And why you should rush to buy
Low mortgage rates are Going..Going…Gone for Bay Area!! FNMA-30 4.5% coupon went down again today – by a whopping 100 bips. Over last couple of weeks mortgage backed securities have been in a free fall, pushing the mortgage rates up – substantially. According to Freddie Mac 30-year fixed-rate mortgage (FRM) averaged 5.29 percent with an average 0.7 point for the week ending June 4, 2009, up from last week when it averaged 4.91 percent. 15 year fixed rate mortgages and 5 year adjustable rate mortgages moved up too. Note that these averages are for conforming loans under $417,000. The rates for conforming jumbos (loan amounts upto $729,750) and jumbos are higher than these averages.
Yields on long-term Treasury bonds have been rising despite the Fed’s efforts to push them down by purchasing Treasury securities. The Fed wants Treasury yields lower because they are a benchmark for many other private-sector interest rates — including rates on mortgages. Concerns about large federal deficits, are one cause of the unwanted rise in yields. The wider the deficits, the more the Treasury borrows and the higher rates go. Wider deficits also stir inflation fears, which also push Treasury yields up.
So what does this mean for you if you are a potential buyer? With the San Jose/bay area real estate market picking up and the dream of 4.5% rate all but vanished, procrastinating your decision to buy could prove costly. Check this – If you are waiting for prices to drop even more, a 1.00% increase in interest rate would bring a higher monthly principal and interest payment on a home, even if the price of that same home had fallen an additional 10% in value.
So, if you are waiting for prices to fall even lower, be aware that while holding out for a lower price may help you win the battle, you could lose the war in terms of monthly payments and overall affordability. With the Federal Reserve scheduled to end its buying of mortgage-backed securities this year, rates only stand to go higher for those that wait.
Now you know – why you should rush to buy….NOW!