Drop in Interest Rates

Drop in Interest Rates
a Welcome Surprise

Just about everyone (myself included) expected mortgage interest rates to rise when the Treasury Department ended its $1.25 trillion purchase of mortgage-backed securities in March. But Europe's ongoing debt crisis has driven investors to the safety of Treasury notes, a benchmark for mortgage interest rates. And as the yield on Treasuries has come down so too have mortgages. Bankrate.com, a website that tracks interest rates, said it was hard to identify the last time mortgage rates were this low, but estimates put the timeline in the fall of 1956. Sock hop, anyone?

This latest development should come as welcome news to both home buyers and sellers. For buyers, today's interest rates could be even more valuable than the recently expired Federal Housing Tax Credit. The chart below compares today's interest rates with those from a year ago to illustrate the monthly, annual, 5-year and 10-year savings for a range of conforming and jumbo loan amounts. On loans upwards of $300,000, the 5-year savings exceed the maximum $8,000 tax credit. On jumbo loans, the savings are far more substantial.

Sellers also have reason to cheer the recent drop in rates. Bearish housing analysts predicted that the absence of the tax credit and an anticipated spike in interest rates would put new downward pressure on prices, which have begun to tick up in many markets and submarkets. With rates moving in the other direction, cheap money should help buoy prices - hopefully until the Europe situation and U.S. employment picture begin to brighten. Lower rates also create a wider pool of home buyers and should provide a sense of urgency to house hunters who are in the market this summer.

Source: Bankrate.com 30-year fixed-rate mortgage index, 6/23/10

For more information on how today's historically low interest rates affect your buying power or selling strategy, feel free to contact me. And remember, I always appreciate your referrals.

Dave Straub
Realtor,@properties
Illinois Licensed Real Estate Salesperson
Member, NAR, IAR, CAR, MLS
773.255.3180