Recently my broker, Windermere Professional Partners, pointed to a CNBC report that said interest rates were low due to the economic crisis in Europe. I thought that was interesting given the current real estate market. Go here to get that article.

Bankrate.com, which has been keeping track of mortgage interest rates for over 25 years, notes that the current interest rate on a 30-year loan is now at 4.87%. This rate is the lowest rate ever since Bankrate.com started keeping track. Even jumbo loans which are of prime interest in Gig Harbor are at all time lows. A jumbo loan – currently defined as a loan for over $417,000 – is now listed at 4.5%, which is down from close to 6% at this time last year.

“It’s the best time in our generation to buy,” says Mark Zandi, chief economist at Moody’s. “It may be the best time in any generation. Mortgage rates are so low and with homes prices down and lots of inventory, you couldn’t pick a better time to buy ….

So a couple of questions come to mind. First, why are interest rates at an all time low, and why aren’t more people in the market to buy a house, since this is a historically great time to buy?

Why are interest rates at an all time low?

Well, we can thank Greece and the rest of the European Union for our low interest rates. Rates were already historically low even though they had been lower in the last couple of quarters of 2009. But with the danger of national debt defaults in Europe, U.S. Treasury-issued securities became the safest port for national investors like China, Japan and Canada.

This buying spree in U.S. Treasury securities caused their value to go up which in turn causes all sorts of interest rates or the cost of money or capital to go down, including mortgage interest rates. There are other factors as well – for instance, mortgage backed securities, which I’ve explained before, have also been gaining in value because the mortgages now backing those securities are less risky due to lenders (who first issue the loans) tightening up the credit requirements.

But the current impetus is definitely that the world money markets are looking at the U.S. as a safe haven again. There is even talk in Germany and France of returning to the Mark and the Franc which were their national currencies prior to joining the Euro, although not many believe this will happen. But as long as Germany mainly covers for the weaker countries in the Eurozone like Greece, Portugal and Spain, the European securities and currency will fall. This means higher prices for U.S. Treasury securities and low interest rates here.

This situation will not last and may not last through the summer for a number of reasons. The Europeans have already taken steps to guarantee loans to the poorer countries which should ease the pressure on the credit markets there. The U.S. debt continues to grow and will exert pressure on U.S. Treasury securities, making their price go down, which will in turn cause interest rates to rise. The most current projections are calling for interest rates to rise to 5.5% by the end of the summer, according to economists with the National Association of Realtors.

Why aren’t more people buying houses now?

You would think most people, especially the ones who were trying to ride out the bubble and wait for it to hit bottom before buying a house, would say now’s the time. Home prices are low and are back to pre-2005 levels. Interest rates are at an all time low. It’s a no-brainer, right?

And in April, sales of existing homes rose 7.6%, but that was due to the artificial inducement of the Tax Credit, which we also discussed here. This rise was fueled in the lowest or entry level home market. In Pierce County that would be in houses from $150,000 to $250,000 as all regions are different. Gig Harbor would be slightly higher.

Prices of homes actually rose 4%, but again, that was mainly in the entry level home market, and was probably a reaction to more demand in that market. Prices above $350,000 either remained stable or fell in the Gig Harbor market because inventories rose. Nationwide the inventory is at 8.4 months. Again, inventory is how long it would take to sell all housing at the current demand rate. For Gig Harbor in April, the inventory over all price ranges was 15 months. The National Association of Realtors rates a healthy housing market as somewhere between 3.5 and 4 months of inventory.

Yet a recent Harris survey commissioned by the National Apartment Association found that 76% of the consumers they surveyed would rather rent than own a home. 64% responded that the main reason was freedom from major maintenance and 50% voiced financial concerns as reasons they would rather rent than own.

So what is it going to take to get this housing market going? Certainly not gimmicks like the Tax Credit or buying time as with the recent loan modification program from the government. No, with 50% of the respondents saying financial concerns were keeping them from purchasing homes, it is jobs. While there have been some signs of recovery and our region is better than some, jobs will lead to more house sales and the housing market will lead the country to a full economic recovery.

What can you or I do?

In every economic depression and recession this country has ever had, the housing market has always led the recovery. But people will not invest in a home if they are losing their jobs or uncertain they will have a job.  I cannot help someone who has lost their job or is fearful of losing their job. However, if you are not in that situation, then I can help you buy a home in the best market this country has ever seen with the lowest interest rate this country has seen in a long, long time.

We can both make sure our legislators represent us and work for more job creation instead of less. We can make sure they place no impediment on the ownership of homes. In Washington, every one percent rise in the cost of purchasing a home means 13,000 fewer people can do so. We can both be active and watch for taxes raised or new taxes created which will kill jobs and harm the housing market.

Let’s work together to help our economy recover. Let me help you participate in the recovery by purchasing a home. You and I will be glad you did! If you have any questions on Gig Harbor or Pierce County real estate, please call me at 253-225-2158 or go here.