With interest rates likely to go up real soon, what advice are you offering buyers that are

financing purchases?
  • July 28 2011 - Naples
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Answers (18)

Profile picture for Blue Nile
"Lock your rate :)" -

At 4.5%?  When the median 30 year fixed quoted rate is now at 4.0%?

The advice would have clearly been "wrong"... and the "sales" license of a real estate agent doesn't qualify them to give such advice in the first place.
  • August 05 2011
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Profile picture for Blue Nile
"with interest rates likely to go up real soon"...

And interest rates have dropped another 1/8% since I last posted on this thread, with median 30 year fixed quote on ZMM now at 4.0%.

My advice for "buyers" is to ignore all Realtor propaganda as their motivation is to get close the sales as quickly as possible and a commission.  No matter how much they say the represent the client, when it comes down to it, they represent themselves, not any clients.

And when you call them on their false statements and exaggerated claims?  They simply state they never had a crystal ball, especially if the client looses substantial equity and more than 3 times their entire down-payment.  And their Errors and Omissions insurance will never cover such foolishness.  And you can't take them to court because of the mandatory arbitration clause.  And the NAR code of Ethics is completely useless in such cases as NAR promotes this kind of unethical behavior as "excellent marketing techniques", claiming that unethical things are ethical and ethical things are not.

So, how soon is soon, and how much are you expecting rates to rise?
  • August 05 2011
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Profile picture for SteadyState
Robin DiBuono, "Robin DiBuono" proudly states:
 
"Just remember that if the rate increases by one percent, for example 4% to 5%, you will lose 10 % in buying power. You will be able to purchase a home for $300,000 at 4% and only $270,000 at 5% for the same payment. If you can afford to buy, now is a great time."

Let's make some minor edits to express reality:

Just remember that if the rate increases by one percent, for example 4% to 5%, everyone (i.e., the market) will lose 10 % of buying power. Buyers who could purchase a home for $300,000 at 4% can only afford a home for $270,000 at 5% with the same monthly payment.
  • August 04 2011
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Profile picture for Blue Nile
The median quote on Zillow this week for 30 year fixed has been 4-1/8%...

Sure, it is likely to go "up" if it gets below 4%, since it can't go much lower.. but for those that thought it was going up to see it continue to go down, must make them wonder about their ability to read the signs of the times?

My estimate several months ago for August 2011 when QE2 ends was 4.75%; and here we are down to almost 4%, and still falling rates, almost as low as the low of November 2010.  And the chicken-little NAR agents keep stating the sky is falling the sky is falling, rates will be over 12% in less than 6 months... buy now buy now buy now.

Frankly, we don't believe them and they sound like the little boy that keeps shouting woof in order to put bread on the table.
  • August 04 2011
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Profile picture for Mark LeMenager
The fact the rates are going up or down does not impact the advice I give my buyers.
  • August 04 2011
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Interest rates are a critical part of the affordability of a home purchace, which goes hand in hand with the price of the home, your tax bracket, and how long you plan to live in the home.

So if interest rates are going up and prices are going down, the net effect can be a wash... so it is important to analyze the market that you are in, how long you plan to live in the home,  and also your tax consequences.

For example, if you are in a 25% tax bracket, and your interest is totally deductible, the net effect of an interest rate changing from 4% to 5% would be
an equivalent of 3% to 3.75%  or  3/4 % .
The effect of 3/4% is negligible if you plan to move in 3-5 years , especially if home prices are plummeting, but more significant if you plan to live there 'forever'. ie: 10-30 years.

I do not try to influence my customers into buying a property now, out of fear that interest rates might rise. It must be analyzed in the context of their entire situation.

I hope this helps..


  • July 30 2011
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Profile picture for Blue Nile
We all know what happened to the people that took the advice of professional sales agents who cross their arms in their promotional photos between 2003 to 2006.  Nothing has changed; they are still spreading the same suggestions.
  • July 29 2011
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Just remember that if the rate increases by one percent, for example 4% to 5%, you will lose 10 % in buying power. You will be able to purchase a home for $300,000 at 4% and only $270,000 at 5% for the same payment. If you can afford to buy, now is a great time. Don't wait for the bottom to hit because the rate may go up and you only know that you have hit the bottom when the prices start to climb. 
  • July 29 2011
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Profile picture for Blue Nile
Did you see the sudden drop in interest rate quotes on ZMM today?  It is back down to 4¼%.

The markets always factor in expected changes before the decisions are actually finalized, thus this drop right before the Congress Debt ceiling deadline is interesting and provides evidence that NAR is again wrong.
  • July 29 2011
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Profile picture for Michael Helton
Melvin, that is only true is house prices remain the same.
  • July 29 2011
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Profile picture for Mevin Barnes
I'm reaching out to buyers that are sitting the fence and letting them know that once interest rate rise, the amount of home (size) they can get will diminish.  
  • July 29 2011
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Profile picture for the_country_hick
As incomes will not rise purchase prices will be forced lower. After all, a $1,000 a month payment possibility does not magically increase just because interest rates fall.

Wait to buy. Lower prices will result. It is a good reason to wait to buy.
  • July 29 2011
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Profile picture for Sharon Lewis
I am suggesting that my clients stay away from 5 year ARMS ,and if they do insist on going that route, I suggest they keep an eye on them.
  • July 29 2011
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The Wall Street Journal op-ed seemed to think interest rates will rise
dramatically if Washington doesn't get something done. 
  • July 28 2011
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If you remember when interest rates were 16-18% and then inched down to 7-10%, you will realize that even if rates go up, they are still superb rates. Buyers should find a house they like and make it their home, and not worry about slightly increasing rates. The rates are not going to skyrocket, they may move up a little. These are stellar rate days we are in and if someone can afford to buy now, they should do so with confidence.
  • July 28 2011
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Profile picture for Blue Nile
30 year fixed interest rates are still likely to remain below 5% through the remainder of the year.

Sure, congress is playing with fire trying to get the credit rating of the U.S. government downgraded to AA instead of AAA, which will have some impact on U.S. treasury bond yields, which will have impact on MBS return rates as they have to remain competitive, which will impact rates offered; but the Federal Reserve has indicated they will step in to manipulate the market again if rates rise, so they aren't rising.  The government will continue to run off of borrowed Chinese money that we have no intention to ever pay back regardless.

Instead, the value of the dollar will just decline.

But if rates rise, asking prices will fall substantially, thus anyone that buys now because of propaganda from sales agents is a fool.
  • July 28 2011
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Profile picture for Ofe Polack
Sergio and Jan, if low interest rates were the only variable related to  purchasing a home, buyers would have been rushing to buy before the rates go up.  Unfortunately, the present real estate scenario is a lot more complicated than taking advante of low interest rates.  The economic uncertainies that prevail at the moment, need to be addressed.  More jobs need to be created before buyers feel comfortable about purchasing homes.  Low interest rates is no longer a strong motivator for buyer.
  • July 28 2011
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Lock your rate :)
  • July 28 2011
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