Things have changed drastically in the world of home loans because of recent occurances. What will happen? It is important to make an intelligent guess about how interest rates will go.
Tight conditions in the lending world should normally lead to lower rates, since lenders would have to lower rates in order to attract customers with good credit ratings. However, the banks are doing the reverse, and raising rates in an attempt to build revenue.
This seems like a poor business decision; normally a business will lower prices when business is bad in order to get whatever business they can. But it seems that in today’s topsy-turvy financial world, the old choices do not apply and banks are getting their cue from credit card companies to raise instead of lower rates.
In prior times, a slower economy normally meant lower interest rates which would bring in more customers. Today, however, the financial industry is so disrupted that things that were considered normal before are no longer.
So what is the solution for a potential homebuyer with the right credit score to borrow? Take a wait and see approach and hope that the situation will return to normal, with lower interest rates, or take advantage of any credit that can be obtained, no matter what the rate?
Some economists are not only forecasting a recession, but even a depression, accompanied by deflation instead of inflation. Normally, deflation will in turn lead to lower interest rates, so this indicates a wait and see attitude is the best to take right now.
Some lenders are still actively soliciting borrowers. Many small lenders never had the capital to delve into the massive home loan programs that many of the larger banks did. This was because a lot of them were too small to expand into this highflying arena of subprime loans.
Another argument for waiting is that home prices are also most likely not at the bottom and may fall an additional 10% over the 25% drop seen over the last year. The Case-Schiller study that came out in November of 2008 reported year on year decreases of 17% nationally, with 25% in some locales. If the scenario is set not only for lower rates, but also for lower home prices, it would seem wise to wait until more of the credit crisis fallout can be judged.
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