Is This A False Real Estate Bottom?

by Peter G. Miller
January 23rd, 2008

Amid all the hubbub on Wall Street, home mortgage interest rates are falling through the floor. Freddie Mac says that rates for 30-year fixed rate loans reached 5.69 percent with .5 points.

With FHA mortgages, your cost basis will be the interest rate plus that pesky .5 percent monthly insurance premium. Even so, rates are falling at such a pace that it may well be possible to get an FHA loan with an effective cost at or about 6 percent. If you look at interest rates during the past five decades, today’s rates are remarkably low.

We now have the most pro-borrower real estate environment in years, but is it enough to cause rising home sales and more marketplace demand?

Or, do buyers generally think we have reached a false bottom, a point where prices and rates are lower than a year ago but not as low as we will see in the coming 12 months? If that’s the case, then don’t expect purchasers to flood the market anytime soon.

Below is the Freddie Mac release from January 17th:

30-Year AND 15-Year FRM At Lowest Level Since July 2005

McLean, VA – Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 5.69 percent with an average 0.5 point for the week ending January 17, 2008, down from last week when it averaged 5.87 percent as well. Last year at this time, the 30-year FRM averaged 6.23 percent.

The 15-year FRM this week averaged 5.21 percent with an average 0.4 point, down from last week when it averaged 5.43 percent. A year ago at this time, the 15-year FRM averaged 5.98 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.40 percent this week, with an average 0.6 point, down from last week when it averaged 5.63 percent. A year ago, the 5-year ARM averaged 6.04 percent.

One-year Treasury-indexed ARMs averaged 5.26 percent this week with an average 0.6 point, down from last week when it was 5.37 percent. At this time last year, the 1-year ARM averaged 5.51 percent.

(Average commitment rates should be reported along with average fees and points to reflect the total cost of obtaining the mortgage.)

“The latest retail sales report indicated that shoppers scaled back spending in December, as retail sales declined by 0.4 percent from November’s level,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Particularly weak were sales of building materials, garden equipment and supply stores, which fell by 2.9 percent from the previous month. The declines aggravated concerns about the well being of the economy and exerted downward pressure on mortgage rates.

“Mortgage rates moved down across loan products for the third consecutive week. Average rates on 30-year fixed-rate mortgages (FRMs) and 15-year FRMs are at their lowest since July 2005. The results from this week’s survey mark the first time in seven years that the average rate on the 15-year FRM is lower than the average rate on 1-year adjustable-rate mortgages (ARMs).”

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This entry was posted on Wednesday, January 23rd, 2008 at 3:25 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “Is This A False Real Estate Bottom?”

  1. walidm Says:

    With so much press fixated on the shortcomings of the subprime market and the loans which were spun off in that market, I suspect the more stable FHA backed loans will once again move to the forefront as a viable alternative, even with the cost of mortgage insurance. Buyers will like the stability of an FHA backed product and it may be just what the market needs.


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