Will Interest Rates Go To 4.5%?

Last week, there was a story in the Wall Street Journal about how the Treasury was working on a proposal to set the target interest rate for new home purchases at 4.5%.

Notice the word proposal in the above sentence.

Nothing has been passed — but there is currently discussion about a number of different plans; all of them with the intent of “getting the housing market back on track”.

After the story ran in the Wall Street Journal, the New York Times ran a story where the National Association of Realtors’ Chief Economist Lawerence Yun had this to say about the “4.5% plan”:

“We believe that the only way to really address the housing situation is to increase sales,” said Lawrence Yun, chief economist for the association. “Home prices will not stabilize until we address the inventory problem, and the only way to bring down the inventory of houses on the market is to bring in a new set of buyers. We think this would do the trick.”

Mr. Yun estimated that a one-year program to provide home buyers with an interest rate of 4.5 percent would cost the government about $50 billion. It would result, he predicted, in about 500,000 home sales — an increase of slightly more than 10 percent over today’s depressed sales rate. If the program were extended to people who simply wanted to refinance, Mr. Yun warned, the government’s cost could easily be 10 times higher.

Once the “4.5% plan” story was leaked to the general media, there was a late week frenzy about “what it all meant” and “were the interest rates really now at 4.5%?” We were contacted by a local news station and asked to give our thoughts on camera about this 4.5% plan — and they aired about 30 seconds of our 15 minute interview.  The main points that we covered in the interview:

1. Even if the prevailing interest rates reach 4.5%, we don’t expect an “Oklahoma Sooners type land rush” but it will certainly help because it will make mortgages more affordable.

2. In today’s mortgage environment, guidelines are more important than interest rates — because if you can’t qualify for whatever reason, it doesn’t matter how low the interest rates are.

3. If you are thinking about buying a home in the next 6 months, now is a good time to start the process.  We expect mortgage rates to stay low – and the longer that you wait, the tighter the guidelines will probably be if they follow the trend of “tightening guidelines” that we have seen this year.

Will interest rates go to 4.5%? Maybe, but you should stop waiting for it. If you are going to be in the market for a new home or refinance your current one in the next 6 months, we recommend starting the process now.

Arizona Mortgage Rates for December 8, 2008

If you are looking for information on buying Arizona Homes for Sale give me a call at (480) 202-3558 – It’s a great place to live, work and play! Arizona offers so many indoor and outdoor activities.

2008 Copyright All rights reserved by Candace Robinson, Arizona Real Estate Agent specializing in Maricopa and Pinal County Homes and Condos for Sale