Cami Dinkel originally thought a condominium would be a good fit for her and fiancé Hunter Geisman’s pocketbook. But when interest rates hit historic lows this month, the couple altered their plans and started looking at houses in the $150,000 range.
They also decided it was time to give Daisy Petals, their English bulldog, a backyard.
“Buying a house is scary and a big step,” Dinkel says. “Any time you make a big purchase like that, you’ve got to think long and hard, but aspects of the market made it an easier decision.”
The couple looked at one house and thought they’d have more time to make an offer. Another buyer snapped the property up the next day, but Dinkel took it as a good sign they were buying in a stronger market.
Even though the hunt continues for a “homey, fixer-upper needing a little TLC,” the couple is determined to buy. That was not the situation a few months ago, when the Capital Region started feeling the recession.
It’s been a tough year for the housing market nationally, hammered by housing bubbles that burst in states like Arizona, California, Florida and Nevada, and later crippled by the subprime loan debacle. Louisiana’s market remained stable most of last year, but that changed with nervous buyers and the state recovering from hurricanes Gustav and Ike.
As the national market worsened, the Federal Reserve intervened in November with a plan to buy $500 billion of mortgage securities backed by government-sponsored Fannie Mae, Freddie Mac and Ginnie Mae.
The government also will buy $100 billion in debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan banks. Soon after the announcement, interest rates plummeted to around 5% on a 30-year, fixed-rate mortgage. The rate even dipped briefly to 4.5% and could go lower.
Suddenly, telephones that had become unnervingly quiet in recent months started ringing like crazy. In December, BancorpSouth’s refinancings shot up 70% over the same time last year. Mortgages jumped 50% at an average loan amount of $417,000.
“It’s through the roof,” says Larry Denison, Baton Rouge president of BancorpSouth. “I refinanced my own house. The rates are ridiculous. I don’t know when I’ve seen them this down.”
Borrowers are encouraged to prequalify for a refinance or mortgage in advance because the window for lowest rates can last only a few hours. For example, Denison refinanced at 4.75%. The next day, the rate was 5.34%.
In his 30 years in the business, FBT Mortgage President Paul Peters says he’s never seen rates fall this fast, but it was overdue.
“To come out of this recession, there has to be a recovery in real estate with fair prices to the buyer and seller, and lower interest rates to stimulate that healing process,” he says. “As interest rates fall, the ability to finance a home becomes more affordable.”
Most people are refinancing, not buying, though Peters expects better numbers in both categories as more people hear about the rates. Some have refinanced, while others have prequalified and are waiting for better rates.
“This could really help the country in areas where properties are appreciating,” he says. “In south Louisiana, our properties are still gradually appreciating where they’ve fallen in other areas of the country.”
For many area brokers, refinancing business has tripled, says Sal Bernadas, president of the Louisiana Mortgage Lenders Association.
On average, he estimates those refinancing at current rates, many at 5%, are cutting their monthly house note by $150 a month. Louisianans average a $900 monthly note at 6% interest on a 30-year fixed mortgage. While the additional dollars are translating into more disposable income for some, others are refinancing to pay off mortgages early, expand or remodel houses, pay off debt or get cash for big items.
Bernadas doesn’t foresee rates immediately spiking back to 7%, but he doesn’t expect the lowest rates seen in 45 years to stay this low. To get the best rate, borrowers must have a FICO credit score of 740 or above and at least 20% equity in the property, he says.
Louisiana’s average score is 650. Most people can’t get the best rates unless they pay delivery fees to refinance with Fannie Mae or Freddic Mac, which are owned by the government, he says. Fannie Mae, Freddie Mac and Ginnie Mae don’t issue mortgages directly to homeowners, but buy them from lenders in the secondary market. The agencies package them into securities.
On a $250,000 loan, Bernadas estimates a borrower could pay another $4,500. Bernadas considers the fees and rates predatory because he says Fannie and Freddie are passing on their subprime mistakes to borrowers.
In housing construction, Capital Region builders say lower rates have boosted their business.
“The interest dropping has spurred a tremendous interest in housing,” says Joe Didier, outgoing president of the Capital Region Builders Association. “You’ve got a lot of people thinking about buying or building or getting qualified now whereas before they weren’t doing it.”
The Capital Region’s six-month housing inventory in 2007 became an eight-month supply last year. There were more houses for sale last year, 5,060, compared to the year prior, 4,733, which Sandy Daly—president of the Greater Baton Rouge Association of Realtors—says occurred because of new construction. Properties stayed on the market longer last year, averaging 93 days compared to 70 days in 2007. Property value still appreciated, however, by as much as 1.5%.
Daly says historic mortgage rates also brought back multiple offers on property, which disappeared in last year’s slower market, as well as tapped pent-up demand. Buyers, who had waited a year or more to make their move, have started signing contracts. Many of them are new to the area; some are relocating for new jobs.
“When you start off the year with multiple contracts, that’s a great sign,” says Linda Fredericks, who was president of the Greater Baton Rouge Association of Realtors in 2008.
When two prospective buyers suddenly wanted to see an older, $175,000 house in Prairieville on New Year’s Day, Fredericks’ daughter, Bridget, was happy to take them there. The house, which would have normally sold quickly, instead lingered on the market through the holidays and Gustav’s recovery with few showings. By Jan. 2, the house had eight showings and multiple offers.
“We’ve got our running shoes on,” Linda Fredericks says. “We’re ready.”