So what’s causing this unnatural behavior? Here are a few items to consider.
1. Investor confidence
Investors are still a shaky group of people. Stocks are not behaving as they should and while there are tons of under valued offerings, people with money simply don’t have the confidence to invest. No investment means no competition for money which means lower interest rates.
2. Cash fat companies
There are many companies that are sitting on piles of money because they are afraid to hire or invest in capital because of the uncertain economy. At the same time, they are not putting that cash to work in “safe” investments like T Bills because the return is so pathetic. What they are beginning to do is buy back their own stock. Their logic is an investment in themselves has the best chance of a decent return in the long run.
3. Tight banks
Even with the incredible buys available in the housing market, banks have become incredibly tight with their money. After years of sloppy mortgage lending policy they have decide to make getting a loan one of the most difficult tasks in life to qualify for. FICO requirements have skyrocketed limiting the number of eligible buyers. Fewer buyers means less competition means lower housing prices for the lucky few who are buyers.
4. Difficulties refinancing
It’s estimated that close to a third of homeowners are now upside down on their mortgage. In other words their house has a market value of less than the amount of their loan. Refinancing with no equity or negative equity is nearly impossible so these homeowners can not take advantage of historically low rates. Because refinanced loans are few and far between, a large part of the mortgage market doesn’t exist anymore placing even more downward pressure on rates.
5. House prices out of control
Three years ago it was inconceivable that real estate would not appreciate in value. Today, depending on when you bought your home and what part of the country you live in, your house may only be worth 50% of what it was worth in 2007. Think about that for a moment. If you bought at $300,000 and your home is now worth $200,000 how long will it take until you break even? If the answer to that is over 10 years, many people have just walked away and taken bankruptcy.
Global worries
Our economic woes are not tied only to the U.S. they are global in nature. While it’s disturbing to think a nation can go bankrupt like Greece, Spain or Ireland, it’s even more worrisome to think about our principal banker, China, having economic difficulties. If our banker goes then we have nowhere to turn as a nation for a loan.
Mattress mentality
So here we have a dilemma that shouldn’t exist in a free market economy. There is plenty of cash available but it is all stuffed in an economic mattress and is not being used to drive the economy. The sad thing about this is the value of that mattress money will decrease as the economy itself declines. Money is after all just a symbol and it’s backed by confidence not by anything of value like gold. As a result, nothing is working the way it normally works and either there will be some hero that leads the way to stimulating the economy or there will be governmental intervention.
If you have squeaky clean credit then by all means get financing today. Housing prices may drop a bit more but mortgage rates will probably hold steady. Just try to find a neighborhood that has already been through all the foreclosures. You don’t need the value of your home to drop just because the guy across the street can’t pay his mortgage.
Mark Polman keeps a close eye on the housing market and agrees that www.evancarmichael.com/Expert/Mortgage-Canada-Rates.htm”>mortgage rate trend analysis is an iffy science right now. That said, for the most up to date info on mortgage rates, Mark recommends you visit www.evancarmichael.com/Expert/Mortgage-Canada-Rates.htm”>Mortgage Canada Rates.
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