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Taking the 4% for Granted

Blog by Kristen Meyer | November 20th, 2010

Interest rates have been bopping around the 4% mark for a good part of 2010.  We had a client last week who, had he locked and purchased, was quoted a 3.875% interest rate with standard origination fees.  That's a magical rate that I've never seen on a 30 year fixed mortgage.

Toward the end of last week, rates started to move up.  By the end of the week they were still in the mid 4% range, but it begs the question:  How low do rates need to be for buyers to realize the opportunity in the real estate market RIGHT NOW?

I know, I'm a Realtor.  I have a vested interest in people buying homes, blah blah blah.

We have become complacent as a nation with our expectation of what interest rates should and will be.  When I bought my first home in 1999, I happily settled on a 7.635%.  My mom cheered me on with her tales of "I remember when mortgage rates were 18%".  I thought I had timed the market perfectly.  I bought in November, wrangled a new roof from the seller, and started my obesession with being a homeowner.  The ensuing years sounded like a dot-com story.  The value of my property more than doubled.  I refinanced twice and paid off my credit cards.  In 2008, my husband and I pulled out our equity and made a down payment on our dream home - a freaky mid-century fixer with a slight view of the sound and more importantly, almost 4000 square feet.  After all, we had one small child now and surely she required a floorplan suitable for an indoor roller rink.

So, we closed on our new home.  The morning our loan funded the paper was delivered on the front porch with the harrowing headling "WAMU FAILS".  We swallow the nervous feeling in the pit of our stomachs, pack up our 3000 cd's, and move.

The next week we list our home.  The magical asset that we had used like a credit card to buy our next house.  I mean, I'm a Realtor.  I know what it takes to sell a house.  Our house would sell.  It might take a month, but it would sell.  Little did we know, we were listing during the Great Credit Feeze of The New Great Depression and nobody was buying or selling anything.  In fact, when my lender called me to say we had closed on our new home she had the foresight to say "that's the last stated income loan to close in the US".  She was right.

I digress.  Fast forward 2 years and we have managed to keep our last house as a rental with fabulous tenants.  We're settling in to our mid-century fixer and have come to accept the fact that the "fixer" process is just going to take longer than we thought.  We made the right move - it was tough, but we landed in a place that gives our family a quality of life that is worth the transition.  And, I get to marvel and my beautiful, locked interest rate that starts with a 4.

Don't ignore the 4.  It should hang around this year according to most economic pundits, but who knows?  Don't get Freaked by a 5 or Nix a 6.  Those numbers equal a level of affordability that we have become comfortable with. 

My rule of thumb for people who are grappling with the concept of the right time to buy is this:  If it's the right time in your life, it's the right time to explore your options.  There is no doubt in my mind that especially if you are a first time homebuyer, are currently paying rent, and plan to be in a house for a decent amount of time it may make perfect sense to buy now.  Especially in Seattle. 

And don't take the 4 for granted.

Read the latest on national mortgage rates.

Blob post by Kristen