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Would you Purchase a new house if rates dropped to 2%?

This is a very interesting question that I asked a customer that was thinking rates would drop lower than today's rates.  What's your thought?
  • February 07 2013 - Gilpin Township
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Answers (11)

Profile picture for Blue Nile
You can't sell 3.5% FNMA MBS for under 2% yield.  It is hard enough to sell 3.0% FNMA MBS for under 3% yield.

30 yr fixed Rates may be able to make it down to 3% under some unusual economic conditions, but unless you are talking about 10 yr loans, it won't happen without a new loan product becoming available.  The 15 yr and 30 yr fixed rates are already substantially subsidized by the Federal Reserve.  Do you really think anyone wants to subsidize down to a rate that much below the inflation rate?  Give away free money and houses to anyone that wants them?

Why "buy" at such subsidized rates that will cause prices to be substantially bubbled so that you can lose hundreds of thousands of dollars when the rates correct and prices go back to normal trends?  If the lenders would provide 2% interest rate loans, why not just refinance instead of giving over 6% of the loan amount to real estate agents and brokers for the "transition costs" and spending another 5 to 10% for additional transition costs?

If the interest rates were what was keeping people from buying, a 3% rate is more than sufficient.  Even 3.5% is sufficient.

Rates will be lower than today right before sequestration (at the end of the month), as well as right before the debt ceiling is raised again (at the end of April).  But it is highly unlikely that one could get a house in escrow and ready to close in such short a time frame, if interest rates were the major deciding factor.

And are you talking about "new construction", or "new to you"?  Everyone knows that older homes tend to be built better than present standards, and that if you buy "new", that things haven't had a chance to settle yet, and you will have issues to address that are often already resolved with older homes.
  • February 08 2013
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Profile picture for RandyBoaz
Seems like the obvious answer is "yes!".  Realistically, will we ever see rates drop that low?  I doubt it.  Rates are still in the 3's, and once they leave the 3's, no telling when they'll return.  Buy now if you can.  Increased regulations are approaching this year.  Title fees will be going up, for example. Buy now if you can.
  • February 07 2013
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Profile picture for hpvanc
Given that interest rates are a barometer of inflation, at 2% that means housing would have an expected annual depreciation rate of about 3% for the next 10 years.
  • February 07 2013
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Profile picture for user2595460
That would be nice.  However, as someone already said, there are more than just one factor (mortgage rate) to influence "purchasing a new home". Not surprisingly, people have different opinions depending on their unique circumstances.
  • February 07 2013
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Yes, 2% would be great!

In January 1996
the mortgage interest rate was apprx 7.25%
a $2500 monthly payment on a 30 year term = $366,000 mortgage

In January 2013
with a mortgage interest rate of 3.75%
a $2500 monthly payment on a 30 year term = $539,000 mortgage

Imagine what the buying power would be at 2% !!!!!
  • February 07 2013
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Yes!
  • February 07 2013
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Profile picture for wetdawgs
No.   Certainly not.
  • February 07 2013
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Profile picture for SoCal Engr
Not really that interesting a question. Sounds much more like a "closer" technique (i.e., find the obstacle and then work to remove it) than any realistic question.

Hopefully, the answer was "I will buy a house when I am ready and the opportunity is right". There are many things that go play into the equation of buying a house. Things like income, where one is in their career, where one is in their personal/financial life, whether one feels that the right opportunity is available, etc. And, that doesn't even take into account the possibility that one just doesn't want the responsibility of ownership.

To pull one element out of the air is not really very realistic.
  • February 07 2013
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If he is thinking about buying and the only thing holding him back is his opinion that rates may drop further he could be making a big mistake.  Tell him to look at any long term chart of interest rates and he will see on that scale just how low rates are right now, even if they have ticked up a little bit.  He could find himself missing the boat and then deciding whether he should pay 6% or not.  If it were me I would lock in a rate now and if rates really do go that low he can refinance down the road.  As the previous poster said, it is really all about value as well as any other reasons they have for owning vs. renting.  As an ex trader I can tell you that even for a professional trader, trying to guess where rates will be in 6 or 12 months is no better odds than flipping a coin.
  • February 07 2013
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I would think that if rates dropped to 2 percent that I might be concerned about the financial viability of the free world (and not so concerned about buying a home).
  • February 07 2013
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Profile picture for sunnyview
I don't see rates dropping to 2%. The question buyers should be asking now is whether they are able to get good value in their market if they buy vs rent. Interest rates may go up or down but seeking value is the key to being a happy buyer.
  • February 07 2013
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