CNC Mortgage Blog

Oct 29, 2009

This morning’s news about the growth in gross domestic product close to 3.5% for the US economy in the period July to September 2009 is good news. It doesn’t matter which side of party politics you are on. Growth is better than shrinking. A lot of the growth was fueled by government spending (cash for clunkers and first time home buyer credits). So???? Critics can question these results and what has been the cause for the improvement but we would all be very disappointed if growth had been negative again for a fifth consecutive quarter. But fortunately growth is estimated as positive 3.5%. We should be happy about that.

There are bills in the Senate extending the $8,000 first time home buyer tax credit beyond November 30 to April of 2010. A lot of first time homebuyers have been scrambling to get their purchase agreements done. Some first time home buyers are still waiting for the housing market to bottom out. They think that if the house goes down in value more than $8,000 they will be ahead if they are still able to buy it even if they don’t get the tax credit. They are gambling against two unknowns; will the house go down in value and will interest rates change.

Another important part of the bill in the Senate is a $6,500 tax credit for people who are not first time home buyers. This should move the middle and upper layers of the market. There is an $800,000 cap on houses for this stimulus money. In Minnesota $6,500 will cover most of the closing costs on a $360,000 mortgage loan.

The interest rate market has returned to a situation where Adjustable Rates Mortgages (ARMs) are below fixed rate mortgages. Today a conventional $200,000 5/1 or 7/1 ARM is below 4%, while the 30 year fixed is close to 5% and the 15 year fixed is near 4.375%. The drop in rates for ARMs makes refinancing an interesting option for people who plan to stay in the house less than seven years.