Mortgage Interest Rates Hit Another All Time Low; however Few will Capitalize

Mortgage rates continue to conquer new territory with a new all time low for a 30 year fixed mortgage!  What an amazing time to purchase or refinance.  I know there are many people who would love to take advantage of these rates, but they are not in the position to make any moves.  What good is the lowest interest rates on record when the financing rules are too tight?  Rates could bottom out at 1%, but if people can’t qualify, then it is all in vain.

Fortunately FHA buyers are able to take advantage of these historically low rates.  However, in our Salem Oregon market, those buyers only make up 20% of the purchasing power.  It is the more qualified purchaser that is having difficulty with financing and therefore is less of a driving force in getting us out of the housing crash.  FHA buyers have helped stabilize the market below $150,000 in our Salem Oregon area.  Homes priced above that price point continue to see values erode away quickly.  Unfortunately there is too much inventory in the higher price point.

It is so overwhelming to think about how our economic system is all tied together with different facets of the economy.  What is going to break it open?  Housing has historically lead the road to recovery in the past recessions, but how is housing going to recover when jobs are not created?  How is housing going to recover when we have so many homeowners underwater on their mortgages and banks are not modifying?  How is housing going to recover when we have such a mess with MERS and the overwhelming presence of Shadow Inventory?

There is no one answer to get us out of this mess.  Declining mortgage rates are not going to make a bit of difference at the moment.  We need solid fiscally conservative leadership on a wide and consistent basis to have a chance.  The question is, have we dug our hole way too deep to recover well in the next decade?  Judging by the way things are going, the answer seems grim, however; if you can take advantage of the all time low mortgage rates, then by all means; CAPITALIZE!

Is this the Bottom?

We have always said that no one will know when the bottom is until it is at least 3 to 6 months after the fact.  With the amount of dips and rises that we have seen lately, it can only leave you feeling like you just got off of the worlds best roller coaster.  The only thing the average person can do is just hang on and try not to puke.  Because just like on a roller coaster, most of the time that puke is going to hit you right in the face. 

This week Congress is fighting over extending the tax cuts.  Most people agree that a compromise will be reached here very soon.  Republicans feel they have the upper hand and Democrats understand that if they don’t reach a deal, then they will be wearing the blame for a long time.  This kind of situation forces the elected to get down to business and get the job done for the American people.  This is what we need even though any compromise won’t be perfect and it won’t appease everyone.  Its just too bad that things have to get so bad before they put their own ambitions aside and remember who they are working for.

Well, this week could be the turning point for our economy.  It is understood that adding almost $900 Billion more to the deficit is continuing to dig the grave, but the confidence that this should bring to the American people should be priceless.  I personally feel that the two year extension is only adding another bandage without addressing the real problem, but it will help.  If Congress really wanted to make a difference, then they would attach strings to the tax breaks.  For example, giving tax breaks to higher income business who create jobs would be an incentive’ instead of breaking taxes for everyone without any performance.  The problem with the TARP program back in 2008 was that they just bailed the banks out without any strings.  They did not keep them accountable.  And they continue to make the same mistakes.

I do see this tax compromise a very possible turning point to our economy.  Businesses have done well the last year.  There is an estimated $2 Trillion ready to be invested in jobs, company growth, etc.  The item that we need to bring it all together is going to be CONFIDENCE.  Once that is established, then look to see our economy recover in a stable way.  It will be slow to begin with, but it will start recovering.  The only problem is that people need to plan for the future of higher taxes in every category.  The rich are not the only ones that are going to bail us out.  Everyone will be effected.  The damage has already been done.

The housing market will recover slowly after the economy recovers.  Job growth is still our largest adversary to the housing market.  The estimated amount of foreclosures in the next two years, as we have pointed out numerous times, needs to be hedged by job growth.  People need to make enough money to keep their homes as well as their spending habits.  This era of confidence just may be the start of this recovery.

Real Estate Outlook

It is March 30th and the Federal Government has committed to purchasing Mortgage Backed Securities until the end of this month.  This ends, or at least appears to end at the moment, a $1.2 Trillion program to keep Mortgage interest rates in check.  Of course, we’ve been spoiled with interest rates as low as the high 4’s over the last few years; however expect things to change if the Fed really does stop purchasing these bad packaged loans.  We very well could see them stop buying them for a little while, but if interest rates increase very much, then expect them to continue throwing more money at the program.  If the market suffers even more because of the lack of a purchaser for these loans, then the money spent for the program in the amount of over $1.2 Trillion could be considered another wasteful attempt to pump life into the market.  Sooner or later, though, this liberal government will need to realize that we can not sustain to continue spending money that we don’t have in order to carry the burdens.  They need to understand that unemployment is the driving force to getting us out of this funk that we are in, and we are in one of the largest funks in recent history.  This could turn out to be worse than the 80’s if they don’t get things figured out very quickly.  It doesn’t take a rocket scientist to understand that spending more money than one is making is a recipe for disaster, and raising taxes in a recession is another recipe for disaster.  People who have gotten themselves into too much debt and weren’t able to make their payments is one reason why this country is in the financial mess that we are in now; and you tell me that the governments solution is go to deeper into debt with China?!  How ridiculously ignorant do you have to be?