Those who missed the chance to refinance their houses over the past 22 months of extraordinarily low mortgage interest rates “may have missed the luxury cruise line that would have given them the lowest rates in 40 years.”
That’s the view of Larry B. Challis, regional manager of First Security Loan for the East Bay and Central Valley.
“But it’s still not too late to consider refinancing, since interest rates are still in the top 10 percent of the lowest rates in the last 20 years,” he added.
Challis, who spoke to the Valley Marketing Association last Friday, said he obtained his California real estate license after graduating from UC Davis in 1974 and went to work in his father’s real estate office in Monterey.
“The beauty of 1974 was that even though mortgage interest rates were starting to creep up, they were still at 7 or 8 percent,” he recalled. “Monterey property was appreciating at 15-20 percent a year, so it was a hot market. You could still buy a house then for about $45,000. The next year, that same house could sell for $50,000 to $60,000. Of course, today it’s worth several million dollars.”
He also lived through the late 1970s and early 1980s when interest rates soared to 15 and 18 percent, and in some markets even higher.
“In 1980, we had inflation, deflation, market stagnation and stagflation,” he said. “That really slowed down sales, although even at those high interest rates, people here in California were still buying because appreciation was much greater,” he said.
That’s why Challis doesn’t see the Pleasanton real estate market slowing down, even with interest rates rising. With rates now in the low 7 percentage rates, he doubts that they will hit 8 percent, but admits to not being an expert in forecasting future rates.
“None of us expected interest rates to go higher than the record-breaking 10 percent rate in 1980, and no one predicted that rates would drop to 5 percent 22 months ago,” he said. “We’ll probably keep seeing some of these extremes.”
“Look at a house in Pleasanton that sold 30 years ago for $30,000, and then at the price of that house today,” he added. “It’s well over $1 million now. I doubt that many of us have seen their incomes go up 30 times during the same period.”
“Housing appreciation in California has left every other market behind and will continue to do so, although probably at a slower rate,” Challis said. “It’s simple economics. You just can’t keep doubling the price of a home every few years.”
Challis observed that Realtors who made presentations at the Valley Marketing Association’s breakfast talked about their listings that ranged from $100,000 for a mobile home to multi-million-dollar mansions.
“That shows that this is a very diverse market that is continuing to be active despite the rising rates,” he said. “The housing market is really a local market and our economy here is strong. It’s a great place to live and people are going to continue to buy and sell real estate here.”
“After all, real estate is the primary source of personal wealth for most people and here in the Bay area it’s extraordinary,” Challis said.
Speaking of mortgage rates, Wall Street analysts reported this week that Federal Reserve Chairman Ben Bernanke came close to promising a pause in the Fed’s string of increases in its key short-term interest rate. Although, later Bernanke said that was a “slip of the tongue” and not based on any decision he has made.
According to analysts, he told the Congress’ Joint Economic Committee that the Fed “may decide to take no action at one or more meetings” in the near future as it examines the strength of the economy and whether short-term rates are high enough to keep inflation from spiraling out of control.
Bernanke, however, said the Fed is worried that rising energy prices (a gallon of regular unleaded gasoline in the San Jose area hit a new record at an average of $3.17, according to the American Automobile Association) could fuel a new round of price increases throughout the economy, and that could mean more rate increases.
“Of course, a decision to take no action at a particular meeting does not preclude actions at subsequent meetings,” Bernanke was quoted as saying.
Also this week, mortgage rates hit their highest point since June 2002. A year ago, the rate was at 5.78 percent.
Rates on a 15-year fixed mortgages hit 6.21 percent, up from 6.17 percent last week. One-year adjustable-rate mortgages were at 5.68 percent, up from 5.63 percent. And hybrid five-year ARMs were at 6.21 percent, up from 6.16 percent.
“There’s been a significant change in the predictability of interest rates since Professor Bernanke replaced Allan Greenspan as Federal Reserve Chairman,” Challis said. “Theoretically, that shouldn’t make any difference, but it does affect the terms of consistency and how market is responding.”
