Mortgage Rate Watch 2012

Anyone who deals with statistics knows that there has to be sufficient data in order to make predictions.  Thanks to Freddie Mac, we have access to 40 years of interest rate data.  Starting in 1972, the Rate for the Annual Average 30 year Fixed Rate Loan was charted for each year and the information is very “telling”.

As we sit here today, we are at or near the lowest fixed interest rates in modern history.  Hey, the averaged fixed rate mortgage in 1972 was 7.38%.  What year was the worst?  1981.  It holds the record at a backbreaking average rate of 16.63%!   16.63%?!?   It was like buying a home on a high interest credit card!

So, what are we able to extract from the historic rate information?  A 40 year sampling is sufficient to predict what a “normal” market is.  With multiple economic booms and busts during this period, we know that the 40 Year AVERAGE for a 30 Year Fixed Rate Mortgage is 8.81%.  Remember that rate because that’s what a “normal market” is.  What’s that mean to you?  It means that our current low rates are likely to climb back to that level as the economy continues to improve.

So if you want to borrow money for the purchase of a home, here’s what it really means.  Suppose you are going to purchase a home and borrow $300,000.  Look at the rate vs. payment comparison for various sample years.

In the sample above, the loan amount is the same.  Only the timing, and thus the rate, was changed.

So today, as this is written, the rate is less than half of what I consider to be a normal market!  So, if you’re going to buy a new home which monthly payment would you prefer?  $4,187 per month?   Or $2,373 per month?  Or $1,424 per month?   FOR THE SAME AMOUNT OF MONEY!!!

But there are those who will try to rationalize waiting.  “Ah, if the rate goes back up, it’ll come back down.”  Or, “Ah, if the rate goes up and stays, we’ll just adjust our options and square footage.”  Let me translate that last statement.  It means that if the rate goes up and doesn’t come back down, they’ll get a smaller house with fewer options.

Bottom line, right now you can have the lowest rate, lowest price and the maximum amount of home and options.  This truly is a once in a career opportunity for us in the new home business and it’s a once in a lifetime opportunity for you, the consumer.

We believe that there has never been a better time for a new home and that that opportunity is starting to erode because prices have just started to climb.  Call us if you wish to discuss all the dynamics.  You’ll find knowledgeable professionals who are capable of help.