Bad Credit Online Magazine - Daily News and Advice on Credit, Debt and Mortgage : Home sales dipped in November, the prices decreased as well

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December 29, 2005

Home sales dipped in November, the prices decreased as well

Many blaming slower sales which are only 1.7% below of October sales, and lower prices which are 1.4% below of October prices, on rising interest rates. It is not the case, we think. Simply it is a seasonal adjustment when many homeowners already moved as school season and warmer weather have much more influence than a small increase in mortgage rates which are still very low. Interest rates will really start hurting when they will go over 7 percent for a 30 year fixed mortgage and stay that way for continuous period of time, at least 2 - 4 months.

According to Freddie Mac, the national average rate for a 30-year, conventional, fixed-rate mortgage was 6.33% in November, up from 6.07% in October. Let's round up these rates to 6.375% and 6.00% respectively.

Consider these numbers: for $200,000 mortgage you pay $1,247.74 at the interest rate of 6.375%, and $1,199.10 at 6.00%. That is difference of $48.64 a month which is not going to stop too many buyers.

For $300,000 mortgage, the same difference would be 4 cents short of $73. People assuming $300,000 mortgage are not bothered with $73 increase.

Another reason as we see it, the potential pool of buyers has simply shrunken. It is not sustainable and needs to be replenished by new college grads, retired and relocated military personnel, and of course, immigrants. The frequent movers may have gotten tired from packing every 2, 3 years.

So this is simply an extended break. The sales will come back.

 
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