MoneyRates Blog
Low Mortgage Rates Spark Uptick in Mortgage Applications
By Richard Barrington | Money-Rates Columnist
Mortgage applications surged last week, as mortgage rates fell to their lowest levels since early July. This is good news for the housing market, but it raises a couple of questions:
- With mortgage rates generally low, are people really holding out for week-to-week dips in the mortgage rate?
- What will happen when measures to stimulate the housing market expire?
Regarding the first question, here’s hoping that the surge in application volume was just a coincidence, rather than reflecting people being hyper-sensitive to short-term fluctuations in rates. Bigger picture, rates generally have been lower this year than ever before. It would be extremely unfortunate if someone missed out on this opportunity because they were waiting for one last tick down in rates. Buying a house should be based on need and affordability, not on trying to time the market.
As for the second question, any optimisim about the housing market has to come with the caveat that there are some unusually favorable conditions at work — conditions which are not going to be permanent. Those low interest rates are not a coincidence — the Federal Reserve has made extraordinary efforts to keep mortgage rates down. On top of that, there is the $8,000 tax credit for first-time homebuyers. That’s enough to give many people the means and motivation to pull the trigger on buying a house.
When these artificial stimulants are taken away, housing prices may again sag. Ironically though, with higher interest rates and no tax credit, buying a house may actually be more expensive once that happens. So, regardless of what may happen next, this is still a good time to buy a house — providing you are buying to get an affordable place to live, and not to speculate on being able to flip the house at a profit.
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2 Comments »
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August 20, 2009
jmoney says:
“Buying a house should be based on need and affordability, not on trying to time the market.”
By definition, affordability = timing the market (or a specific market). Therefore, your statement should be revised to, “Buying a house should be based on need and timing the market to get the best deal that one can.”
My family got their start speculating in the housing market - Finding someone who desperately wanted to sell (usually during a recession) and improving the property (while living there) and finally selling (or flipping) it when the recession ended. With the leverage created by a home loan (even @ 20% down) profits were well over 100%.
To your point though, my family knew what they were buying, knew what their exit point was, and knew that they were financially and emotionally prepared to wait it out if the market didn’t turn when they expected it to.
Jim Money, CFA
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August 20, 2009
Richard Barrington says:
Jim:
Absolutely, it sounds as if you and your family have done well by knowing the housing market better than most. However, I think you’ll agree that not everyone can count on making out so well — after all, there were other people on the other end of the transactions your family benefited from.
In any event, the market I was really referring to was the interest rate market. I’d hate to see someone who is in a position to buy a house miss out because they were waiting to see if mortgage rates would go down again next week! As I’m sure you know, predicting short-term fluctuations in interest rates has confounded some of the best minds in the investment business.
In any event, I appreciate your comment. It’s always good to hear from people about their specific marketplace experiences. Among other things, I guess your family has been blessed with an appropriate surname!
