Solano Real Estate Scene: Low mortgage rates a boon for buyers

Holy cow! I have been doing mortgage loans since 1979, six different decades. I will never forget the first time I rate locked a 30-year fixed-rate loan below 4%. It was in 1993 during a one-year refinance-mania rush that ended in 1994. The next time we saw mortgage rates with a 3 handle was during the next big refinance-boom from 2001 to 2003 when some people were refinancing every seven or eight months as the rates slowly but surely fell monthly. I thought it might be interesting for those of you folks who don’t have a mortgage calculator or the ability to talk into your phone and ask Siri how much a 30-year fixed rate mortgage payment would be on a loan to show my readers how significant these 3% rates are for our market and housing affordability. A $500,000 mortgage at 5% would be $2,684 per month and at 3% the 30-year fixed-rate payment would be $2,108 – $576 cheaper monthly. Let’s assume a buyer can afford the $2,684 per month and they are buying a house today at 3% versus the more average rate over the past 35 years of 5%. This buyer can now afford a mortgage up to $635,000 – $135,000 more than they could if the rate was 5%. This is how a market is made and one of the reasons our Northern California home values have risen substantially since Covid-19 broke out in 2020. We obviously want this Covid to end ASAP and we don’t need any more “Great Recessions” like the one that lasted from 2008 to 2013, but if the government keeps spending more money than it brings in and borrowing a trillion per year from China, other countries and pension plans, the Federal Reserve will likely need to continue to keep interest rates down below 5% for years to come. Remember what I always say: Your owner-occupied home should not be considered an investment because the only way it can pay off with a profit is if you sell it and move to Texas. Buy your house as a hedge against rent inflation and for the pride of ownership and either have it paid off by the time you are 70 or have more than enough investments in your brokerage account and deferred compensation that your mortgage is a non-factor when you retire.