But the answer, according to local sources, is one that has traditionally held true for homebuyers regardless of boom or bust cycles. That is it really depends on what is right for you.
“The thing that people really need to understand is whether buying a home is the right thing to do really depends on your personal circumstance,´ said Tom Thibodeau, the academic director of the University of Colorado Real Estate Center. “Unless you expect to be in a property for two or three years, it will be less expensive to rent. And what do you expect to happen with the property? How much do you think it can appreciate?”
From an historic low of 4.17 percent for an average 30-year fixed mortgage as recorded by Freddie Mac in November, rates have climbed over the last half year. More recently, however, those average rates have bounced over and below 5 percent and are currently at 4.86 percent.
“I think the change we are going to see in the mortgage market is going to be gradual,” Thibodeau said, noting that the low rates have been held down by intervention from the federal government and the Federal Reserve. “We still have a huge inventory, and I think the government would be reluctant to make owner-occupied housing more difficult.”
When private markets quit buying mortgage securities, which are mostly packaged by Freddie Mac and Fannie Mae, after the lending crises in 2007 and 2008, the government stepped in, Thibodeau said. First, the U.S. Treasury began buying the securities, which now has been phased out, and then the Federal Reserve (which is actually a private institution). These institutions buying the securities allowed credit to flow into the housing market and continue to suppress rates, in comparison to what those rates might be if just left to public markets.
So, if the Fed stopped buying securities, or itself moves to increase rates, mortgage rates backed only by private markets would probably increase, Thibodeau said.
“The other question is what’s going to happen to Freddie Mac and Fannie Mae,” he said. “The president’s plan is to have them phased out, but housing prices are starting to go down again, which is a huge concern for everyone.”
In the last two years, refinancing with the low rates has been a breadwinner for mortgage brokers in lieu of much action in the housing markets. But while rates still are low, no brokers were saying that it’s low mortgage rates that have people beating down their doors to buy homes.
“We actually thought it was a pretty slow beginning of the year for us,´ said Carrie Nash, sales manager for SWBC Mortgage Corp. in Boulder. “But within the last two weeks, there has been a noticeable uptick of clients coming in the door.”
Nash said there has also been a noticeable change in the type of client who walks in the door; though there is the occasional one who doesn’t believe they will have to present firm evidence of their annual income. For the most part, she said, clients — especially younger clients — are coming in extremely well prepared and focused on what they can realistically achieve.
A good example of such a client, Nash said, was a self-employed woman who went to the Boulder affordable housing program to find a house, and knew she would need a co-signer to obtain a loan.
“Her position was, ‘My rent keeps going up, and I can afford to buy a home for less than what I’m paying, and I’ll know my mortgage payments won’t be going up,” Nash said.
For Grant Hickman, loan officer with Premier Mortgage Group of Boulder, the real motivation locally has come from stabilized financial situations for prospective buyers and not mortgage rates. In addition, Hickman said, he’s seeing a number of clients who are coming in with new companies.
“I think people are more comfortable with their job situation,” he said. “When they have a little more stability and prices have come down, that’s pushing people to buy.
“So I don’t see anyone who is really thinking they need to buy because of the rates,” Hickman continued. “Now, if they thought they were going to go up to 6 percent? …”
In the upper-end markets, where FHA financing is not available, it’s still a tough go for loans, said Scott Franklund, broker/associate of Legendary Properties at Coldwell Banker Residential Brokerage.
“Before (the housing crisis) you would see a lot more leverage,” he said. “But now, when they see what they have to perform in terms of paperwork, they just decide it’s not worth their time.”
Right now, Franklund said, about 80 percent of the home purchases in his market of homes worth more than $1 million are completed in cash.
“The banks are lightening up and coming around, but the banks are still slow to follow,” he said.