Dear [fname]

 

When the federal tax credits ended last month, everyone started wondering what will it take now to keep buyers interested in buying, or to get those picky buyers off the fence? The answer for now seems to to be the crisis in Europe. Because of the financial turmoil in the Euro Zone, mortgage rates have plummeted down in the past 10 days to match their lowest levels on record. For example did you know that a qualified buyer can get 3.99% on a 15 year fixed loan!

 

 

I don’t think even the media has caught onto how low rates are yet, as this sudden drop in rates has happened so fast. But this presents a great opportunity to market to any buyers who may have been a little disappointed in missing out on the $8k tax credit or to buyers who still are on the fence. Because with these really low rates, buying a home now will present an opportunity for a buyer to save more money than they would have received from the $8k federal tax credit when rates were higher.

 

If anyone was wondering if the tax credits that ended April 30th would have an affect on buyers? well they had their answer last week. Purchase applications had their biggest drop in 13 years as applications plummeted 27% for the week ending May 14th. Here is an article Purchase apps drop to their lowest level in 13 years.

 

So obviously there are a lot of buyers out there who are disappointed they missed out on the $8k credit. So if the tax carrots are gone buyers are going to need some other incentive to buy now. These record low rates present a great opportunity to show these buyers on the fence how they can save more money than the $8k credit if they secure a loan now. Here are a few ways to show them the numbers. 

 

 

1. Show buyers how to recoup the tax credit loss of $8k and more by securing a record low rate. Because rates are roughly -.375 to -.5% lower than they were a month ago, the savings long term on a loan at 4.625% will more than make up for the loss of the $8k credit on a loan at 5%.

Payment $2379          Payment $2291

 

If you multiply the $88 monthly savings over 30 years, this amounts to $31,680 in total savings. So the loan made after the tax credit deadline ends up being a better investment than the loan that received the $8k tax credit, as the before tax credit loan had a higher rate. 

 

Did you know that some lenders offer a 25 year fixed loan? With the rate on a 25 year loan at 4.625%, you can now show a buyer a payment on a 25 year fixed loan that will almost match the payment they had on a 30 year fixed loan that had a higher rate recently. This will save 5 years off their mortgage. For example. The payments at 5.125% on a 30 year fixed are almost the same as a loan at 4.625% on a 25 year fixed.

 

Using the example above on the $400k loan at 5% with a $2379 payment, saving 5 years mortgage payments will amount to $142,740 in mortgage payments and interest. This is a great way to show someone how to make a great investment with a shorter term loan, and all of a sudden the $8k tax credit does not seem as important compared to 5 years worth of mortgage payment savings.

 

So how low are rates?

Rates are now at 50 year lows. Qualified buyers with excellent credit scores and good down payments can now get 3.99% on a 15 year fixed, or a 20 year fixed is at 4.375% and a 30 year fixed around 4.625%, but I have one lender that can offer qualified first time buyers 4.49% on a 30 year fixed. Jumbo loan rates are also incredible right now too at 4.875% for loans up to $729k. 

Economists largely attribute the decline in mortgage rates to the European debt crisis and new concerns about the global economy, which unleashed a massive wave of cash into U.S. bonds from investors around the world.

 

 

Even though EU officials, the IMF (International Monetary Fund), and global central bankers officially have "addressed" the European fiscal crisis, market participants have not yet been convinced that the worst is behind and instead chose to continue to allocate funds into risk-averse assets like government guaranteed U.S. Treasuries. This "flight to safety" has allowed mortgage bonds to move higher and rates to go lower.

 

A flight to safety occurs when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. As Treasury yields fall, prices of mortgage backed-securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which forces lenders to push mortgage rates higher.

 

 

Economists are advising that predicting rates has become a little more difficult due to unforseen circumstances. NO ONE predicted the current chaos in Europe, in fact everyone had predicted mortgage rates to increase significantly after the Feds pulled the plug on their rate reduction program on March 31st this year. 

 

For now, I don’t think the troubles in the European markets are going to go away anytime soon. It really is a crisis of confidence right now in the Euro zone because the markets know that these countries are not going to solve their debt problems overnight. So with that being said, I would say we are going to have a low interest rate environment here in the US at least for the next few months, unless there is another crazy twist in the financial markets that has not been accounted for yet.

 

 

 

There is no doubt that the end of the tax credits has lowered demand for housing. But with these sudden low rates, there truly lies another golden opportunity for a buyer to get a much lower payment on a loan that was not available a few weeks ago. Also, lower mortgage rates can give a powerful lift to a buyers purchasing ability too, A general rule of thumb holds that for every 1% percentage point decline in rates, is the equivalent of roughly a 10% reduction in the home price for a buyer. 

 

A good idea is to go over these new lower rates with all buyers and see if this will change their buying decision. As lower rates will help some buyers afford a slightly larger home, or a lower rate will mean that the new mortgage payment now fits within their budget.

 

If you have any questions in regards to any of the information above or you need help getting anyone pre-approved for financing, please feel free to contact me directly at 858-200-9602. I look forward to chatting soon