The real estae world has been sent completely on its ear this year, with bailouts, credit crunches, foreclosures and more. What can we expect to happen? Will rates continue to fall, or is this the best time to buy?
With credit conditions so por and so many foreclosures casting a pall over the mortgage industry, one would think that those candidates for mortgages with good credit histories would be able to name their rate when it comes to a mortgage. But instead, banks are tightening their purse strings for all borrowers and even the best risks are seeing higher rates.
It seems pretty short sighted, but to make up for plunging revenues, banks are increasing rates across the board, instead of offering attractive rates for their most credit worthy borrowers. Matters in the financial industry are far from normal, however, and credit card companies are also using this strategy of higher rates to increase revenue in this tight market.
In the good old days, a slowdown in the markets would usually mean a lowering of interest rates since lenders would try to attract more customers with attractive rates. But with the banking industry in turmoil, it seems like none of the old rules count.
What does all of this portend for someone who needs to decide if this is the right time to borrow for a home? Is it smarter right now to wait out this unusual phase, in the hopes rates will fall back down, or take advantage of whatever credit is there before the economy gets worse?
Some economists are not only forecasting a recession, but even a depression, with deflation instead of inflation. Deflationary tendencies normally mean lower to even negative real interest rates, and that would mean borrowers should wait a little longer.
Some banks are still actively seeking borrowers. Many small lenders never had the capital to delve into the giant home loan programs that many of the bigger banks did. Some were simply too small to venture into dangerous loans.
There is another strong reason for waiting to buy right now and that is because housing prices probably still have a way to come down. A study of home prices conducted by researcher Case-Schiller shows an average decrease of 17%, but some regions with home prices falling 25%. If a combination of lower interest rates and lower home prices are in store for the housing market, it may be wise to delay a home buying decision.
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