December brought a late Christmas present to America's homebuyers -- lower mortgage interest rates. Will they continue through January? That's very possible, considering a recent economic event as rare as a solar eclipse.
If you've never heard of a negative yield curve, now's a good time to learn. That's when long-term interest rates fall lower than short-term interest rates. Since banks and securities firms borrow at short-term rates and lend out their money at long-term rates, an inverted yield curve is a good reason to stop lending money.
What many believe is that the negative yield curve signals a slowing economy and less inflation.
The good news for buyers is that if the economy is slowing, fears of inflation will subside. Mortgage interest rates will continue to drift down. The bad news is that nervous lenders might tighten how much they loan out by raising interest rates on higher risk loans.
With home prices still rising, buyers need a break, and they got one with new conforming loan limits. The Department of housing and Urban Development just raised the limit on government-insured mortgages, otherwise known as FHA-insured conforming loans, in 2006 to nearly $363,000. That's nearly one-third more than the average priced home in the U.S., which allows first-time and low-income buyers in high-priced markets a shot at a mortgage without paying higher interest rates for nonconforming jumbo loans.
Freddie Mac also raised its loan limits to $417,000 but that's only for borrowers with the best credit. Feel the squeeze?
In related news, the National Association of Realtors said that existing home sales fell below the record 7 million annual rate for November. Inventories rose to the highest levels in 19 years. Meanwhile, homebuilders are slowing the number of houses they're building to absorb standing inventory.
The NAR's Chief Economist David Lereah says, "We are really on track for a soft landing."
All of this bodes well for buyers and sellers. If low interest rates encourage buyers to continue investing in real estate, sellers will be able to sell their properties, but they'll have to be smart about it.
Buyers will have their pick of properties to choose from and in a buyer's market, they demand homes in premium condition.
