It is a buyers market and locally prices are very low with Condos starting at 40K.  There are fixer uppers out there for 10K but it takes more money than that to fix them up or tear them down and start over.

The combination of historically low interest rates and low home prices make home ownership more affordable than it has been in a long time.  In fact earlier this month I saw the phrase “soaring affordability”

This may not seem like good news for home sellers but it is for those rare “move-up” buyers.  Those are the folks who sell one home and buy a nicer one.

It is more important than ever before to shop around for Mortgage rates.  They are all over the map.  Apparently the new laws that reform

  loan officer compensation that took affect last month are having an impact.  Shopping for a good mortgage rate has always been a good idea.  It may be a pain in the extreme lower back but it will save $$$$ for years to come. For a great source of mortgage related information check out "Behind the Mortgage" by Alex Stenback. 

For general information I like the the Freddie Mac Primary Market Survey because it give me a clue as to about what I can expect a mortgage interest rate to be.  Rates will be higher for those with lower credit scores. 

Snow Hats (click to enlarge)

I have seen a lot of headlines in recent weeks that mention skyrocketing interest rates.  The idea behind headlines is to make them as catchy and attractive as possible so that people will read the story.  My headline today is a little misleading so keep reading. There is a story about home mortgage rates.  They hit a 40 year low of 4.23% last October according to Freddie Mac Mortgage Survey.  They have since "shot up" to 5.03%

I took a look at the data for the last 40 years and discovered that an interest rate of 5.03% is the lowest rate ever published for January. That means that rates are lower this January than they have been any January going all the way back to 1971.  My headline is accurate but it doesn't tell the whole story.

They will go up this year but I predict that they will remain at historic lows.  I am going to suggest that the October rate of 4.23% was one of those weird little flukes.

There is absolutely no truth to the rumor that interest rates on mortgages are high, they remain at historic lows but there was some concern over how much they went up and in such a short time.  The average for the year 2010 is also a 40 year low at 4.69%.  I won't bore my young readers by pointing out that when I was there age and we bought our first home the average rate was right around 11% which was lower than the sky high interest rates of over 18% in the beginning of the 1980's.

Last week I read about how mortgage applications were down because

uncle sam taxes

interest rates went up.  It was just a theory of course but I think home sales and mortgage applications are down because of the economy. Rates are still below 5% and lower than they were during the peak years of the housing boom when home prices were higher than they are now.  I think high unemployment is having a far greater affect on the housing market than interest rates are.

How can it be that both home prices and interest rates have gone down and home sales have not gone up?  Income taxes have  gone down since the peak years of the housing boom.   The combination of lower taxes, lower interest rates and lower home prices should make for the perfect storm and housing should be selling like crazy yet it isn't. 

People will spend money on housing when they have jobs even if interest rates sky rocket to say 6%.  

Yet there is one more hurtle or perceived hurtle to the recovery of the housing market the proposed changes in the mortgage interest tax deduction which is part of a bigger national deficit reduction plan.

These are the current limits on the mortgage interest tax deduction:

Deductible for itemizers; Mortgage capped at $1 million for principal and second residences, plus an additional $100,000 for home equity

Here are the proposed new rules:

12% non-refundable tax credit available to all taxpayers; Mortgage capped at $500,000; No credit for interest from second residence and equity

The important question is would the proposed changes to the Mortgage interest tax deduction discourage home ownership?  Would home sales plumet because of it? Is the average St. Paul home buyer going to be negatively impacted by this, or will people want to buy homes again when they have jobs?

We have reached yet another low with mortgage interest rates. According to Freddi Mac's primary mortgage market survey this weeks average interest rate on a 30 year mortgage is 4.32 percent.  Most lenders I know are busy working with people who are refinancing.  Eight out of ten mortgage applications are for refinancing as people take advantage of the historic low.  Will interest rates go lower? will they go up? We shall see.

Interest rates are very low right now. I am seeing averages of 4.57%  for 30 year fixed rate mortgages. At the same time home sales are slow.  The lenders are telling me that they have been keeping busy refinancing loans but some are saying that is slowing down too.

The common wisdom is that people who are worried about their jobs and of course people who do not have jobs are not going to take advantage of these low rates and of course they are not going to buy a home right now. 

I don't write much about interest rates and I should write more. The topic attracts spam like crazy.  I once read that the mortgage industry is the number one generator of spam email and on this blog they are the number one source of spam comments.

These rates are from Freddie Mac's Mortgage Market Survey for the week of December 3.  Most people  don't get rates this low because they don't make a 20% down payment . . . but still rates are very low, under 5% even.

The first home I ever bought was through a special program with a very low interest rate of 8 3/8.  Getting an interest rate below 9% was a big deal.

Times have changed and houses are a lot more expensive now. They went up faster than wages.  For those who can take advantage of the $8000 first time home buyer tax credit or the $6500 long time resident tax credit and get a great interest rate this might be a good time to buy a home. I say might because I wouldn't buy a home if I knew I would have to move in less than five years or if my job wasn't very secure. 

There is never a time when purchasing a home is risk free.  Anyone who says otherwise is making it up.  According to an ABC news story the lower interest rates make banks more willing to take risks and there could be negative consequences. Yah think? 

Standards for FHA loans will be getting tougher in 2010. FHA had become the preferred type of financing for first time home buyers.  Applicants for FHA insured mortgages in the coming months are going to be hit with higher costs and tougher credit standards.  Buyers will have to have a higher down payment, FHA will lower the amount that sellers can contribute to buyer closing costs, and the "up front" mortgage insurance premium will go up.  The new guidelines have not come out yet but were announced last week. They will go in to effect after the begining of the year.