I have to admit that I really did not see this coming. What am I referring to? Well, mortgage interest rates that is and their recent and dramatic slide. First, a little background on the basics; The Fed has kept the Federal Funds Target Rate at a historically low .25% since the beginning of 2009. That is compared to 6.5% in June of 2000 at the height of the Dot Com market which went down to a then historically low 1% by January of 2004 as we were digging ourselves out of the first recession of the decade. It was that condition, of course, coupled with relaxed regulatory constraints that set us up for the next and bigger Great Recession in late 2007 when the Fed rate topped out at only 5.25%.
Rates Falling Faster Than Gravity
I think it was fair to say that the overall consensus was that as we entered the spring of this year that the country was on a slow but predictable growth curve that would strengthen as we got into the second half of the year. In fact the market saw it that way as well. Below is a chart that shows the 2010 trend for the 30 year fixed interest mortgage interest rate for conforming loans. The valuation of the interest rate started out at just over 5.00% in January and increased as the spring selling season hit its cyclical stride in April when it topped out at 5.10%. But then something happened. Was it the expiration of the first time home buyers credit on April 30th? Perhaps, but that was not a likely big influencer. No, it was unemployment and fears of a double dip recession. Remember the notion that the second half of the year would bring accelerated economic growth? Well, it didn’t happen and the market predicted a much slower demand for loans…which were already tough to qualify for. Hence the rates slid off a cliff and by August were down to its lowest recorded rate ever: 4.43%!! (Source: Freddie Mac Monthly Average Commitment Rate On 30-Year Fixed-Rate Mortgages).
And What Happened to Marin Home Sales?
So what happened locally in the post-April time frame? Before we get into that, it is important to acknowledge that the average Marin buyer qualifies for loans more frequently than the rest of the market. That means that more buyers can actually take advantage of these low rates and get a loan to purchase a house. This is not the case in the broader regional and national market as a whole. The net result is that, despite the expiration of the first time buyer credit and news of impending economic doom in the form of a double dip recession, buyers continued to buy. Before the market headed into its predictable summer slump sales continued to accelerate through May and June as we see in the chart below.
In the chart below we see the above trend mapped against the interest rates trend. Are rates headed down some more? That is something no one can predict but certainly rates are very attractive these days.
So What Will Happen This Fall?
As most of you may know the largest volume of home sales in a year occurs from mid-march to the end of June. That is followed up by a smaller, yet not insignificant, “fall selling season” which typically runs from mid Sept and up to early November. In terms of rates, they very well could continue to be soft through the fall. I also am seeing properties, especially at the higher end of the market, moving as well. If you are looking to upgrade into a new home and you can qualify for a loan, then I think it is safe to say that this is a rare opportunity to secure a loan at a historically low rate. That said, do not be surprised that when you find that ‘must have’ move-in quality home with a view and high end finsished that competition is there to bid up your offer. For those of you who are thinking of selling, the premium is on “done” properties so make the investment to fix things up, stage and put your best foot forward into this unique market.
Sharon Kramlich
Top Producer
Pacific Union Real Estate Estates Division
415-609-4473
skramlich@pacunion.com
www.sharonkramlich.com
