Mortgage rate drop sparks refinancing wave

by The Real Estate Faction on January 21, 2012

Historically low interest rates coupled with a strengthening economy are getting the new year off to a fast start, stirring hopes that the Bay Area’s dormant housing and mortgage markets may finally come to life in 2012.

After hovering around 4 percent since September, rates reached an “all-time record” low of 3.89 percent for a 30-year fixed-rate mortgage last week. More first-time buyers are shopping for homes, according to brokers, while those who already own homes and have enough equity are keeping mortgage brokers busy with requests to refinance their loans.

“We’ve had a huge increase,” said mortgage broker Andrew Soss of Stewart and Soss Mortgage in San Jose. “I’d say over the month, we’ve had a 40 percent increase in applications.”

Low interest rates are only one part of the equation needed to stoke the housing market. A better economy with more hiring and a sense that home prices will stabilize this year have people who have been on the sidelines beginning to act.

“It’s confidence that the economy is moving forward,” said Alex Gonzales of Vintage Mortgage in Pleasanton.

The record low average rates were reported last week by Freddie Mac, a government-sponsored company that publishes a weekly rate survey.

A $400,000 mortgage at 3.89 percent would be $263 a month less than one at 5 percent. Rates were at 5 percent as recently as May 2010.

“It’s great for the people who can do it,” said Tom Sammon of Tom Sammon Mortgage in Walnut Creek. But, he said, refinancing is out of reach for underwater homeowners and those with employment or credit problems.

Underwater homeowners — who owe more than the home is worth — can expect a break soon because new rules for the Obama administration’s Home Affordable Refinance Program will greatly enlarge the pool of people who can qualify for refinancing.

Borrowers’ psychology is the reverse of what it was during the housing boom, Sammon said. Now, few who are refinancing want to take cash out, and many are using the low rates to pay off their houses sooner by switching from a 30-year loan to a 15-year mortgage, where the average rate last week was 3.16 percent.

“The way I look at it is long-term,” said Keith Chow, a Silicon Valley engineer who is refinancing to a 15-year mortgage. “You pay a lot less interest.” He said his parents remember interest rates of nearly 20 percent. Rates reached 18.63 percent in 1981, according to Freddie Mac.

Dede George, an accountant, and her husband, a manager for a sheet metal company, have refinanced their San Jose home several times since they bought it 10 years ago. This time, they’ll lower their payments by $200 a month. The savings will first go to paying down bills.

Connie Bantillo, a vision therapist, is refinancing the mortgage on her home in San Jose for the first time in “many, many years.” She’s taking a small amount of cash out and hopes to buy a car with it. “What better thing for the economy, right?” she said.

Mortgage applications were up a seasonally adjusted 4.5 percent last week, the Mortgage Bankers Association reported.

In addition to all the refinancing, first-time buyers are entering the market, where they are competing for inexpensive properties with investors paying cash.

A California Association of Realtors survey shows first-time buyers growing from 19 percent of the state’s housing market in 2008 to 43 percent in 2011.

“We’re seeing many, many more first-time buyers getting into the market,” said Barbara Lymberis, president of the Santa Clara County Association of Realtors. “The phones are ringing off the hook.”

Lymberis, of Perfect Harmony Properties in San Jose, said the improving employment picture is also making first-time buyers “feel a little bit more secure about taking that first step. All the factors are fitting into place.”

“The only problem they are having is they are in competition with investors. They need to be out there looking and they need to act fast.”

She recently helped a client snag a home for about $300,000 after a sale to an investor fell through. “We really slipped him into this one under the radar. We found out it was going back on the market and we called that minute.”

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