Even at all-time lows, national mortgage rates are higher than in San Diego.
According to numbers provided by the San Diego Chapter of the California Association of Mortgage Professionals (SD-CAMP), a conventional 30-year fixed mortgage in the county carried an average rate of 4.1 percent during the week ending July 30.
By comparison, the national rate for the same loan during that period was 4.54 percent, the lowest since Freddie Mac began tracking in 1971.
A 15-year fixed loan in the county averaged a 3.725 percent rate, SD-CAMP found. Nationally, that loan fetched a 4.0 percent rate.
For conventional ARM mortgages of seven-, five-, and three-years, the average rates are 3.25, 3.031 and 3.031 percent, respectively.
A 30-year fixed FHA loan averages 4.175 percent in the county, while a 30-year fixed VA loan averages 4.188 percent.
SD-CAMP’s averages assume a loan amount up to the conforming loan limit of $417,000, a maximum loan-to-value of 80 percent and an interest rate with one point origination fee for borrowers with a minimum credit score of 720 with fully documented income for a single-family, detached, owner-occupied, primary residence.
The averages reflect the published rates of five major mortgage lenders or banks in San Diego County for each of the six mortgage types.
David Van Waldick, president elect for 2011 of SD-CAMP and principal of Western Mortgage in Carlsbad, explained the discrepancy with California’s role as a preferred market for lenders. Less expensive loans are more expensive to originate, so in states with lower home values, lenders compensate by raising the interest rate.
Executive director of the Burnham-Moores Center for Real Estate at the University of San Diego Mark Riedy said the decrease in loan volume has forced the county's massive mortgage industry needs to entice borrowers in order to stay in business.
"A lot of mortgage lenders have gone out of business, but a lot are still in business," he said. "They've built up big operations and are trying to keep those assets employed to spread overhead costs around. That means you need more volume. They're being as aggressive as they can within tighter lending restrictions."
Brian Brady, managing director of Worldwide Credit Corp. in Kearny Mesa, said the averages seemed about a quarter point too low.
The low rates would seem to stimulate home buying and mortgage refinancing.
“Typically lowering rates has a psychological benefit via the news media to buyers,” Van Waldick said. “When they stay down, they have a real benefit and direct economic transfer because people can lock in and close at those rates. But at some point the market corrects for the downward movement, adjusts for the added benefit, and means higher home prices. The first-time home buyer tax credit had the same effect.”
Brady said the low rates won’t do anything for home prices, because they’re now “past the saturation point.”
“I just don’t know that the difference between 4.5 and 3.75 is going to bring people to the market,” he said. “It’s exciting to see low rates, but it won’t bring people to the market. The issue is qualification, not who can get the lowest rate.”
Van Waldick said any increases in home prices would be gradual, unless the Fed did something drastic to drop rates below three percent.
“We’d like to see interest rates and home prices come up a little bit, because it would indicate a healthy growth cycle,” he said.
Van Waldick said he hears that the Fed and the administration would like to keep rates low for sometime. He doesn’t expect significant increases for at least 12 months.
Brady said there will probably be another “mini-boom” in mortgage refinances, but said it would be moderated because borrowers would still need to qualify, and they’ll need cash to pay the closing costs.
He also said these low rates should be attractive to established homeowners looking to tap into their equity for cheap cash.
“I’d advise people to do that, but people are awfully scared to borrow money,” he said. “The average Californian is in debt up to his eyeballs. It’s probably good that he’s paying down debt rather than borrowing more and taking more risk.”
Brady is concerned with the effect low mortgage rates will have on underwater borrowers, who can’t refinance because they have no equity.
“If I’m watching you refinance because you bought 10 years later, down to 6 percent and now under 4 percent, and here I am underwater, this is all conjecture, but it could make someone throw his hands up in the air,” he said.
Van Waldick pointed to the FHA average as the biggest surprise. “Interestingly, it seems to have come pretty close in line with conventional rates. Typically we would have seen them half to a quarter higher,” he said.
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