Expect Interest Rates to Start Rising in 2Q 2010

A lot of our real estate partners and home buyers are asking the question, “What do you expect interest rates to do over the next 6-12 months?”

I’m telling people to expect them to go up, sooner rather than later. Here’s why:

The federal government hasn’t “supported the mortgage market so much as it has become the mortgage market” in the last 18 months. This isn’t conjecture… this is a direct quote from the Office of the Special Inspector General’s report on the TARP program. CLICK HERE to see/read that report.

Right now, the Federal Government is purchasing over 90% of the mortgage backed securities (as compared to about 60% of all MBS in 2007). It will NOT continue this trend indefinitely. In fact, the current Administration and the Fed has basically told us when they will stop this practice… Expect this to end by April/May 2010. Between April 2010 and December 2010, you can expect mortgage interest rates, currently at levels of around 5-5.5% , to increase to 6.5% to 8% range.

Folks, that’s about a 1-2% increase. It’s gonna happen. Don’t be fooled and don’t think that “the government has to keep rates low just because they have to.”

Why am I saying this and giving you this information?

Simple: The BIG question these days is, “Is NOW the right time to buy or should I keep waiting for prices to nudge a little lower?”

I can tell you, unequivocally, that NOW is the time to buy and quick. Why? Again, simple answer. IF you buy now, before April 30, 2010, you get between $6500 and $8000 tax credit and an interest rate at the aformentioned rates.

Let’s say we see home inventories increase – even substantially over the next 6 months – placing pricing pressure such that we see home prices fall another 10% in SW Florida. Your monthly payment will still be higher if you have an interest rate of 6.5% and a 10% lower sales price in 4 months vs. buying now at 5% interest rate and a 10% higher sales price. Do the math… you’ll find out that what I’m saying is true.

And that’s not even taking into account the tax credit which expires April 30, 2010.

The government is NOT going to do this indefinitely and they have said this. The president dedicated 30 specific words in his State of the Union Address to the housing sector. The Fed is making specific statements basically showing their hand and letting the prospective home buyers out there know… buy now or you will look back and have some regrets.

I believe we are going to see more inventory hit the market folks. Prices will fall some more after we’ve seen a slight increase. Everyone’s worried about “what if prices fall some more? Oh my God, what if that happens? I’ll be  upside down in the home I just bought!!”

Listen, unless you plan on having to sell that same home in the next 12 months and move, who cares? Really. There are 3 VERY important aspects to buying a home now vs. waiting… (1) Prices, (2) Interest Rates, and (3) Tax Credits.

2 out of the 3 indicators are going to be worse for buyers in the next 3 months. Mark my words. You make the decision.