George S. May Business Blog

Now could be the time to buy a house

Last week, the government gave a large amount of money in an attempt to bring mortgage rates down. $600 billion, to be specific. This week, well, it seems to be working.

The rate for a 30 year fixed mortgage has dropped nearly a whole point in the last week from 6.25% to 5.27%. This sparked a giant change in the industry as the Mortgage Bankers Association reported that applications in the last week have increased 112%, around half of which were those looking to refinance.

But it may not stop there. The Treasury has openly announced that it is considering a plan to drop it another percentage point down to around 4.5%, a plan which is quite plausible now that they are in control of Fannie Mae and Freddie Mac. But what will this mean for the homeowners of America? What will it mean for the potential homeowners of America? Furthermore what will it mean for the housing market and our economy?

For the current homeowner, if they are able to refinance at the lower rate it will translate into saving quite a bit of money. ABC world news interviewed a gentleman by the name of Aaron Christiansen who said that after refinancing at the 5.27% rate, he and his family will be saving $300 dollars per month. The cost of his home and current mortgage were not revealed.

As for the housing market, economists and lenders alike believe that if the interest rate were to drop to 4.5%, we could very easily see upwards of 1.5-2 million new homeowners, which will then translate in to a huge positive boost for the economic state. The school of thought tends to be that the economic crisis began with a collapse in the housing market so, in turn, a boost in the housing market will be the trick to get us out of it.

The bottom line remains that in order for Americans to start buying homes they have to believe that it is a good investment. Since home prices have been steadily declining for the last 21 months and we can’t expect to see any sort of government regulated home loan interest plan until after the new president is inaugurated, the worst might not be over.

 Homeowners – Will you refinance now that rates are down or do you plan to wait a bit to see if they continue?

Non-homeowners – Are you waiting for a lower rate or has this drop got you eyeing the market once again?

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