Decling Home Prices and Rising Mortgage Rates
Daytona Beach Homes have declined over the past few years. There are a lot of homes on the market and it’s been a buyers market for a while now. Buyers have been in a great position, but, rising mortgage rates are threatening to close the window of great opportunity.
Wachovia Elimates Deals With Mortgage Brokers
Wachovia announced yesterday that they lost $9,000,000,000 in the second quarter, that’s 9 billion over a three month period. Now, a good deal of this loss, over $6 billion, is from writing off bad loans. They are also cutting 6,350 jobs.
However, more important to Daytona beach home buyers who will be financing is the Wachovia announcement that, as of July 25th, they will no longer be working with mortgage brokers. This is a trend with banks that they are basically bringing home loans in house. What does it mean?
I believe as I wrote yesterday, that the banks will be taking control of home lending and that rates will rise because of inflation, government spending and economic conditions. The banks will need higher margins to market, originate and service these loans in-house, and, the rate at which banks are willing to lend needs to rise before the banks will begin loosening tight credit.
Basically, the banks, with their high costs of operation and staggering beauracracies, will need to add more margin between the rates at which they can borrow and the rates at which they loan money to make enough profit.
Right now, you need very good credit to get a loan. In addition, the debt to income ratio must be below 36% (at least) and significant down payments are being required. Banks must loan money to make a profit. They are very cautious. Some are taking advantage and restructuring their business operations and business models. When this is done, and the margins increase, the banks will loosen credit some, but expect that significant down payments to continue.
What to Do Now
Simply, review your situation and consider two things:
- Home Values
- Mortgage Rates
Home prices have been declining, but an increase in mortgage rates from 6% to 7% on a $200,000 on a 30 year conventional loan, results in a $130.00 per month increase in payments. Mortgage rates have increased from 5.8% in early May to 6.5% today (up from 6.42% on Monday and 6.19% last Monday).
The question is – will prices fall faster than payments go up? Inflation causes home prices to rise, but not immediately. If you are planning to buy a home and finance, we may be in the final period of falling prices and low mortgage rates.
Pay close attention to mortgage rates. You can check out rates at bankrate.com. If you are on the fence, consider acting now while mortgage rates are still historically low.