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US Home Mortgage Trends

May 31, 2008
The US home mortgage trend and the fluctuation of home mortgage rates are important benchmarks of the overall economy. While there are other other economic factors interest rates are largely tied to the decisions made by the Federal Reserve Bank. Interest rates are adjusted by the Fed according to financial matters in the US such as GDP growth, export and import numbers, and the inflation rate.

Mortgage rates are used to help control the economy. If the movement of the economy is considered to be too fast, higher rates are imposed so that individuals and corporations would be less willing to apply for loans. Conversely if the economy seems to be rather slow or stagnant, rates are lowered so that people would be more enticed to engage in additional business transactions. Thus home mortgage trends will generally move up or down as the economy contracts or expands.

Trend in Home Mortgage Rates:

It is interesting to observe that mortgage rates have been lower than 8.5% since the year 1996, with the lowest rates of about 5.5% seen in the middle of 2005. While individuals might see an extremely different mortgage rate at a particular time due to other factors that affect rates (their salaries or credit histories), the lower trend has generally been observed to be generally consistent throughout the US economy.

The fall of interest rates from higher levels prior to 1996 allowed more people to buy their homes, purchase lands, or trade up to larger houses. Perhaps this reflects an effort to speed up the economy from that time until now. However this year, mortgage rates are rising probably because of some unwise lending decisions made during a time of too easy money and rates held at extremely low levels by the Federal Reserve Bank for too long of a time period. A vicious correction is now underway with mortgage markets highly unsettled.

Current Home Mortgage Rates:

Mortgage rates in the year 2008 are generally higher than that of the previous year with rates of about 6.5 percent for 30-year fixed rate mortgages (FRM). The difference between interest rates this year and last year are not really significantly high as it would entail only a few hundred dollars increase in yearly payments. This probably would not stop many people from getting mortgages, however if the rise continues, you would expect that more people would become hesitant to apply for home loans.

The problem with the current trend in home mortgage rates is not so much an increase in rates but an unwillingness of leaders to lend, even to people with good credit histories. The trauma and losses to lenders caused by the ongoing sub prime mortgage debacle starting in 2007 has left many lenders with weak balance sheets and they are operating in a panic mode. A record level of foreclosures in 2008 is causing a sharp contraction in home mortgage lending activity.

With probably a few hundred billions of mortgage and derivative instrument write downs still to take place by mortgage lenders the trend for new home mortgage lending will probably remain down for some time to come. However, that is not all bad news for those looking for a new home. People who have cash to work with and a good relationship with their bank can probably find super deals on homes by working directly with stressed out lenders who have an excessive inventory of foreclosed homes on their books.

In fact, if you have significant cash on deposit with a bank or financial institution you may not even have to use it for your home purchase. Even with the home mortgage trend down lenders that have non performing loans on their books will be eager to work with those who have capital on deposit and may make deals that will require very little if any of the cash rich home buyers cash to be used as an extra inducement to get foreclosed homes off their books.
About the Author
Gerald "Taipan" Greene is a retired forex trader and portfolio manager who worked in Asia for over 20 years. The nickname was acquired in Hong Kong and is now used for a number of financial, political, and Internet business related blogs. One of them is at Home Loan Services
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