Lori Richardson, Vice President of Cherry Creek Mortgage Company in Greenwood Village Colorado reveals why.  Her e-bulletin dated February 4, 2009 explains that the Fed is buying FNMA 30-year 5.5 percent and 5.0 percent bonds.  These bonds represent outstanding mortgages with rates of 6.0 percent to 6.5 percent.  These loans are being refinanced at today’s low interest rates.  The Fed says they can continue this throughout June 2009.

Richardson goes on to say that many pools of the FMNA 5.5-percent pools will be refinanced and paid in full, giving the Fed an immediate return on investment.  Now the catch.  After the initial influx of cash from the refinanced loans, the wheels may slow down to school zone speeds.  Money will then go back to trickling in from the loans originated at today’s low rates.

That is because the monthly payments on the low-interest-rate mortgage products that are currently being used to refinance are a far cry from the large sums of money going to the Fed when the higher-interest-rate Mortgage Backed Securities are being paid in full right now by homeowners who are refinancing.

The question becomes, what will they do then?  Most likely, interest rates will start edging back up. 

And how does that affect buyers?  Richardson suggests that after the initial money flow slows down, “rates could turn higher and this window of opportunity could pass them by entirely.”  That is the reason she warns, “If you snooze, you may lose.”  Waiting for possible lower interest rates to come along could cost hundreds or thousands of dollars in monthly payments.

For more information about farms, horse properties, and real estate in the greater metro area, call Michael Paul of Realty Oasis at (303) 268-6052.

During these seemingly tumultuous times, very few people have defaulted on their home loans.  Ninety eight percent of homes in the nation are not going to foreclosure.  And most of the other 2 percent of homeowners purchased homes in Denver or elsewhere that they could not afford. 

We must remember that when we crunch the numbers over 45 years, homes have appreciated an average of 5.98 percent.  A house purchased seven years ago for $200,000 was worth $360,000 within five years.  So, if the average price fell by 10 percent each year for the next two years, the home was still worth $291,600.  For a $40,000 down payment, this home increased $91,600 in value—a pretty good return on investment.  And since tax law benefits homeownership, these profits are tax free.

Some say that home prices have risen at a higher rate than incomes have increased.  However, over the past 45 years, disposable income has increased 6.5 percent, paralleling the average increase in home prices at 6.47 percent.  Since 1963, home prices have remained at about 5.44 times the average individual income. 

If people took out loans based on 80 percent of the median income, their payments averaged 41.44 percent of their incomes during the past 45 years.  In 2007, however, people were paying only 33 percent of their individual incomes in house payments.  The national median price is about $208, 600 right now.  If the 41.44 percent figure is applied, today’s income could even support a median home price of $256,061. 

According to Brian T. Larrabee, Founder of Estate of Mind, Inc., “The notions that homes are unaffordable and prices have outpaced income are neither true, nor responsible journalism.” 

Larrabee cajoles people into buying homes.  “Think of it this way:  Food, Shelter, Clothing—these are the basic necessities of life.  Housing is right in the middle.  It is the foundation of survival—and prosperity….The inevitable down cycles should be seen as springboards of opportunity.”

Indeed, in contrast to the interest rates that approached 20 percent during the early 1980s, we are seeing interest rates near 5 percent and homes for sale offering the buyer great values in today’s market.

For more information about homes, farms, horse properties, and real estate in the Mile High City, call Michael Paul of Realty Oasis at (303) 268-6052.