Mortgage interest rates in Palo Alto (and nationally) will soon be headed higher. The Fed plans to stop purchasing mortgage backed securities at the end of this month (March 2010). In fact, after reaching a low last November, rates have already risen .25-.375% in anticipation of this change.
Right now the only mortgage backed securities being sold right now are those backed by Fannie Mae and Freddie Mac, because they have the backing of the US government. The question at the end of March becomes who is willing to buy these mortgage backed securities and what price are they willing to pay?
With money market and treasuries currently yielding only 1%-2%, these mortgage securities are looking much more attractive to Wall Street, private investors and to foreign governments. But the Fed will have to start selling the mortgage backed securities that they have purchased at some point and this will drive prices down and yields up.
Once the Fed stops buying mortgage securities, the rates will have to rise to entice others to purchase these securities. Local Palo Alto mortgage brokers expect rates to go up by .5% pretty quickly once the Fed stops buying. Some expect rates to go has high as 6% by the end of the year.
With that being said, the biggest problem with the local Palo Alto housing market is the lack of quality inventory. Year to year inventory is down 36.8%. Quality housing inventory would mean in the best neighborhoods and priced right. There is a lot of pent up demand, especially with entry level buyers in our market. Homes in the Palo Alto real estate market that are properly priced are still receiving multiple offers.
In the move-up market, we are not seeing much effect from the $6500 move-up buyer tax credit. This is because many homeowners who could take advantage of this credit are underwater with their mortgage on their current property and are not willing to take a loss on the sale of their current home for a comparatively small tax credit.
To read more about this story and get additional information on the current real estate market in Santa Clara County and Palo Alto, you can read my latest newsletter. For complete information on the housing market in your neighborhood or discuss your home’s value, you may contact me at any time. You can also sign up to receive future real estate market updates by email.