Interest rates on mortgages
Ok, this may have been answered in a previous thread, but sometimes I have a hard time swimming through the lingo so instead of digging through thread after thread trying to translate, I thought I'd just ask directly-
What are the projected interest rates on mortgages in the next few years? I know they are expected to rise, but when and how much?
Also, Melonie- do you own your own home in the US or do you think that is a terrible idea?
Thank you.
Re: Interest rates on mortgages
Lucky, that is an extremely difficult question to answer. Official gov't statistics clearly show that interest rates for conventional mortgages written for 'prime' borrowers have now turned upward ... and will continue to move upward. This is arguably a result of a weakening US dollar causing reduced demand for new US Treasury Bonds from foreign investors, which drives up interest rates on US Treasuries and with it interest rates on 'prime' loans.
However, as a dancer, given the recent changes in regulations controlling US mortgage lenders, it is very doubtful that you would be treated as a 'prime' borrower. Thus interest rate projections for the 'prime' market most likely will be of little interest.
Depending on your credit rating, the value of assets you already own, value of investments and savings, and stability of IRS income declared over several years, you could be considered as an Alt-A borrower. If the above factors are questionable, you would probably be considered as a 'subprime' borrower.
As you are probably aware, this week a major meltdown occurred with Moody's and S&P downgrading subprime mortgage CDO's and bonds. The downgrade was based on the undeniable fact that the percentage of subprime mortgages which are going into default is now rising parabolically. While the ripples created by the subprime downgrades have yet to work through the financial institutions involved, it is guaranteed that the 'costs' associated with probability of losses on subprime mortgages are going to quickly reduce the amount of subprime loan money available, and are going to quickly jack up the interest rates offered on subprime mortgages IF the would-be borrower can get loan approval.
My gut feeling is that a year from now, as a result of tighter lending regulations and increasing subprime mortgage defaults, you're going to be looking at new subprime mortgages carrying a 20% down payment requirement, plus carrying interest rates that are at least 2% higher than prime, perhaps much higher depending on individual factors and down payment amount.
Also, my gut feeling is that it's a distinct possibility that, after the 2008 presidential election, America may return to financial conditions that last existed under Jimmy Carter's presidency, with mortgage interest rates again catapulting up to 16-18% !!!
As to owning my own home, yes I do. However the circumstances are less than typical. A. I purchased my grandmother's house after she died about 10 years ago to keep the property in the 'family'. B. I put down a fat down payment and obtained a 20 year conventional mortgage at a comparatively low interest rate. C. My tax picture re federal and especially NY state income tax are such that the home mortgage interest deduction is worth about 30 cents on the dollar.
If there was no issue of keeping the property in the 'family', if the local housing market plus interest rates thus monthly mortgage payments were where they are today vs typical rental costs, and if I lived in a low tax state such that the home mortgage interest deduction was only worth 20 cents on the dollar vs 30 cents, and if the probability of a house falling in market value exceeded the probability of stable or rising value (as is the case in many areas of the US today) there is NO WAY that I would consider buying a house !!!
I highly recommend reading and scrolling down to the Bottom Line ...
(snip)"The Bottom Line
Now that we have a more complete picture of the situation, let's take a look at the financial bottom line for rent vs. purchase in few possible scenarios. We'll use Rhonda's given purchase price, down payment, investment return (11%), and rental price, varying only the assumed appreciation in each case. "Home Value" refers to the total amount of money you pocket upon the sale of the house (since that is the only way you can get the money).
7% Rent Purchase
Appreciation Investment Value Home Value Difference Advantage
@ 5 years: $224,343 $275,668 18.6% Purchasing
@ 10 years: $402,613 $574,573 29.9% Purchasing
@ 25 years: $1,662,659 $1,815,340 20.3% Purchasing
4% Rent Purchase
Appreciation Investment Value Home Value Difference Advantage
@ 5 years: $224,343 $189,950 18.1% Renting
@ 10 years: $399,918 $350,060 14.2% Renting
@ 25 years: $1,565,654 $1,030,024 52.0% Renting
0% Rent Purchase
Appreciation Investment Value Home Value Difference Advantage
@ 5 years: $224,343 $90,051 149.1% Renting
@ 10 years: $396,625 $128,619 208.4% Renting
@ 25 years: $2,172,580 $461,100 371.2% Renting
-2% Rent Purchase
Appreciation Investment Value Home Value Difference Advantage
@ 5 years: $227,271 $45,749 396.8% Renting
@ 10 years: $399,452 $44,272 802.3% Renting
@ 25 years: $1,454,580 $156,786 827.7% Renting "(snip)
Re: Interest rates on mortgages
I also came up with this Las Vegas real estate market report, which pretty clearly shows that property values for single family homes are now facing a declining trend ...
(snip)"The average price for single-family homes in Las Vegas set another new record in May of $398,258. Combine that with the median price falling 1.2% to $301,352, and we have a seriously confused market. What does it all mean? Well, sales of entry-level homes increased and there were a few very expensive homes sold.
Home sales turned around, gaining 13.5% in May compared to April, but were off 38.7% year-over-year. Year-to-date, home sales are at their lowest level since 2001: down 32.5% from last year.
Inventory rose again last month, up 3.6% from April, and up 20.4% year-over-year."(snip)
While anything is possible given our crazy economy, some fundamental economic factors about Las Vegas need thinking about as well ... as they will undoubtedly affect the future local Las Vegas economy thus future local Las Vegas home prices.
A. Las Vegas is extremely dependent upon tourists travelling to town and spending money. Rising fuel costs have increased air fares significantly already, and the trend seems to only be going up from here
B. Rising fuel costs, rising ARM costs, rising taxes, rising credit card payments, and stagnant paychecks are beginning to take a big bite out of the 'discretionary spending' of many Americans. One major way to keep paying these higher costs for 'necessary' items is to cut back on vacation spending ... as in fewer (or no) future trips to Las Vegas.
C. Local real estate market pricing has been driven by speculators ...
(snip)"n Clark County, which encompasses Las Vegas, one of every 30 homes began the process toward foreclosure last year.
The day Schwartz reserved his home, the sales staff was raising prices $20,000 after every fifth buyer came inside. The $500,000 house he and his wife were eyeing had shot up to $540,000 by the time they sat down. Somehow, it still seemed like a good deal.
"Everybody was thinking, 'Hey it's not the end of the world, because the homes across town are selling for $720,000. We have almost $200,000 in equity in the house and it isn't even built yet,'" Schwartz said.
He and his wife put down $5,000 on a home that would end up costing $560,000 with upgrades.
While the Schwartzes were able to cancel before closing on a property that suddenly was worth only $490,000 -- and recoup their deposit on a legal technicality -- others were less fortunate.
Schwartz, a 44-year-old life coach, said he "narrowly escaped financial disaster." But the effects of the housing crunch would reverberate for years, he said, something he expects to see among the clients he coaches to succeed in their lives and careers.
"There's going to be a lot of depression, a lot of anger. A lot drinking, gambling, and desperate stuff going on."
More than other states hit by the mortgage lending crunch, the high foreclosure rate in Nevada, California and Florida was driven by speculation, said Rick Sharga, vice president of marketing for Realty Trac.
"It was a combustible mix of risky loans and risky real estate deals," he said.
Russ Valone, the chief executive of research firm MarketPointe Realty Advisors, said speculators in San Diego were putting deposits on downtown condo units under construction, assuming they could sell them at a profit when they were finished.
"There were guys out there that were rolling the dice just as if they were going to Las Vegas," Valone said.
When the market slowed, many buyers forfeited their deposits, or let their properties get repossessed by the banks. As a result, the inventory of unoccupied condo units downtown since early 2005 has soared fivefold, he said."(snip)
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