Low interest rates create great real estate opportunities

You don’t have to look hard these days to find people blaming the housing market for everything wrong with today’s economy.

Though the auto industry seems to have borrowed a bit of the public spotlight in recent weeks, we still see fingers pointing at housing — sometimes even going back years — plus closer examinations of lending practices and increases in foreclosures.

Lenders and real estate professionals nationwide are certainly growing extra cautious in their approval processes.

But at the same time, Inland Northwest brokers and real estate professionals are saying this is actually an ideal time to consider a home purchase.

“Our MLS indicates that Spokane’s median price dropped about 1 percent, while the average price dropped 2.3 percent compared to a year ago,” said Ken Sax, general manager/associate broker, Coldwell Banker Northwest group. “People need to understand that each market around the country has its own unique set of dynamics, and that Spokane continues to buck the national trend.”

When people say that the housing market is dropping, the first thing Sax asks them is which market are they referring to — Los Angeles or Spokane?

Part of the reason for the current buyer’s market, at least locally, may in be are interest rates, which continue to show a very welcome decline, at least for those seeking favorable loan options.

In the long run, a lower rate can translate into a smaller monthly payment, or maybe even a better price on a larger piece of property.

For instance, a $150,000 mortgage over 30 years at 6 percent can see a reduction as much as $100 per payment vs. a 7 percent rate.

Likewise, a 6 percent rate vs. a 7 percent rate could lead to higher purchasing power and help the same borrower qualify for a loan of $165,000 instead of the initial $150,000.

This month alone, the Associated Press reports that 30-year mortgage rates have dropped to their lowest level since January.

Last week, Freddie Mac reported that average rates on 30-year fixed-rate mortgages dropped to 5.53 percent, the largest one-week drop in 27 years. Two weeks ago, the rate was 5.97 percent, and the low for the year was 5.48 in January. Rates are also a full point lower than late October.

Other terms are following this, including 15-year fixed-rate mortgages, which averaged 5.33 percent down from 5.74 percent in late November.

Though the current round of financial crises has many experts uncertain as to what it will take to stabilize the economy, one anticipated move is for the Federal Reserve to lower lending rates even further in order to buy billions of dollars worth of mortgage-based securities.

Patti McKerricher Boyd, president of the Spokane Association of REALTORS®, is among several in the local real estate industry trying to find the positives.

She said housing historically has led the economy in recoveries, and recent government action, including a $700 billion bailout, may go a long way to stimulating recovery efforts.

Even over the last few years, potential home shoppers have seen property prices falling in many markets. Combine this with lower interest rates, and there’s great buying conditions.

“The Spokane area doesn’t always follow national trends closely, so we never saw some of the dangerous highs and lows that other communities did,” she said. “Instead, our collective affordability remained fairly stable.”

The Inland Northwest’s population continues to grow as well, which is also projected to lead to continued interest in new housing.

She said real estate professionals can also be good resources for how to connect with suitable lending institutions and local loan programs.

Zero-down deals are tougher to find now, but there are plenty of financing options especially for first-time buyers. Government loans like FHA or VA, for example, can offer rates as low as 3 percent.

Rural loans are also a good possibility for those who may be interested in living outside of an urban area.

Don Walker, CEO of Horizon Northwest Mortgage, said today’s first-time buyers can find some great deals, and qualify for neighborhoods they may have not been able to get into even a year ago.

Sellers, many who are also motivated, are now working to make transactions possible through things like paying a buyer’s closing costs or “buying down” interest rates.

Walker said a current FHA program asks for only 3 percent down, but offers a $7,500 tax credit if the property is purchased before July 2009. If they buy before the end of 2008, they can include this credit on their 2008 tax returns.

“This is a life-changing opportunity for these buyers,” he said.