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2008-12-08 18:21:40

What A Difference A Point Makes

Last week was a roller coaster ride. Over 20,000 lost their jobs. Retailers complained of the worst pre-Christmas sales in 30 years. And the stock market, which has lost almost half its value since the DOW’s 14,000 high earlier this year, continued to punish investors with sickening lurches.

But there was a bright spot – mortgage rates.

Frank Nothaft, Freddie Mac vice president and chief economist opined, "This week's decline was the largest since the week of November 27, 1981, and 30-year fixed-rate mortgage rates are now almost a full percentage point lower since the last week in October, 2008."

A point???!!!???? That’s HUGE!

Not surprisingly, the Mortgage Bankers Association announced that mortgage applications the previous week were up a seasonally adjusted 112.1 percent, as rates started their descent in earnest.

So here’s a prediction. It won’t make much difference. Applications won’t keep hitting records for the week ending December 3, 2008 and this week, because of the terrifying news that over half a million jobs were cut in November bringing unemployment to over 6.7 percent.

As long as layoffs loom larger than bargains, the stores are going to remain empty and houses aren’t going to sell, unless….buyers believe, as they did following the attacks of 9/11, that buying a home is the best place to put their money.

Thanks to today’s media, that likens homeownership to gambling in a casino, many potential homebuyers are on the sidelines. How else do you explain home prices and interest rates below 2003 levels, but inventories still at 10-months on hand?

It’s simple. Show them the numbers. Show buyers the difference a point makes – on the average loan, about $25 every 1/4 of a point. On a $200,000 home, that’s about $125 a month. Hello, furniture payment.

On a $200,000 mortgage at 6.00% the payments are $1,199.

5.75% $1,167

5.50% $1,135

5.25% $1,104

5.00% $1,073

One percentage point on $200,000 saves $126 per month. Notes courtesy of David Reed, www.cdreed.com

“Still another myth is how much skin is actually required,” says David Reed, mortgage guru and author of Mortgages 101. “ No, it’s not 20 percent or even 10 percent. Conventional loans still only require five percent down and FHA loans only 3 ½ percent.”

But to take advantage of housing lows, buyers have to put some skin in the game. The only borrowers who were able to take advantage of last week’s dip in interest rates were the ones who had already applied and preliminarily approved. Typically what happens is that the bank will quickly check one credit bureau to issue a nod. (You know that true approval doesn’t happen until a day or two before closing, because the bank wants to make sure the borrower isn’t hiding some chicanery.)

Locking in a mortgage interest rate is only one of many baby steps to closing. The trick is to keep those buyers moving forward and attracting more buyers to do the same by showing them with your market numbers why owning a home is a good idea.

It’s all about the numbers. Rent vs. Buy. Tax deductions. Cost to own. Show them the numbers, and they’ll follow you to closing.

Blanche Evans is CEO of Evans Emedia, Inc. and publisher of The Evans Ezine. As an award-winning journalist, Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and twice recognized as one of the industry's most "Notables."