photo credit: nikcname

Last week, The Associated Press reported that the average rate on a 30-year-mortgage fell to 3.94 percent -- the lowest rate in history. The previous week, the average rate was at 4.01 percent, which was also the lowest it had been. Another record is the average rate on a 15-year-mortgage -- down to 3.26 percent. Freddie Mac, known for purchasing mortgage loans and other mortgage-related securities for investments, posts weekly reports of mortgage rates. Their reports pull information from surveys of 125 major American lenders.

One would automatically assume that this is definitely great news for potential homebuyers as well as owners who wish to refinance their current loans, but The Wall Street Journal's Developments blog asked an intriguing question -- Will many people care?

The blog stated that according to the Mortgage Bankers Association, mortgage applications actually decreased last week. The blog went on to explain that several borrowers are unable to refinance right now -- they either don't have enough equity in their homes or the new loan standards are much more strict than they were when the borrower recieved their first loan.

Read more here.

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At the end of July, there were more people who signed contracts to purchase real estate for the second month in a row. However, this rise is not quite enough to foreshadow a recovery in the housing market. The National Association of Realtors said that the index of purchase agreements for previously-occupied houses grey 2.4 percent in June, ending at a reading of 90.9. An index reading of 100 is considered by economists to be "healthy." The housing market hadnt reached a level that good since April 2010, which was the last month for the first-time homebuyers tax credit. Since theres usually a one-to-two-month interval between when a contract is signed and when its closed, contract signings are usually quite a reliable gauge of where the market is headed. It is incredibly important, however, to remember that a sale is never final until the closing has occurred. NAR says that its more and more commonplace for a buyer to back out of a contract after the appraisal has proven that the home is worth less than the current purchase price.

Home prices are the lowest theyve been in some time, but that and low mortgage rates arent doing much to increase sales activity. Economists argue that it still could be many years before we see a true recovery. Chief U.S. economist at MFR Inc., Joshua Shapiro says, "In absolute terms this is a very depressed level, and with prices in most areas either still declining or flat, there is little incentive for buyers to be aggressive." Although we had growth in contract signings in May and June of this year, it still doesnt make up for a huge decline in April when contract signings had declined 11.3 percent.

Previously-owned home sales dropped for the third straight month in June and are way behind 2010s sales pace when home sales numbered 4.91 million the least number sold since 1997. If we were truly in a healthy and recovered economy, we would be seeing about six million existing home sales per year. The Standard & Poors/Case-Schiller home-price index that was released July 26th demonstrated that out of the 20 cities covered, 16 of them had increases in the non-seasonally adjusted prices mostly due to a flood of spring buyers. The index reports that seasonally-adjusted prices have decreased 1.2 percent over the last six months approximately one-third of the drop from the six months previous.

One reason for this could be that there are thousands upon thousands of foreclosures hanging in limbo most waiting for the results of a government-run investigation into lenders shoddy paperwork. It is expected that once the investigation is concluded, banks will start seizing more homes, forcing home prices to drop again. Economists argue that the increase in unemployment coupled with doubts over the foreclosure process could create more price drops in the second part of the year. Analysts say prices will drop another five to ten percent by the end of 2011.

Read the full article.

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We've heard many buyers say they are waiting until prices hit the bottom before they buy. They want the best possible price on their home purchase as possible. Which I don't blame them, but they may end up waiting too long. As they watch the news, read the papers, do research online and continue to wait, prices may have already hit bottom. By the time the trend is visable and announced prices will already be on their way back up. 

And an even more costly problem, while they wait mortgage rates are beginning to climb back up. It seems that mortgage rates have already hit bottom. Mortgage rates are very powerful in determing how much home a buyer can afford. In some cases mortgage rates are more powerful than prices.

During the first week of December conforming 30-year mortgage rates climbed up to 4.635 percent. That's a half-point higher than the lowest rate in October. The Mortgage Bankers Assocation (MBA) predicts that the average rate for conforming 30-year loans will increase to 4.7 percent in the first quarter of 2011. MBA also predicts that interest rates could go as high as 5.1 percent by the end of 2011.

Buyers should consider buying a home at a hgiher price with a lower interest rate opposed to buying a lower priced home at a higher interest rate. In the long run it makes more financial sense. Of course that depends on how long the buyer plans on owning the home. Buyers should infact be watching interest rates instead of home prices and try to get the best interest rate.

Here's an example of how mortgage rates can impact payments and purchasing power more than the price of a home.

Monthly principal and interest per $100,000 borrowed - at 4.25 percent the payment is $492, while at 5.25 percent the payment would be $552.*

For a loan amount with $2,000 monthly principal and interest - at 4.25 percent the loan amount is $406,000, while at 5.25 percent the loan amount is only $362,120. A buyer can buy a home worth $43,880 more at the lower interest rate of 4.25 percent. *

*Calculation Courtesy of Guaranteed Rate

Recently, The National Association of Realtors chief economist Lawrence Yun held a presentation for Denver-area realtors and announced that the housing market in Denver is in better shape than most areas and is also set to recover quicker than other areas markets.

The topics covered in his hour-and-a-half conference in Northglenn included: life since the tax credit has expired, the governments bond buying spree, inflation/deflation risks, preservation of the home mortgage deduction, the shadow market, both Freddie Mac and Fannie Mae, and a probable timeline for the recovery of the housing market.

Although its tough for us Denver-ites to believe, Yun informed InsideRealEstateNews.com that by 2011, we may be seeing a degree of housing shortage along the Front Range. Yun noted that home-construction in Denver, as well as from Ft. Collins to Boulder, is at a 40-year low, even at a time when the population continues to grow. Fortunately, Denver experienced over-building before the market went south, which should help to prevent a real home shortage crisis.

The home-buyer tax credit helped lower the number of houses on the market and it also stabilized home prices at the end of the credit, according to Yun. Yun predicts the problems regarding faulty foreclosure documents will be resolved in the next few months, too. If the market indeed rights itself, then we will hopefully be seeing a return to the good old "American Dream" the dream in which renters turn to buyers and owners enjoy building equity as the value of their home increases over time.

To read the complete article, click here.