Mortgage rates dip a bit

The average 30 year mortgage rate dipped this week from 6.30% to 6.22%. This is good news for everyone, particularly those among us who are looking to purchase. Owners with variable mortgages, however, are unlikely to see any immediate respite in their monthly payments. Indexed ARMs march to the tune of different drummers, but the news is good for them as well if this means that interest rates will either decline or at least stabilize. Personally I don't see rates going down much more and I still think that this is a great opportunity to switch to the stability of a fixed rate mortgage. Will interest rate decline this bring the buyers back? Not in great numbers I think.
Mortgage rate drop
When I was out on tour a few weeks ago I stopped at a typical Oakland bungalow that had been on the market for a while. It was nothing special, but nice enough and had just been reduced in price enought that it looked like an attractive buy. The listing agent and I chatted about price reductions and the dearth of buyers compared to a year ago. "How low do prices have to go to attract a higher level of buyers", she wondered aloud. As I walked off to the rest of the house I wondered myself. It certainly was a question that I had been holding somewhere in my own mind, but I had never articulated it as directly as my colleague had. I had my answer by the time I returned to the living room after seeing the rest of the house.

"We'll see a lot of buyers back in the market when prices go up."

Here's my logic. The buyers drove the prices up for several years because of a sense of scarcity and a belief that they might miss the opportunity to own a home. As long as interest rates stay low and prices seem to be stagnant, or declining, there is likely to be a general feeling that it might be better to wait. That's understandable, but wait until what? What triggering event will signal that it's time to buy? I think the buyers will be back if they perceive that prices and interest rates are rising. It takes a while for that message to get out and to be repeated enough to be beleived. By that time much of the appreciation could have already happened as others use the lull as an opportunity to acquire good properties as bargain prices. For more on this "value buying proposition" see my colleague's analysis at:
Value Buying by Liz Stevens