Rate Drop Tempts Buyers Back Into Market
If you're still in shock about the 8.64 percent mortgage interest rate from
May, you can start breathing again. The average rate for a 30-year fixed
rate mortgage finally dropped below 8 percent in August 2000 according to
Freddie Mac. With the economy cooling and taking the heat off the housing
market, late summer might be the time to resuscitate your home search.
And it gets better. The Federal Reserve met this month and voted not to
increase short-term interest rates, a move that bodes well for homebuyers.
The Fed's Open Market Committee watches the economy for overheating, and has
been raising interest rates recently to slow things down. When the Fed
raises rates investors get nervous about inflation, and presto, mortgage
rates go up. When the Fed leaves interest rates alone, as it did this month,
the risk of inflation is minimal and slower but sustainable economic growth
is ahead. That's the prediction. If it wants to, the Fed can whip out the
crystal ball and change its mind at the next meeting.
When the average fixed mortgage rate topped 8.64 percent in May, it was the
highest rate in five years. 7.96 percent was the new average rate for the
week of August 14, the lowest rate since December 1999 according to Freddie
Mac. It may not seem like much but any homebuyer that scoffs at .68 percent
should take another look. A homebuyer who took out a $200,000 mortgage in
May, when fixed-rate mortgages averaged 8.64%, had a monthly mortgage payment
of $1,558. By contrast, a homeowner who took out a $200,000 mortgage at the
current 7.96% average had a monthly payment of about $1,462. That's a
difference of $96 per month, and $1,152 per year.
If you're dreaming of rates in the 6 percent range coming back, keep
dreaming. According to Freddie Mac economist Rob Van Order, rates could drop
a little more if the economy continues to cool, but we're not likely to see 6
percent interest rates again for the foreseeable future. Most analysts
expect to see rates in the 7.75 to 8.25 range. That's not bad, if you look
at historical averages. Want a real dose of sticker shock? Try the highest
rate ever recorded by Freddie Mac: 18.63%. The year was 1981.
Another good sign is that housing starts for year 2000 are now at 1.51
million, and dropped 3.3 percent in July. That's a very good but stable
level, according to Freddie. What that means for consumers is that the
housing market isn't quite as hot nationally. If you live in a major
metropolitan area, demand might still be ahead of the supply of available