Mortgage rates at record low bring warning: It'll only go up

Word this week that average rates for 30-year fixed mortgages had fallen to that sweet spot, matching a record low set last spring, prompted a warning from Realtors and brokers across Silicon Valley that it looks like it's all up from here.

"In the future, we'll all look back on these days as the best opportunity in a generation to buy homes," said John Holmgren, spokesman for the California Association of Mortgage Brokers. "Rates are at a historical low, home prices have fallen and the federal tax credit for homebuyers has been extended — it all adds up to a home run for people who want to buy now."

Now for a couple of disclaimers.

While rates for the 30-year fixed did drop from 4.83 percent last week and now equal the all-time low reached in April, this cheap money tends to help low-end buyers more because jumbo loans — $729,750 and above — are more expensive.

rates may be a pipe dream.

"It's a wonderful time to refi," said Holmgren, "but the ideal scenario is you'd have 20 percent equity. But with three out of 10 people we talk to about refi there is a problem with valuation. For anybody who bought between 2004 and 2007 in most markets in the Bay Area, your home is probably worth less than you paid for it and sometimes dramatically less. So a lot of people who'd like to refi are frozen out."

Freddie Mac has been tracking rates on 30-year fixed mortgages since 1971. Last year at this time, the 30-year fixed rate mortgage averaged 5.97 percent.

Interest rates began dropping last November, when the Federal Reserve began spending $1.25 trillion to buy up mortgage-backed securities in an effort to lower rates, loosen credit availability and bolster the long-suffering housing market.

Since April, rates have hovered near 5 percent, spurring refinance activity. However, credit standards remain stringent, so the best rates usually are available only to borrowers with solid credit and a 20 percent down payment.

Still, the low rates are more good news as other positive signs emerge that the economy in general and Silicon Valley real estate in particular may be on the mend.

Within the past week, new numbers showed that home sales in Santa Clara County saw a 28 percent gain in October over the same time last year, while median prices rose 5 percent to $500,000.

And a flurry of good news this week — including falling jobless claims, stronger consumer spending and higher new-home sales — suggests the economic rebound, though modest, may be under way.

While analysts caution that the recovery will be too sluggish to stop the unemployment rate from rising, the reports are at least encouraging enough to calm fears of a dreaded "double-dip" recession.

Brokers, though, warn that rates will most likely increase, probably within the next 12 months.

"Rates are low because the government is buying $20 to $30 billion of Treasurys every month,'' said Los Gatos mortgage broker Narbik Karamian. "That money will expire soon and when it does, I would assume the normal rate will go up to 6 or 6.5 percent by the end of next year. But they'll never go lower than they are now.''

"Now's a good time to make a move on anything in the $400,000 range for a single-family home," said Stanley Tseng, a broker with Nova Financial Services in Santa Clara. "They're moving fast with multiple offers. But higher-priced homes over a million dollars are still slow because buyers need a jumbo loan and they're harder to find."

And before you run to refinance an existing loan, brokers caution that with so many homeowners stripped of all or most of the equity they once had, a refi at these tantalizing

Contact Patrick May at 408-920-5689.