4% mortgage rates?

Great news for our ailing real estate market in Front Royal and Warren County. The Federal Reserve today announced that it is buying an additional $750 billion of mortgage-backed securities and agency debt, and $300 billion of longer term Treasury bonds - a total cash injection of $1.15 trillion, doubling its previous efforts in boosting the money supply.

The aim - and the pundits believe it will work - is to ease credit, and reduce interest rates for most borrowers, in particular mortgage borrowers. All being well we could see mortgage rates down to 4% or very close, a challenging target set by the government a couple of months ago.

The one question mark is whether the mortgage lenders will pass on the full benefit to the borrower. I hope so, and the belief is that they are likely to, due to political pressures especially on those banks that have received substantial (and cheap) TARP funds.

This is great news for home buyers - record low interest rates to take advantage of the very low house prices that are now available in the market. If you are a first time buyer, you may well also qualify for the 10% (max $8,000) tax credit. What a time to be in the market for a home!

If you've been thinking of buying, but sitting on the fence waiting, now may be just that window you have been waiting for. Give me a call or email me to see how I can help you to find the right home.

Market Update

We have been stuck in a range of around 25 to 30 sales per month for some time now in Front Royal/Warren County, but have seen the median sale price steadily fall due to the high level of foreclosures. Of the 27 sales in February, 22 (81%) were foreclosures. To put it another way, only 5 homes in regular private ownership sold in February, out of around 350 privately owned homes on the market. So far this year just 5 homes have sold for over $300k, and none over $400k.

The first chart shows active listings, sales, and months supply over the past 3 years. Click on the chart for a larger image.

The second chart illustrates the falling median sale price (green) and the Days on Market (purple) for homes that sold. Click on the chart for a larger image.

Confidence remains the principal obstacle to an improving market, and much of that depends on the general economy over the coming months. However there is no doubt that an improvement in activity will not bring about an increase in prices for a long time (my guess is 3 or 4 years). Why? Because there is still a significant over-supply of homes on the market (nearly 16 months supply), along with a large reserve of wannabe sellers waiting in the wings for a better opportunity to sell, who have either given up over the past 12 months, or who haven't yet put their home on the market.

Pricing of listings remains absolutely paramount. Most of the foreclosure companies get it right, which is why their homes sell. Most private sellers are still getting it wrong, as they cannot come to terms with the price necessary to achieve a sale.