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Saturday, October 24, 2009

Be careful, low rates won't last!!

Please review this article.

Now, I want you to pay attention to what is happening on the market. Because mortgage interest rates being historically low, people affordability ratio increased. Today, someone who was not able qualify for a mortgage at higher interest rates, is able to fit into industry ratios. Now according to the last report, housing demand increased and supply decreased. This means the prices of homes will increase especially through bidding wars. We all can see it is happening right now.
Homebuyers, have to understand that these low rates only a temporary measure to stimulate the economy. Eventually rates will start climbing, which means that some people may not be able to afford their homes at higher interest rates. Usually, when interest rates increase house prices decrease, this is just an affordability ratio. Many more can afford to buy 500,000 dollar house at 3% then at 7% interest rate, so you will have to decrease you home value in order to sell to the same group of people.
Imagine someone who bought a house at 500k price today with interest rates at 3% and barely was able to acquire a mortgage. This homeowner won’t be able to afford mortgage payment when next time the mortgage comes due. They will have to put the house on the market, and because mortgage interest rates are higher they won't be able to sell it at 550k or 600k. When we have several thousand cases like these it will destabilize supply/demand ratio and crash housing market. That what is called a bubble, that’s why government does not want real estate market to overheat.
My suggestion is to take advantage of today’s low interest rates and prepay your mortgage over next few years to the best of your ability. That’s why you must GET A MORTGAGE WITH GREAT PREPAYMENT OPTIONS. If you are a first time home buyer, leave some room and don’t overextend yourself. Perfect scenario is when you can afford your home with one person working, if this is not the case I don’t recommend you to look into larger home. The best mortgage deals are not the once with the lowest interest rate in many cases.

For existing home owner I would recommend to use your equity to create passive cash flow. Whatever you chose, embrace yourself for the worst, and if things will turn out not as bad, you sure will benefit even more.

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