While some real estate prognosticators are giving you their best Grinch impression on this Christmas Day, I am going to provide you with a gift.
First, some perspective. In 1987, my wife and I bought our first property together, a two-bedroom starter condo in Costa Mesa, for which we paid $123,900. That was about $10,000 more than we had budgeted, but it proved to be worth every cent.
We had been shopping for a home for a couple of months and were prompted to make an offer on that condo on that day, not only because we liked the property and the location, but because we were concerned that interest rates would be climbing again soon.
Our mortgage broker had secured for us what we thought was a good rate, and so we leaped into the bottomless pit that is home buying paperwork. When it came time to sign all of the sales documents, the escrow agent looked at me and said, “How did you get such a good rate?” Our mortgage was a 30-year adjustable based on the 11th District benchmark, and that day we locked it in at a low 10.15%.
Today, there is hand-wringing over what the Los Angeles Times referred to a few days ago as a “spurt” in mortgage rates.
This determination was based on a Freddie Mac survey showing that mortgage interest rates have risen for the past five weeks and stand now at 4.38% for a 30-year-fixed loan.
Another survey quoted in a Times story reported that interest rates are now averaging over 5%. Then there is the projection by the Mortgage Bankers Assn. that rates will hit 5.1% by the end of 2011 and 5.7% by the end of 2012.
In 1987, I would have sold my soul for a 5.7% interest rate.
So, there is your perspective.
Keep it in mind as you read the comments by pundits who say that these mortgage rate increases are devastating. In fact, the opposite is true. That belief is that gift I promised you.
Viewing rising mortgage rates as a market negative is short-sighted and self-centered. Rising rates are one of the best signs, along with increases in consumer confidence and spending, that the economy is returning to at least some of its former glory. Since mortgage rates follow the other key economic indicators, it is safe to say that the financial powers have enough confidence in the economic rebound to try to cash in on it by raising the loan rates for their money.
The other effect that rising rates have is more practical than emotional. The threat of mortgage rate increases is one of the best ways to get potential buyers off the fence and into the streets to look for a home. And while qualifying for a loan can be difficult, rising rates will increase the overall number of shoppers looking to lock in the lowest possible rate. That, in turn, will give sellers more opportunities to pitch their properties.
The tougher loan qualification standards are a good thing for the long-term health of the nation, for it acts as insurance against another housing meltdown. As with other goods or commodities, the housing market is in a constant supply-and-demand mode. Whether you are buying, selling or standing pat, don’t look for much of a rise in home prices next year. “Stable” is about the best you can expect. Stability is good, though, and that stability will signal an end to buying angst, an increase in confidence and an assault on excess inventory.
And who knows – if we’re really lucky, rates may even rise to a “whopping” 6%.
STEVE SMITH is a Costa Mesa resident and a freelance writer. Send story ideas to smi161@aol.com.
