Are low interest rates helping?
Mortgage interest rates are down, prices are down, savings are up, but in spite of all of these positive markers, the housing crisis doesn't seem to be getting appreciably better. What's it all mean and when does it end?
If I knew the answer to either one of those questions I would have my own cable TV show or at least be writing a book. Unfortunately, the truth is that no one seems to know any more about getting us out of the malaise of our housing market than I do – a pretty sad state of affairs.
At the end of September, the 30-year, fixed-rate mortgages hit another all time low of 3.875 percent with a 1 percent fee. Unless you were in the market for a home in the late 1940s, you have never seen rates this low and even then they were 4 percent to returning World War II veterans. As of this writing, the rates have inched up again settling around 4.125 percent with 1 percent in fees for a 30-year fixed loan, according to Wells Fargo's Home Mortgage website.
However, even these unprecedented rates don't seem to be enough to get buyers off and running. Part of the problem is the perception that home prices have not completely hit bottom, and part is the inability of some buyers to obtain financing under loan standards that are much tighter than before the financial crisis.
The irony of this is that lower rates provide the ability for buyers to qualify for higher priced homes, which would have invigorated the housing market in a more normal era. For example; a 30-year, fixed-rate $400,000 mortgage at 5 percent would cost the homeowner $2,147 monthly compared to a monthly payment of $1,796 for the same loan at a 3.5 percent rate, a difference of $351 a month. The difference between a 5 percent mortgage and a 3.5 percent mortgage translates into approximately $75,000 more in buying power.
Never-the-less, according to local real estate brokers, sales on Anna Maria Island have substantially improved during the last several months, and they are hopeful for a busy winter season. However, the majority of these sales are cash transactions.
In addition, although refinancing existing mortgages has somewhat increased, the homeowners who really need the benefits of a lower rate mortgage aren't the ones getting approved. Borrowers are now waiting to refinance until rates are on average 1.5 percent points below their current rate, rather than in previous years where just half a percent point would motivate homeowners to refinance. Generally, this is because the loan process is more difficult, takes longer to accomplish and requires a much higher level of qualification than previously.
The federal government, after having failed to produce the four to five million restructured mortgages its programs had hoped to produce, is again looking into ways to revamp the existing initiative designed to help borrowers with little or no equity. Because of the bureaucracy and technical problems with the program, the restructuring of these Fannie Mae and Freddie Mac backed home mortgages never happened in the numbers hoped for by the White House.
If it's true that the rich get rich and the poor get poorer, then it may also be true that the low mortgage interest rates are mostly helping those who need it the least. Life isn't fair, but we all know that already.