mortgage roller coaster

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Fasten your seat belts – it’s going to be a rough ride. Makes me think of a sultry Bette Davis, or interest rates. Welcome to another roller coaster ride when it comes to interest rates in 2010.

While the year’s economy and housing market may resemble Disney’s Space Mountain with fast twists and turns in the dark, filled with many surprising ups and downs, our interest rates will likely be more like the caterpillar ride at the local county fair – slower and safer, but no less entertaining.

Seriously, brace yourself for some big changes in interest rates this year as our money markets continue to belch and groan in response to the mixed economic data released each week. The changes won’t come in shocking surprises or sudden jolts the way some major economic indicators come at us – but the changes could be big and that will have a major impact on the houses we are able to buy due to affordability.

We’ve heard it over and over again the past couple of years that “affordability” has improved significantly in California – up from a pathetic low of around 20% at the peak of the housing boom to a more palatable 50-60% today.

Still, that affordability indicator could be wacked off at the knees for those of us who are in markets that have dropped in pricing by only 8% (Alamo) not 40% (Concord).

Why? Because if interest rates go up significantly, as they are expected to do in 2010, and our housing prices continue to hold, as our little world appears to be doing – what you save in price, will be eaten up in interest payments.

For example a $1MM home with a 75% loan to value will leave you with a $750,000 loan. That 30 year loan at 4.75% fixed interest, compared to that same loan amount at 5.75% will save you $72,975 in interest only in just ten years.

So while a $75,000 price swing is a lot of money, so is $75,000 in interest payments. And it could get worse. I have a client who insists interest rates will be between 8-9% in the next three years.

I can’t get him to tell me exactly why he thinks that – but just the thought of it makes me as rattled as I was when I stepped off the Roller Coaster at the New York, New York Casino in Las Vegas this fall. That is a very scary thought and will have a HUGE impact on housing in our market and beyond.

(Click on the graph above to view full size.)

I’ve seen the moderately priced homes in our area being snatched up fast and at or above asking. So I’m about to say something you haven’t heard in a while: if you are thinking about selling, now is a good time to do it.

Inventory is terribly low throughout the San Ramon Valley and the good houses out there are selling VERY fast (I would be delighted, by the way, to be your Realtor and sell your home :-)). And if you are thinking about buying – find a house you love (I can help you with that too), negotiate a good and fair price and get a GREAT interest rate on your mortgage.

Check to the left for current rates and stay posted here to follow what they’re doing. It’s going to be a bumpy ride!

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