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Low mortgage rates may partly explain low inventory

Scott has an interesting post that may partly explain why there’s such a low inventory of homes on the market: Low mortgages rates.

Basically, it boils down to many homeowners not wanting to sell if it means losing their super-low mortgage rates. As one of Scott’s readers puts it: “No way will I give up my 3.25% mortgage, without some very compelling reasons.”

The phenomenon, called “lock-in,” is quite serious, according to a recent study by DePaul University’s Institute for Housing Studies.

So let’s get this straight: A monetary policy of low interest rates designed, in part, to spur housing and economic activity is actually causing slower housing and economic activity.

Makes sense to us!

File under: Damned if you do, damned if you don’t

One Response to Low mortgage rates may partly explain low inventory

  • The banks are making it very hard to get a loan. Recently I did a couple of refi’s and after many many months (March 2013 to Oct. 2013) was pleased that I got 3.125% (fixed) on an investment property and 2.875% (fixed) on the place I live. Perfect payment/credit history, same bank (BAC) now I’m looking to buy a place for $945K with a $700K down payment !! yet the bank is drilling down deep to find reasons (it seems) to not lend me the $245K. Regardless of having more than that in savings, steady employment, good credit, etc. recently, they seem expert in having new people in the company contact me to say that he/she is my primary point of contact and that he/she is standing by to serve me: “Whatever” I say, “Give me the loan or I walk!” (they don’t care if I walk)

    That there are low rates is great for those who can get a closing.

    I feel that the banks know that huge inflation is coming…

    During times of huge inflation it is better to owe money than it is to be owed money.

    Personally, I look for a low fixed rate with a 10-15year term, and then I check to see if I can rent the place out for about what is due each month. (I figure ‘the value’ by how much cash the place can generate each month)

    Over time rents will go up as will taxes. But I want to own the place ‘free and clear’ and be able to pocket every dollar over whats due for taxes. I can repair the place myself.

    There are always going to be sellers. Sometimes you need to knock on some doors to find them– otherwise– you can wait for open-houses and go with the herd.
    But be prepared to act fast.

    People will sell these days even with these low rates for no other reason than that they expect to get a new loan with a low rate.

    One guy says: “No way will I give up my 3.25% mortgage, without some very compelling reasons.”

    As reported one still needs to know: 1. What is your LTV? 2. Is your loan fixed or adjustable? 3.What if you lose your job, can you get another? 4. What percentage of your monthly earnings goes to your PITI, Principle, Interest, Taxes, Insurance? 5. Do you have at least 12X your monthly expenses in cash?

    There will be many many more sellers in the years ahead as the entire system goes through major convulsions.