Thinking Of Buying A House? The Trend Is Your Friend

Only a few years ago, I was sitting in an advanced capital markets finance class in graduate school learning such fun things as the basics of calculating beta for a particular stock, calculating the weighted cost of capital, hurdle rates, or a handful of other very-boring topics that have virtually nothing to do with my daily life now.

I did however, learn one very valuable lesson in that class – one that is very relevant to my everyday life now as I talk with people about whether or not it is a good time to buy a house.  The valuable lesson I learned in that class?

“Don’t fight the trend.  The trend is your friend.”

Two trends that I see happening that will have a direct impact on the prices of homes and mortgage interest rates are:

1. Lenders are becoming more flexible at working with borrowers on solutions other than foreclosures
2. The government is doing everything in it’s power to keep interest rates low

Lenders Are Working Out Solutions Other Than Foreclosure

It has recently been announced that Fannie Mae and Freddie Mac will accelerate anti-foreclosure efforts by streamlining loan modifications to lower monthly payments for more struggling homeowners.

They are targeting loans where borrowers are at least 90 days delinquent and have high loan-to-income ratios and are offering things including reduced interest rates and longer terms of as much as 40 years to trim monthly payments.

The Government Is Doing Everything Possible To Keep Interest Rates Low

It was announced this morning that the Federal Reserve is committing a massive amount of money in an attempt to unfreeze the credit markets.  This $800 billion is in addition to the $700 billion “bailout” package known as the Troubled Asset Relief Program (TARP) that was announced by the Treasury department in early October.

According to the announcement this morning, the Federal Reserve will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae.

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.

What This All Means If You Are Looking To Buy A Home Now

Since I am not exactly in the business of predicting the future – and I *for sure* do not want to go on record as saying that interest rates are only going to go lower and median house prices are only going to go up from this point, I will simply add this:

With lenders doing more to stop foreclosures and the government doing more to drive interest rates lower, it seems to make macro sense that the trend we have seen over the last couple of years may have turned or may be turning reasonably soon.

And remember — “The Trend Is Your Friend!”

Arizona Mortgage Rates For November 25, 2008