4.5% Home Loans Help, Hurt or Just Silly?
December 12th, 2008
Categories:Real Estate News
The treasury department announced last week their plan to push 30 year fixed rate loans to 4.5%, which would be the lowest rate for a 30-year fixed-loan in a very long time.
They think it will help stimulate the economy, but will it really boost sales and stop the free fall of home prices?
While home sales are slower than normal, creating initiatives to boost home sales is like putting a bandage on a bullet wound.
We can pile as many snoopy bandages as we want, but the bleeding will continue and eventually the bandages could become the source of an even bigger problem.
4.5% interest rate loans would only go to help home buyers get off the fence and buy in what is a historically strong buyer’s market. A low interest rate means a lower payment, however, as we all know a low interest rate will simply mean the justification of a higher purchase price and a similar payment. So instead of moving inventory and getting more people into homes, a lower interest rate is likely to get more home owners to stretch their limits and buy a home that is bigger than necessary or financially affordable. Again, this is just the snoopy bandage.
What about the bullet wound? The source of this continued housing market crisis is the increasing number of foreclosures. More foreclosures mean more people on the street, with screwed up credit scores, who are now wasting more money on rent and higher interest rate payments, when they could be putting that money back into their homes. Many of these homeowners are willing to pay the outrageous loan balance on their homes, if they could simply refinance to a lower rate and a monthly payment that is affordable. Why aren’t we putting our resources to keep these people in their homes?
The bullet has to be removed and the wound sutured closed before we can start digging through the bandage box to find the best snoopy bandage.
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