Posted on February 26, 2012
The last few weeks have seen thirty year mortgage interest rates at or near the 3.75% level.
Although it is beginning to seem like the new normal, these interest rates are truly remarkable since they are the lowest on record since mortgage rates began being tracked back in the early 1950's. I myself took advantage of these rates by refinancing my home (again) just last month. The Fed has indicated that they plan to intervene to hold interest rates near the current level into 2014 but world events or a nasty bout of higher inflation could have them re-evaluating their policy at any time. So the time to lock in these rates is now.
Although lender requirements are more stringent with complete income and asset verification now required, those with the down payment, a steady job and good credit can get a mortgage. Overall, loan requirements are reverting back to the way they used to be before the recent era of easy money, unqualified borrowers and stated income loans brought down many lenders.
These historic low interest rates combined with the decrease in home prices over the past few years have made homes in our area more affordable than they have been in a long time. The era that we are currently living in might be looked back upon someday as being the golden age to acquire real estate. The latest S&P / Case-Shiller Home Price Index for the greater Seattle metropolitan area (including King, Pierce and Snohomish counties) indicate that it was June 2004 the last time prices were lower than they are now. To put it in perspective; we have lost around eight years of home appreciation. (For the record, though, Seattle home prices are still almost 32% higher than in January 2000).
Although there is no way to predict where home prices are headed, and they may continue to slowly fall in the short term, there is evidence that the desirable close-in urban village neighborhoods in Seattle have bottomed out with prices now essentially flat. Some of these neighborhoods where I have been working (such as Ballard, Fremont, Phinney and Wallingford) are already experiencing a lack of inventory and multiple offers are not uncommon for nicely maintained and well priced listings.
On the outskirts of the City and beyond the City limits it is a different story. Distressed properties accounted for a third of all single family home sales in King County last year - and half of all sales in Snohomish and Pierce County. Distressed sales include foreclosed homes as well as 'short sales' in which homes are sold for less than the amount owed on the property. Looking ahead, the sheer number of bank owned properties in these areas is likely to feed an increase in 'short sales' as foreclosure sales further erode property values. Ultimately, though, these homes will be absorbed by home buyers (who realize that they can now own for less than they pay in rent in many places) or investors who will pick up bargain priced real estate - which will lead to a balanced market down the road.
The take away from all of this is that location still matters (more than ever). It has been proven that it is better strategically to pay more for a well located in-city property (with good schools) even though these homes may be older and smaller than what is available in the outlying suburbs. These in-city homes will better preserve value and withstand market declines over time as well as being more likely to rebound more quickly as demand picks up. And with the ultra low interest rates now available, even these choice homes are more affordable than they have been in nearly a decade