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Friday, March 12, 2004

Long-Term Mortgage Rates Plunge, ARM Rates Continue To Set Record Low

McLEAN, VA -- In Freddie Mac's Primary Mortgage Market Survey, the 30-year fixed-rate mortgage (FRM) averaged 5.41 percent, with an average 0.6 point, for the week ending March 11, 2004, down sharply from last week when it averaged 5.59 percent. Last year at this time, the 30-year FRM averaged 5.61 percent.

The average for the 15-year FRM this week is 4.69 percent, with an average 0.7 point, down nearly 20 basis points from last week’s average of 4.88 percent. A year ago, the 15-year FRM averaged 4.93 percent

One-year Treasury-indexed adjustable-rate mortgages (ARMs) averaged 3.41 percent this week, with an average 0.6 point, down from 3.47 percent last week. At this time last year, the one-year ARM averaged 3.68 percent. This is the lowest the one-year ARM has been since Freddie Mac began tracking those figures in January 1984.

"As we had predicted earlier in the month, interest rates for 30-year fixed-rate mortgages edged closer to last year’s record low figures," said Frank Nothaft, Freddie Mac chief economist. "For the year as a whole, we expect long-term rates may be even lower annually than they were in 2003.

"Families looking to lower their monthly payments even further might consider adjustable-rate mortgages (ARMs). We predict ARMs will make up a much larger share of originations this year, perhaps the highest since about 1995."

Published: March 12, 2004

Copyright © 2004 Realty Times. All Rights Reserved.

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Should You Wait For The Market To Cool Before Buying?

By M. Anthony Carr

In a market where prices are continually rising, should a potential buyer or seller/buyer ever wait for home prices to drop before diving in?

I would first refer you to your local economic outlook. Home prices are driven by supply and demand -- straight and simple. One of the myths about real estate is that interest rates drive sales and prices. History shows us differently. During the 1990s, the average mortgage interest rate was at 8.11 percent. Only one year (1998) did the average interest rate for the year fall below seven percent. In the beginning of the aught decade (that's where we are now, the '00s), we have seen average rates linger in the five to seven percent range during this recessionary period with mortgages on fixed rates as low as five percent. During both of these markets it was the overall economic growth that drove sales. Once the economy heated up the interest rates edged up.

Waiting for prices to drop may not save you as much money as you think. In fact, a lower priced house could cost more than a higher priced home by virtue of the interest rate. Here's an example:

A $300,000 mortgage financed at 5.75 percent on a 30-year note would result in a monthly payment of about $1,751. Take a $275,000 mortgage with the same terms, but change the interest rate to 7.5 percent and your monthly payment jumps to $1,922.

So, do you really want to wait for the market to drop and possibly get a higher interest rate, too? When you are considering that move up, what you must look at is the monthly payment in today's home buying environment. Buyers really don't qualify for a home price these days, instead they are qualifying for the monthly payment.

If you must sell your house first before moving up, then you have to remember that the move up home you feel is inflated in price also pertains to your current house. If a homeowner waits until his targeted house price drops -- then he's also at a depressed state on his own house.

For instance, let's say you want to buy a larger home and currently it's priced at $350,000 -- too much, you fear. Meanwhile, your house is worth $275,000 and you have $125,000 equity in the house with a mortgage balance of $150,000.

If you wait, hoping the market will drop the house down 10 percent to $315,000 -- your current home has headed the same direction more than likely. Now, your $275,000 property is only worth $247,500. Your equity has deteriorated by $27,500. By waiting, you've lost the extra cash for a larger down payment, plus, now you're not in the driver's seat as the seller -- if home prices are dropping, it's a buyers market.

The numbers speak for themselves. (The assumptions here are the cost of sale equaling points, closing costs and selling commission. The payments are for principal and interest only using the above mentioned home prices of $350,000 and $315,000.)

Appreciated Market Samples:

Current Home Sales Price: $275,000
Cost of sale: $27,500 (10%)
Equity for down payment: $97,500
Mortgage on New Home: $252,500
Payment on 6%: $1,513
Payment on 7%: $1,679

Depreciated Market Samples:

Current Home Sales Price: $247,500
Cost of sale: $24,750 (10%)
Equity for down payment: $72,750
Mortgage on New Home: $242,250
Payment on 6%: $1,452

Payment on 7%: $1,611

As you can see -- waiting for the price to drop $35,000 is going to save you roughly $60 per month.

Now here's the final part of this scenario -- when the market turns -- which home do you want to be in when the annual appreciation of 5 percent kicks in again -- your $247,500 home or your new $315,000 home? Your current home's cash appreciation will now be $12,375 per year, while the more expensive home would increase at $15,750 per year.

If you're looking for the long-term investment -- meaning more than 10 or 15 years -- then don't wait. Throughout the years real estate has proven to be a safe investment.

Published: March 12, 2004

Related Articles:

The Chicken-and-Egg Question: Buy or Sell First?

How to Buy a Home in a Sellers' Market

10 Tips For First-Time Buyers

Tips for Selling in a Buyer's Market

The Art of House Hunting: 8 Tips to Help in Your Search

Mr. Carr has covered real estate for more than 15 years. He is authoring “Street Guide to Real Estate,” due out 2004 through www.AmacomBooks.org. He can be reached via email at manthonycarr@erols.com.

Copyright © 2004 Realty Times. All Rights Reserved.

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