PRESIDENT'S MESSAGE
Te Time to Buy is Now! Before low rates disappear and regulation further hinders lending
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By GHBA President KEVIN HOLLAND, Cervelle Homes Inc.
he time to buy is now and let me tell you why. If you are looking to achieve the dream of homeownership, today's low
mortgage rates makes this an excellent time to buy a new home.
Currently, 30 year, fixed rate mortgages are below 5%, the lowest in more than 40 years. As recently as June 2007 those rates were around 6.75% and double digits a little over 20 years ago.
Why are rates so low? Most of it is due to the recent recession and the contributing factors. With the economy stalled, demand for loans has disappeared. At the same time investors have sought safe havens for their money, moving away from stocks and into fixed return investments in U.S. Treasury securities. The mindset is to keep their principal. Also the Federal Reserve increased funds in the financial system to keep interest rates low and to support the mortgage market.
Since mid 2009, the U.S. economy has gotten better, as seen in improved gross domestic product and in declining unemployment rates. Be aware the economy is still in recovery and interest rates will soon increase. As the economy rebounds, demand for loans will rise and rates as well. When the Federal Reserve sees the economy improve it will remove the additional funds it injected into the financial system. This will increase interest rates in the near future.
The financial reform agreed to by the House and Senate in early July 2010, along with new regulations this past year may signal the end of community banking.
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What does this mean? The new reforms will give more clout to the Federal Reserve to regulate how these banks and others like it function. With less available credit, costs will increase and banks will have a tougher time finding creditworthy borrowers according to new standards. We will start to see more small community bank failures and mergers due to voluminous regulation.
Here is the problem I see. Community banks lend to creditworthy folks who, for decades, have been well served by banks who understand their local market and are creatively structuring credit appropriately. This is what community banks have continued to do. In the future, they will not be able to evaluate loans based solely on creditworthiness of the borrower. The banks will be making regulation compliance decisions instead of credit decisions. This is not in the best interest of the consumer.
The safety and soundness of our nation’s small financial institutions is dependent on being able to be profitable and add to its capital base. Small community banks care about the people in their communities. Unfortunately, the new financial regulatory reform bill will greatly inhibit banks ability to help them. This is an unintended consequence that was not meant to happen. Regardless, this is going to hinder the lending environment, even with rates at their lowest in 40 years.
So folks, the time to buy is now. Why? Rates are low and the banks with regulation are going to have less ability to provide the loans in the future.
AUGUST 2010 | HOUSTON BUILDER | GREATER HOUSTON BUILDERS ASSOCIATION – BUILDING A BETTER FUTURE
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