The reason for the increase in rates has been linked to the great deal of debt that the United States government has been issuing in the form of treasuries or bonds. Recently the supply of treasury bills has begun to increase with little response from buyers. This has led to a direct hit on mortgage rates, pushing them well above the 5% mark.

The Fed will attempt to counteract the rise in mortgage rates by increasing treasury prices and lowering yields. They will do so by purchasing more longer-term treasury securities over the next six months.

The message: 5% rates are still low, but who knows how long they will remain that low? Take advantage now, before they go back up.

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Mortgage rates have risen above 5%, Probably Won’t Go That Low Again

What did you think of this video? Please leave comments below!

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How Interest Rates Effect Buying Power

“Primed for a Soft Landing”.

Looks like they are going to take the high-road with the stats from June and leave the hysteria to the Advertiser. They even mention that June 2007 was a record high for single family homes. It’s a miracle!

This ‘glass half full’ look at the stats is a much better analysis of what is actually going on. However, they could have gone one step further and made another important connection for the Real Estate consumer: falling sales numbers don’t necessarily indicate such a dramatic drop in demand for homes.

Recall from last month’s reports, the media introduced the idea that demand was falling and that buyers were disappearing. Well, unless you saw someone vanish in a cloud of smoke recently, no one is disappearing. Two powerful factors in the falling sales number are high inventories and longer decision times. Buyers are just taking more time to choose a property because there is so much out there, and this can make it seem as though demand is lower than it really is.

If you need evidence that there is still plenty of energy in the market-here it is. According to the Honolulu Board of Realtors, Days on Market (how long it takes for a home to be sold) fell in June to 40 days for single family homes and 39 days for condos. Notice that was not mentioned in either article. Low Days On Market indicates that demand is consistent-new listings are entering the market and well-priced properties are still moving quickly. The inventory for condos actually dropped in June from May.

This article is about a “soft landing” for the real estate market. When we talk about “landings” it’s natural to wonder when and where the market will bottom out. Single Family Home prices had been rising each month since February of 2008 when they hit $599,000. They settled back down in June to $625,000. However, that $599,000 may have been the bottom. Buyers are always looking for the bottom of the market. We may have already passed it. That is the problem with looking for the bottom, you don’t know where it is until it has already passed.

Remember, interest rates are the 800lb gorilla in the room. Small movements in median prices are of little importance compared to the certainty of higher interest rates and the added costs they bring. There is still no reason to wait. It will only cost more money.

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Star Bulletin Reports “Soft Landing” Ahead for Hawaii Market

By Lisa Scontras
Custom Publishing Group

Waiting for the right time to release a summer blockbuster movie makes show-biz sense. Waiting for a bottle of wine to be perfectly aged is almost an art form. But waiting until the price of homes in Hawaii come down? You might just wait forever, says Carl Worthy, training director at Prudential Locations.

“I remember one of my first open houses in Manoa in 1972, the home was listed at $65,000,” says Worthy. “And at that first open house, most of the people who attended told me very emphatically that prices were going to fall and that ‘these high prices cannot possibly hold.’ I wonder how many of them missed out altogether?”

Worthy’s 35-plus years of experience in the real estate business says that “waiting is the human default position taken when we’re confused or not sure of what we’re doing.”

“I hear things like,’My hairdresser says prices are falling so we better wait,”‘ he says. “But waiting can be very expensive.”

Worthy says there is a misconception that home prices are falling in Hawaii. In fact, while there have been slightly fewer sales, the average price for single-family homes on Oahu is up 2.4 percent through May 2008, and the median price of condos is rising as well — setting an all-time record high in May of $337,300. Prices are actually up.

With interest rates on the rise, he adds, waiting is going to actually cost you.

“Interest rates will be heading up very soon,” says Worthy. “Count on it.”

Rates have been at their historic lows for several years now. Consumers have almost become complacent — in a form of denial not believing that low rates are poised to change anytime soon. The Federal Reserve has kept rates low to date to stimulate a sluggish economy and earlier this year to bring some liquidity to the financial markets to offset the destructive subprime nightmare. But now, according to Worthy, there are bigger problems.

The U.S. dollar is weakened by the repeated lowering of rates. Inflation is high because of the weakening dollar. In the minds of the Feds, the one thing worse than a weak economy and market liquidity is escalating oil prices and inflation.

“The Fed has one response to inflation, and that’s higher interest rates,” say Worthy. “Today’s low interest rates are headed for extinction — quickly. And they are not likely to return anytime soon.”

Once rates start rising, even if the price of a home does go down, buyers will pay more. Remember when rates began falling from 8 percent in early 2000 to 7 percent about a year later, 6 percent in mid-2001 and then dipped under 6 percent in 2003? Buyers realized that as rates fell, their buying power increased. And the inverse is also true.

When interest rates go up, the amount a buyer can borrow for a home goes down.

“If home prices were to drop by 10 percent and interest rates increased by 1 point, the buyer’s monthly payment would actually be higher for the same home,” says Worthy. “If rates go up, the loan amount goes down — in direct proportion. That means the price a buyer can pay for a home goes down — a lot.”

For example, on a $600,000 home, he says if interest rates go up just one point, the buyer loses $60,000 in buying power. That means the same buyer is now only qualified to purchase a home for $540,000.

Interest rates ultimately have a much bigger impact on cost than the purchase price does.

Worthy adds, you’ll feel the effect of the purchase price of the home only once … you’ll feel the effect of the interest rate you pay every month, when you make your mortgage payment.

“So the question you should ask is, what is more likely to happen: a 10 percent fall in home prices or a 1 percent rise in interest rates?” he says. “Truthfully. I have been selling real estate since 1972 and I can’t recall anyone ever telling me that they were sorry they went ahead and bought something. However, I have had hundreds tell me their horror stories when they waited.”

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Buyer beware of what waiting can cost

Yeah sure. The gas panic and all of the assorted predictions of the end of the world helps sell newspapers and increase viewer ship. But that is about all it is worth.

Take a look at this article. There is some excellent prospective in here – mixed with the craziness. Keep these perspectives in mind when you start telling yourself you can’t buy property now because it costs 20 cents more per gallon of gas. Especially in Hawaii where people sometimes have to commute as far as 12 miles to work. They finish the article with a quote from Jim Dator:

“I’m not aware of any available technology, or any other process, that can solve our problem other than conservation — reducing the demand and hopefully buying time,”

Source: Honolulu Star Bulletin Article 5/25/2008

The available technology has been around for over a 100 years, it’s called punching a hole in the ground.

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Some Common Sense About the Gas ‘Panic”