Rates, Rents & Loans

?Even though the interest rates on mortgage loans are at record-setting historic lows right now, many lenders have tightened the screws on their loan qualification guidelines to the point that only borrowers with immaculate credit can take advantage of the current rates. If the economy begins to lift out of the current doldrums, mortgage interest rates are likely to begin rising above the recent record lows. The signs point to higher interest rates down the road as the economy strengthens. Bond yields have also been a bit higher lately. These trends point to an increased demand for housing at a time when there is a distinct lack of new construction housing starts. That demand is now pushing rents higher than ever before in certain areas of the country.
 
However, some economists warn that today’s low interest rates alone are not a good enough reason to buy a house, and that home prices may go down as the interest rates rise. If interest rates rise a bit and home prices go down accordingly, potential buyers could be in a much better position. It can also mean lower property taxes, more deductible interest, and a better chance to refinance a lower priced home with a lower interest rate loan in the future.
 
While it may be great news for landlords that the demand for housing has outpaced the construction of new homes over the last few years, it is not so great news for those renters facing the resulting higher rental rates. Some cities with very low rental vacancy rates in the country have seen rents escalate to levels exceeded only by the known high-rent markets like in New York City, San Francisco and Boston. When you do the math in some of these cities, the average monthly mortgage payments are often less than the average rent for comparable dwellings. Forbes Magazine recently listed several cities in the nation where you can save money buying instead of renting. The top five were identified as New Haven, Connecticut, the New York Borough of Manhattan, San Jose, California, Boston, Massachusetts and San Francisco, California.
 
However there are still many areas where the cost of renting versus buying makes sense as the vacancy rates are falling and there are plenty of inexpensive choices for renters. Areas where unsold, vacant homes have flooded the rental market, translate into more choices and lower rents even in an uncertain home buyers market. More empty units mean more choices and better prices that can make the cost of renting versus buying seem almost the same. The top cities where renting over buying makes the most sense today include Tucson, Arizona, Jacksonville, Florida and Phoenix, Arizona.
 
When examining today’s current super-low interest rates on mortgage loans, it can be helpful to remember that just as recently as 1981 the Prime Rate was over 20 and mortgage loan interest rates were in the high teens. It wasn’t until 1991 that the rates fell to single digits and started on the downward trend that has resulted in today’s record lows. Interest rates on mortgage loans are likely to rise back up again within this decade, but it is doubtful we will see double-digit numbers again anytime soon.