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How low can they go?
07/27/2016

How low can they go?

Super-low rates make for supercharged market

How low can housing prices go?

Talk to a real estate agent or a mortgage lender about today’s home sale market and you’re likely to hear extreme adjectives. “Lowest,” “fastest,” and “best” top the list.

The word “lowest” pops up when you’re talking interest rates.  Despite predictions by the Federal Reserve Bank and virtually every other forecaster that rates would rise throughout 2016, borrowing costs have fallen. A year ago, the prevailing rate on a 30-year, fixed-rate loan was 4.125%. Last week, it was 3.375%. And 15-year fixed rates were pegged even lower, at an eye-popping average of 2.625%.

As for “fastest,” well-priced starter and “step-up” homes are typically attracting multiple offers, some over the asking price, often in a matter of hours.

That leads us to “best,” as in the best market for selling a home that many agents have ever seen. In the 70-year history of Shorewest Realtors, last year was the third best for home sales, said General Sales Manager Ted Dentice. “And this year is going to be even better.”

For home buyers, super-low interest rates translate to more home for the dollar. The latest North Shore Bank / GMAR Home Affordability Report shows that while median home sale prices have risen in most communities over the past two years, median monthly payments have held steady or even dropped. 

Take a lower-end home in Germantown. Two years ago in the second quarter, the median sale price for a home in the lower third of that community’s price range was $102,250, with an average monthly payment including principal, interest and property taxes of $533. This year, the median sale price was substantially higher, at $110,000. But the monthly payment was essentially the same at $534.

More dramatic is an example from Oak Creek. While the median sale price on a higher-end home rose from $277,000 in 2014 to $280,000 in 2016, the drop in interest rates cut the average monthly payment from $1,576 to $1,481.

“You’re definitely getting more house for the buck right now,” said Michael Kellman, senior vice president for consumer lending at North Shore Bank. “We thought rates were at the bottom some time ago and they’ve come down even lower.”

So when will rates rise? Beware of predictions, said Drew Wallach, senior vice president and chief financial officer at North Shore Bank. “The common wisdom is that rates will rise later this year, but the common wisdom has been wrong over and over for the last couple years.  I see a possibility of rates moving in either direction.”

Turmoil in international markets causes worried investors to move capital to the perceived safety of U.S. money markets, he noted. That puts downward pressure on interest rates here.  At the same time, a strengthening U.S. economy and growing consumer confidence leads to rising prices and, potentially, inflation. That generates upward pressure on rates. It all makes for a very cloudy picture.

For Realtors® and agents, the picture is crystal-clear: It’s a fast-moving sellers’ market. Just ask First Weber Realtor® Doug Milinovich, who sold 11 houses in the second quarter. The key to success, he said, was moving very, very fast.

“Just to cite one example, we listed a house and had 14 showings booked within four hours of the listing being posted. By 10 p.m. that night, we had four offers to present to my clients. By the end of the night, we had an accepted offer that was $5,600 over the list price. And that’s not a unique example,” he said.

In addition to sometimes offering more than the asking price, successful buyers of starter and step-up homes are using other aggressive tactics such as waiving an inspection clause, Milinovich added.
And it almost goes without saying at this point that getting a letter of pre-approval from a mortgage lender has become a virtual necessity, noted North Shore Bank’s Kellman.

For real estate brokers and agents, the only dark cloud is the continuing shortage of inventory, with too many potential sellers still sitting on the sidelines.

Shorewest’s Dentice sees two factors keeping homes off the market. “Some people want to sell, but they’re afraid they won’t be able to buy something because the market is so hot. So it’s a vicious cycle in that regard,” he said. “Also, there are homeowners who couldn’t sell several years ago because their home was worth less than they had paid for it, who don’t realize that they now have positive equity.

“The message we’re trying to get out is, ‘Don’t assume you can’t sell. Let us give you a sense of how much equity you have in your home. You may be pleasantly surprised.’”

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