Mortgage rates fell this week, but not by much.  Week of 13 March 2009. The 30-year, fixed-rate mortgage fell 4 basis points, to 5.37 percent, according to the Bankrate.com's national survey of large lenders.  One year ago, the mortgage index was 6.39 percent; four weeks ago, it was 5.34 percent.  The benchmark 15-year, fixed-rate mortgage fell 6 basis points, to 4.88 percent. The benchmark 5/1 adjustable-rate mortgage fell 5 basis points, to 5.34 percent

Below is a graphic representation of 30 and 15 year fixed rate mortgages in Florida over the past 3 months.  
 

To see what effect rates have on your buying power try using this mortgage calculator with different loan amounts and interest rates.

Mortgage rates follow bond rates.   When people hear that the Federal Reserve has cut short-term rates, they expect long-term mortgage rates to move in the same, downward direction. But it's a stubborn fact that when Fed rate cuts are deemed inflationary, long-term mortgage rates go up. Bond yields rise to attract investors and mortgage rates follow.  And that's what has been happening in the past few months.   Heres why.  When the Fed cuts rates, the economy typically is the beneficiary.  This means businesses will do better as more sales are made.   Manufacturers, service providers and retailers will then be more inclined to raise prices in the face of climbing demand.  Lets say the Consumer Price Index (CPI) indicated that overall prices rose 0.4 percent last month. That translates into an annual inflation rate of almost 5 percent.  That rise in inflation reduces the actual return on a fixed interest rate investment, so with 5% inflation, that 6.74% mortgage note returns only 1.74% "real" interest. By that measure, a rate of 6.74 percent for a 30-year mortgage seems like a bargain.   

This is all interesting stuff but where are rates headed?  My prediction is simple.  Up.  When bond investors foresee inflation, the result is higher bond yields. That carries over into higher mortgage rates. Maybe it's not a coincidence that, in the last week, the biggest jump in bond yields happened on President Barack Obama's inauguration day. President Obama and his advisers have said that it would be safer to err on the side of overspending, rather than not spending enough.  Obviously the effect of this policy would be inflation.  Another recent development may soon be forcing rates up as well.  A measure known as "Cram Downs"  that would allow bankruptcy judges to modify mortgage terms for homeowners facing possible foreclosure.  Critics of the plan say that enacting this measure would result in major losses for the financial institutions holding these mortgages.  To counter these losses banks would be forced to raise rates on everyone.  For more information and answers to some frequently asked questions click "Cram Downs".

 Florida Voters Pass Property Tax Reform!   Florida voters overwhelmingly approved Amendment 1, giving themselves some much needed property tax relief.  The amendment will reduce the annual tax bill for homeowners about $240 by increasing the homstead exemption amount from $25,000 to $50,000.  The amendment also includes a provision that allows people to take their accrued "save our homes" savings with them to a new home.  This "portability" feature will free people who have felt trapped in their homes by the threat of huge property tax increases.  Not only will passage of this amendment lower property taxes it will also breath some life back into the housing market by lowering one of the financial barriers to home ownership.  An improvement in the housing market will provide a boost to the overall economy, provide more jobs and increase revenue to the state coffers.  It is good for everyone.  For more details and answers to frequently asked questions "FAQ's" click "Amendment 1".  

Buyers are still in charge in Jacksonville Florida!   According to the North East Florida Multiple Listing Service (MLS) 2,375  residential properties came on the market as new listings in February bringing the total to .  During the same period, 990 properties were sold and 2,047 property listings expired without a sale.  What do these numbers really mean and how do they affect real estate market conditions.  In an effort to add some perspective to these numbers lets look at a statistic known as the market absorption rate or months of inventory and what impact it has on the current real estate market.   The market absorption rate is obtained by dividing the number of homes for sale (currently 14,008) by the number of sales (990 last month) which gives us the number of months it will take to sell all the homes for sale if no new listings come on the market.  In this case that´s 14.15 months of inventory.  Compare this to 6.87 months in February of 2006 and you get the picture.

In the first half of the year a clear trend was developing  that would have brought inventory in line with demand by early 2009.   However in July inventory once again began to climb.  The chart below provides a graphic representation of Jacksonville home sales data from January 2007 to December 2008.  As shown in the graph inventory declined for six straight months from Jan 08 to Jun 08 followed by some ups and downs.