Are Philadelphia Mortgage Rates Really Too Damn Low?

Housing expert Jonathan Miller believes that low interest rates are hurting the US housing market and that until the Fed increases rates the housing market will be stuck in limbo.

Jonathan Miller does it again with a great article that echoes the sentiments of many housing and finance pundits who feel that historically low mortgage interest rates are hurting, not helping, the housing market.  The article points out that banks aren’t redily lending and the failure of residential lenders to ease credit requirements is putting additional pressure on the national housing market. Miller contends that lender requirements remain so tight in spite of access to free or nearly free money from the Fed because the banks are faced with two choices:

Issue mortgages at 4% to borrowers who are faced with

1. unemployment stuck in the 9’s % with more layouts to come
2. little improvement expected over the next few years.
3. Housing prices are sliding in many markets.
4. GDP slipping, the economy is weakening, with rising concern about a “double dip.”
5. A tidal wave of foreclosures that have been held back as a result from the “robo-signer” scandal last fall.

OR…

Borrow money for free from the Fed, invest and make 4% virtually risk free.

Faced with these choices Miller, and most people (read: everyone except politicians in Washington), would conclude that the banks will take the 4% risk free return and not readily lend money – especially in light of the underwriting debacles of years past.

Finally Miller concludes, ” Mortgage rates remain at record lows yet the housing market remains weak. Low mortgage rates aren’t helping the housing market anymore. Low mortgage rates are the problem. Sure home affordability declines as mortgage rates rise, but rates are at record lows and the economy is sliding and the housing market remains stuck.  The missing ingredient for a housing recovery is consumer access to credit, NOT low mortgage rates. Let mortgage rates rise to their natural levels so lenders will be incentivized to lend and credit will ease. Until the Fed changes its view, there is no incentive for banks to change their behavior and housing will continue to suffer.”

In my experience the Philadelphia lending market is not as tight as many others.  Without question the documentation requirements have increased exponentially, and credit requirements are higher but access to money is available.  Most importantly 3-3.5% down payment loans (via PHFA and FHA – both of which allow up to 6% seller assists) are available and these are the loans that allow first time home buyers the opportunity to purchase which in turn create move up buyers.  It will be interesting to see if the Fed agrees with Miller and the others and starts to slowly increase rates.

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Blog post compliments of CenterCityTeam’s Philadelphia Real Estate Blog

Frank L. DeFazio, Esquire
Prudential Fox & Roach Realtors – Society Hill
530 Walnut Street, Suite 260
Philadelphia, PA 19106
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