The Cavalry Is Coming

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As of this writing, it appears that the federal government’s plan to buy mortgage-backed securities is beginning to have an effect on the mortgage markets and may result in a stimulation of home sales and refinancing.

The Treasury department announced they will buy up to $500 billion worth of these securities in an attempt to lower interest rates.

Our primary lender reported that the immediate effect of this plan has reduced 30-year rates by almost 1 full percentage point, to an interest rate of 5.25 percent.

Some economists are predicting that 30-year fixed rates may bottom out as low as 4.5 percent before they begin to rise. The above is exciting news for those who have homes on the market.

The National Association of Realtors estimates for each 1 percent drop in mortgage rates, an additional 500,000 homes will be sold.

This should not return us to the overheated markets of the past, but the hope is that it will put the housing market on a steady footing and help lead to an economic recovery in not only housing, but in all economic sectors.

What does a 1 percent interest drop mean to consumers?

On a $200,000 mortgage, a drop from the recent level of 6.25 percent to 5.25 percent, lowers the principle and interest payment from $1,231 per month to $1,104, for a savings of $127 per month.

If we do hit the target as some predict of 4.5 percent, the payment would be further lowered to $1,013 a month for a $218 savings.

It is however, important to remember that the economists did not predict the severe downturn we find ourselves in and it may be doubtful that they can accurately predict the exact bottom of interest rates.

All this said, the current 30-year fixed interest rate of 5.25 percent is a bargain by historical standards.

Combine this interest rate opportunity with the housing sales we are experiencing and this may be the chance of a lifetime for people with good credit to get the home of their dreams. In addition, we will probably see renewed vitality and activity in the second home market.

Ray Pugel is a designated broker for Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.

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