Housing Affordability Could Not be Better And Yes Rates Are Going Up From Here

If your clients have been waiting for the perfect time to buy, they need to act now.  Housing affordability can't get much better. 

So what's the urgency for the buying public to act now?  Interest rates are headed up.
Interest rates have been kept low due primarily to three factors:

1) The Federal Reserve has been purchasing mortgage backed secuities thus providing liquidity to the mortgage market.  Their $1.25 trillion purchase program is drawing to a close.  It's scheduled to end around the 31st of March.  Once it does, the single largest purchaser for mortgage backed bonds is out of the market.  When demand for mortgage backed securities drops, rates will rise to attract new capital into the mortgage market.
2) Weakness in the U.S. economy has kept a lid on inflation.  With low inflation you have low rates.  However, in the 4th quarter of 2009 our economy grew by 5.9% as measured by GDP.  So with the economy growing, some measure of inflation will creep back into the picture.  A growing economy will put upward pressure on mortgage rates because the housing market has to compete for the same capital that businesses need for expansion and growth.
3) Global economic turmoil has provided some level of stability to our rates because the dollar still commands the greatest respect among world currencies.  This makes dollar denominated investments such as U.S. mortgage backed securities a more attractive investment.  However, problems with the Euro and other world currencies should be contained.  When foreign currencies stabilize, dollar denonominated investments will start to lose their competitive edge.  The value of the dollar will fall and interest rates will begin to rise.

So there you have three reasons for mortgage rates to start rising and I think they will be sooner than later.  It's all about competition for investment capital.

Finally, the potential home buyer should not forget about two other factors.  Home valuations are at cyclical lows and the home buyer tax credit will be expiring at the end of April for new contracts and transactions must close by the end of June.

It's time for home buyers to get off the fence and buy.  I don't think the housing affordability index will get any better than it is now.

For continuing mortgage updates, suggestion, and financial news, my oustide blog can be found at https://homeloanguideupdates.blogspot.com/