Mortgage rates are at an all-time low! How many of you have taken advantage of the great low interest rates? It sounds great because who wants to pay more interest? However, have you noticed that there is a disconnect between the housing market and the low interest rates. You would think that low interest rates would drive the housing market into a frenzy and everyone would be buying anything they can. In addition, not only are interest rates low, but housing prices are lower than they’ve been in years. So why has none of this affected the housing market positively? Why is the housing market still dropping and still having a hard time?
There are two answers to this question. The first answer is that while interest rates are low and house prices are low, the people who are making the house prices low are the same people out there loaning the money on new house loans. Also, in the old real estate market there was a market for mortgages. In other words, a bank could start a mortgage, then sell that mortgage to the open market, and just collect the profit from starting the mortgage. The bank would then put their money back to work on getting a new mortgage started with a new buyer. The Wall Street brokerages would buy the mortgages and make them into investments. That is no longer the case since the secondary mortgage market has been destroyed. Therefore, this means that the banks that make the loans will have to keep the loans for 20 or 30 years and that’s not a very good return on investment for them. So since they cannot get a good return on that investment they tighten their regulations for giving out loans and that way they can give out fewer loans and still advertise that they are lending and their rates are low.
The other answer is that the market prices are low because the banks are pushing foreclosures onto the markets and any time you flood a market with more products than needed, the demand or price for those products goes down so that they can sell. Prices cannot go up until people buy those foreclosed houses and start selling them at a fairer price. So what has to happen in this situation is that the larger lenders in the market need to lend money out and take a lower return.
So what can you do? In my opinion, your best option is to continue living in the property that you are in and make it work or use the government programs like FHA to get a low interest rate and a low down payment. Although this program has plenty of red tape it still is the best way to get a loan right now and have a good chance of it being approved in this market.