- Brookings Institution Spring 2015 Brookings Panel on Economic Activity Research Paper: Risk Management for Monetary Policy Near the Zero Lower Bound Concludes that It Is Better if Interest Rates Stay Low Rather than be Raised Too Soon.
- Center on Budget and Policy Priorities Report: Highlights How President Obama’s Budget Will Restore 67,000 Housing Vouchers lost During the 2013 Sequestration
- Federal Reserve Board’s Division of Research & Statistics and Monetary Affairs, Report: Crowding out Effects of Refinancing on New Purchase Mortgages, Concludes that High Credit Risk Borrowers Get Approved for Mortgage Loans Nire often When Interest Rates are High.
- The Federal Reserve Board’s Consumer and Community Development Research Team evaluated the success of Neighborhood Stabilization Program in, Have Distressed Neighborhoods Recovered?
- New Climate Economy Report: Provides Comprehensive Estimates of the Costs of Sprawl and Potential Benefits of Smart Growth, Describes Planning and Market Distortions that Foster Sprawl, and Smart Growth policies that can help correct these distortions.
- National Association of Realtors Letter to Senators Delany (D-MD) and Others Thanking them for Re-Introducing the Partnership to Strengthen Home Ownership Act, which would Reform the Housing Finance System
Tag Archives: interest rates
Reiss on Buying a Home
Mainstreet.com quoted me in Potential Homeowners Should Seek Counseling Before Making First Purchase. It reads, in part,
Many consumers have made buying their first home less of a daunting task by seeking housing counseling from a non-profit organization.
In 2014, more than 73,000 people received housing counseling from the National Foundation for Credit Counseling’s member agencies, making it the highest volume experienced during the past five years. The renewed interest in housing counseling could be an indicator that many people are considering home ownership as an affordable option.
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Homeowners should look at a range of mortgages before committing to one since the typical American homeowner moves every seven years, said David Reiss, professor of law at the Brooklyn Law School in N.Y. For example, obtaining a “relatively expensive 30-year fixed rate mortgage may not make sense,” he said, if you can save a lot in monthly payments with an adjustable rate mortgage (ARM).
ARMs have a certain period of time where the interest rate remains the same, such as 84 months for a 7/1 ARM or 120 months for a 10/1 ARM and then it adjusts each year for the remainder of the mortgage.
“This might be particularly true for very young households or for empty nesters, both of whom may have different needs in five or ten years,” Reiss said. “It is hard to predict where interest rates and prices are going, so holding off on buying when it seems like the right time to do so for your personal situation is risky.”
Reiss on Rising Interest Rates
ABC News quoted me in Small Interest Rate Changes Mean Big Money for Home Buyers. The story reads in part,
As the economy continues to recover from the worst recession since the 1930s, mortgage interest rates remain at historically low levels.
The Primary Mortgage Market Survey, produced by Freddie Mac, reported in mid-March the average rate for 30-year fixed-rate mortgages was 4.32 percent; 15-year fixed-rate mortgages averaged 3.32 percent and interest rates 5-year Treasury-indexed hybrid adjustable rate mortgages averaged 3.02 percent. Nonetheless, Frank Nothaft, chief economist for Freddie Mac, speculated the Fed’s gradual tapering of its stimulus efforts may prompt a rise in mortgage interest rates.
If mortgage interest rates do rise significantly in the future, what, if any effect will there be on the home buying market? According to Steve Calk, chairman and Chief Executive Officer of The Federal Savings Bank, interest rates have never been the deciding factor for whether potential home buyers actually purchase a home.
“Whether interest rates are 5.5 percent or 7.5 percent, when people are ready to buy, they’ll buy a home,” Calk said.
Price, location, size, appreciation value – these are factors many would-be homeowners consider long before mortgage interest rates enter into the picture. However, once they begin actively searching for a home, interest rates often play a role in their ultimate buying decision.
This is especially the case when interest rates are high, according to David Reiss, Professor of Law at Brooklyn Law School.
“When people think about buying houses, they think about the price of the house. But what they really should be thinking of are the monthly costs. The average 25-year-old might not think about housing rates until they go to a mortgage broker.
“Then they discover that 8 percent interest may mean that instead of a $200,000 home they can only afford a $160,000 home,” Reiss said.
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Tight credit and persistent high unemployment have almost certainly played a role in depressing home buying figures during the recovery, as has the large numbers of home owners who perhaps bought homes at the height of the bubble who now find themselves underwater on their mortgages. However, many underwater homeowners could be missing out on a unique opportunity presented by the present financial climate. In a housing market where prices are depressed and borrowing is cheap, home buyers with solid incomes and good credit can find lenders willing to extend credit on favorable terms, ultimately putting them ahead financially, even if they sell their present homes at a loss, according to Reiss.
“Many people feel stuck in place because they are underwater or the market is bad. But although it may be counterintuitive, it could actually be a smart move to sell in a bad market. It’s a bit more sophisticated strategy, but you could move out of a cheap home into a better home for not that much money,” Reiss said.
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Education and due diligence in maintaining good credit are the most potent tools that potential home buyers can employ, whether they are seeking their first home, a larger home or are scaling down to smaller quarters as empty nesters. Obtaining prequalification can provide home seekers with a better idea of precisely how much house they can afford, Reiss said.
