- The Washington Times - Tuesday, March 24, 2009

The real estate industry is applauding the Federal Reserve‘s decision to pump $1.2 trillion into the economy, saying the move will energize the housing market.

The National Association of Realtors said the move last week was good news for American homebuyers and homeowners and predicted that mortgage interest rates will remain more easily within reach of buyers, particularly those with unblemished credit.

“Greater numbers of homebuyers will be able to purchase a home, and homeowners facing challenges will be able to refinance into better terms,” Association President Charles McMillan said.

The Fed announced last Wednesday it would buy up to $300 billion of long-term government bonds and $750 billion in other mortgaged-backed securities guaranteed by Fannie Mae and Freddie Mac.

Within a day, the national average rate on a 30-year, fixed-rate mortgage had fallen to 4.94, according to financial publisher HSH Associates. It marked the first time the average had fallen below 5 percent since the publisher began keeping records in 1979. On Monday, bankrate.com had the current mortgage rate at 5.08.

Don Anderson, manager of mortgage lender MetCity Capital in the District, said that people looking to refinance and invest in real estate are certainly showing more interest in the lower rates since the Fed’s announcement. However, “MetCity’s phones are not ringing off the hook, because there a few ‘big buts’ with the lower rates.”

“Everybody has heard in the press about the rates in the mid-4 percents,” he said. “But in reality, in order to get a 4.5 percent rate, it would cost you a point.”

Unless someone has over a 740 credit score or 40 percent equity in property, you will not get the best rate, Mr. Anderson said.

Additionally, Mr. Anderson said that although 640 used to be considered a good credit score that had no additonal add-ons, Fannie Mae and Freddie Mac are charging as much as three additional points for someone who has a 630 or 640 credit score or 20 percent equity in their property.

“If mortgage rates continue to decrease over the next few months, there will be a surge in house buying. We need people buying houses, since that is the basis for getting the economy going again,” said Jim Vandergriff, a loan broker at CitiStar Funding Group Inc.

“One-fifth of the economy is involved in house buying,” Mr. Vandergriff said, “and the lending community wants to make sure the person buying the home can afford it.”

Continued low rates are also expected to lessen foreclosure pressure and help stabilize home prices sooner, as more Americans buy homes and draw down inventory.

Jon Wolford, general manager of Long & Foster Real Estate offices in Kingstowne and Springfield, said the drop in mortgage rates will have a dramatic affect on the housing market.

“Lower rates increase affordability, put lower payments on homes, and allow a homeowner to qualify for a more expensive home at the same salary,” Mr. Wolford said.

According to Mr. Wolford, in the past two months, the number of units sold in Northern Virginia has increased, while the inventory has dropped substantially. Currently, 28 percent of all homes on the market have contracts.

“Prices are substantially lower than they were a year ago. When you combine that with a low interest rate, it makes owning a home less expensive,” Mr. Wolford said.

Tim Wilson, president of Affiliated Businesses for the Long & Foster companies and Prosperity Mortgage, said that declining mortgage rates will help stimulate the economy, and that it is a “call of action.”

“Since the Fed’s announcement, Prosperity Mortgage has seen a 30 percent increase in mortgage applications; we’re seeing a lot of people refinancing as well,” he said.

Mr. Wilson predicted that low mortgage rates “will not last long, because there are only so many funds allocated by the government. It’s a fairly short-term scenario lasting about four to six months, although affordability is at an all-time high.”

Mortgage lenders around the District are preparing for a boost in lending activity. A survey released by the Mortgage Brokers Association on Wednesday said that the refinance share of mortgage activity increased to 72.9 percent of total applications from the previous week, when it had been 67.9 percent

Diane Cook, president of Metropolitan Mortgage Services in D.C., hopes that the lower rates will pick up the market.

As long as people have good equity and good credit, they will benefit from the low rates, Ms. Cook said. “I think the rates are going to help everybody.”

Similarly, Mr. Wilson said that talks of lower mortage rates in Congress have been going on for quite some time and that “people have been waiting for this drop in rates.”

John McEnearney, chairman of McEnearney Associates Realtors, believes that it is too early to predict what will happen in the real estate industry as a result of the mortgage rates. However, there has been a tremendous accumulation of interest in buying homes in the Northern Virginia area because of the decline in prices, he said.

“Mortgage rates certainly influence decisions whether to buy or not to buy,” he said. “If the media would stop using words such as ‘the housing market is plummeting,’ people would be more confident in making large investments. It’s really the mindset of the people we’re messing with here.”

• Andrea Tomer contributed to this report.

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