Thursday, August 12, 2010

Mortgage Rates Fall Again

30 year mortgage rates fell to a new all time record low this week at 4.44%.  The following chart shows where rates stand today in a historical perspective:




The best time to purchase a home is when interest rates are high and the money to borrow is expensive.

Why?

Because when interest rates fall, homes become affordable to additional buyers.  Additional buyers create additional demand.  An example of this would be in 1982 in the chart above.

The worst time to purchase a home is when they are at all time record low interest rates.

Why?

Because when interest rates rise, less buyers can afford the mortgage payments at the current prices.  Prices would then have to fall to make the payments possible.

Interest rates should have begun to rise sharply after 2008, but you can see on the chart the moment the government stepped in and nationalized the mortgage industry.

This has delayed the bottoming process for housing.  Instead of a sharp fall in prices bringing homes back to affordable prices, we now must wait for the government to exit the market.

Then interest rates will rise and home prices will collapse.  At this point real estate will become an excellent buy.

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