2008, real estate sales dropped nearly 30% from the
previous year. The following month, sales experienced a slightly rebound
and even found a nominal year over year gain.
In addition, the values for homes remained fairly stable over the course
of the last near. The median home price was just under $120,000 across
the country. The fact that prices seem to be stabilizing combined with
lower interest rates may be enough to spur many home buyers to snatch up
deals before the housing market begins to experience a true rebound.
There are even some experts who are predicting that lower mortgage interest rates
could actually cause an upswing in prices. A number of lenders are
reporting a spike in the number of people who are calling to become
pre-qualified for mortgage loans. Traditionally, when mortgage rates
begin to fall, home buyers have been able to purchase more home without
spending any more money. While a 1% drop might not sound like much, it
can make a tremendous difference in terms of monthly mortgage payments.
At 6% a home buyer would be able to afford a $100,000 home and keep the
mortgage payments at around $600. If mortgage rates drop by a percentage point,
that same home buyer would be able to purchase a home in the $115,000
category without spending hardly any more money per month on their
mortgage payment. 15K might not sound like much to some, but in some
markets it could be the difference between another bedroom or some other
amenity that a buyer wants in a home.
The lower mortgage rates are not only attracting home buyers but
homeowners who are looking to refinance as well. There are certainly numerous
advantages to refinancing a home loan. Homeowners who once
thought they had a great deal with a 6% mortgage rate are now seeing that
they might be able to drop their mortgage rate to below 5% and save money on
their monthly payment or pay off their home sooner. There are also those
homeowners who are looking at refinancing their homes at a lower rate in
order to pay for remodeling or to consolidate debts using the lower
Both homeowners as well as buyers need to keep in mind; however, that
although mortgage rates have dropped, lending restrictions have tightened. There
are simply too many lending companies who got burned with subprime loans
and who are being far more cautious regarding loan approvals.
This does not mean that mortgage loans cannot be found, but for the most part,
applicants will need to go through more hoops and provide more
documentation in order to be approved than would have been necessary in
the past (Tips:
Home mortgage loans - They're increasingly difficult to obtain). Banks are still interested in doing business with applicants
who qualify but they are also anxious to make sure that the people they
do approve for loans will be able to repay them. As a result, consumers
who are anticipating making a mortgage loan application in the near future would
do well do make sure they have all of their documentation in order
before submitting an application. This can greatly help to reduce the
amount of time that it takes to review an application for approval as
well as possibly assist in the entire approval process.
Ultimately, it will be some time before we know whether the drop in
mortgage interest rates will really fuel the upturn the real estate market needs,
but it certainly looks like there has never been a better time to buy.