The Silver Lining for the Temecula, Murrieta and San Diego Mortgage Markets

Filed under: The Temecula/San Diego Market

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Wait a minute!  Just when we were almost convinced the US economy might be creating some solid footing for a slow, but sustainable recovery it seems like all the economic news has taken a turn for the worse.  The big monthly jobless claims number last week was a huge disappointment, many other economic reports from the past week or so have been showing weakness, confusion over how the European issues will bleed into the US, and now we are hearing grumbling from the Fed that they are ready with a third round of quantitative easing (QE3!?).  Where’s the silver lining for the Temecula, Murrieta and San Diego mortgage market?

Yes, the economy has definitely slid into another rough patch, but that isn’t all bad for home buyers looking for mortgages in Temecula,  Murrieta and San Diego.

As with most “rough patches” in the economy, one of the most immediate side effects is large investors will move from risky equities into less risky bonds.  Rallying bond markets drive interest rates down.  Over the past several weeks we have seen interest rates drop back down to very near historical lows. This isn’t rhetoric either.  I’m talking about 80 year historical lows.

Since we have all become completely desensitized to any talk about low interest rates, I want to put some real numbers to what today’s rates mean to home buyers (and refinancers) vs. higher rate time periods down the road sometime.

Let’s look at a $300,000 purchase with 20% down to simplify the analysis a bit.  The numbers work out the same for less down, but then we need to consider mortgage insurance and I’m trying not to bore everyone to death.  The principal and interest payment on a $240,000, 30 year fixed loan at an interest rate of 4.375% (APR 4.564%) today would be $1198.36.  The payment for the same scenario but with a 15 historical  average interest rate of 6.75% (This number would be much higher if we looked at even a few more years of data because rates were very high in the early 1990’s) is $1556.64.  That’s a 30% increase in the monthly payment and would DISqualify many, if not most, potential home buyers for that house.  At the average rate of 6.75%, still assuming 20% down payment, and the need to have a payment of $1198.36, home buyers would only be able to purchase a home for $230,950.  At a 15 year average interest rate, buyers would have to look at houses 23% lower in price vs. today’s rates.

While the economy still has many issues to work through, it’s very clear to me that we are in the midst of the best opportunity of our lifetimes
to purchase a home.   I definitely believe you need to be committed to keeping the home for at least 3-5 years, but with the right amount of caution, buying into today’s real estate market is more likely than ever to look like a great investment.

Give me a call anytime to look at mortgage options and also take a look at the real estate market you live in.

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