How to get the best mortgage rates in the country? Buy new

As mortgage rates fall to near historic lows, some homebuilders are offering even lower interest rates in an effort to lure buyers during the slow spring selling season.

The latest sales promotion: Lennar Corp. is offering a fixed 3.625% rate over the life of a 30-year fixed rate mortgage. The deal is besting average rates that have fallen below 5% nationwide, but it comes as other builders are reporting mixed results from similar incentives.

Hovnanian Enterprises Inc.'s recent offer of a 3.99% rate sparked "underwhelming" interest from homebuyers, says Dan Klinger, president of the builder's mortgage operation. "It wasn't like we needed crowd control," Klinger says.

Earlier this year, luxury builder Toll Brothers Inc. was offering a 3.99% interest rate in many of its developments nationwide, but today that rate is no longer available nationally. Toll executives said that the promotion boosted traffic to its Web site, but the low rate alone hasn't been enough to break weak consumer confidence that is still weighing on the market.

Bargain mortgage rates are the latest sales strategy from builders struggling to sell homes. Mounting unemployment continues dogging the sector, because people without jobs, or those afraid of losing one, are unlikely to purchase, no matter how low the rate.

Since the downturn began, builders have tried everything from free tropical vacations to subsidized closing costs in order to move inventory. They then cut costs and even offered layaway plans for down payments.


For homebuyers, the low mortgage rates from the builders represent significant savings. But be wary of the fine print: Lennar is offering the 30-year rate "on select homes," and the loan amount cannot exceed $417,000. The minimum credit score is 700, which is a relatively high score in the current environment. In addition, it could be hard for buyers to come up with the minimum 10% down payment that Lennar requires to qualify for the 3.625% rate.

The builders' low rates may help first-time homebuyers, "but it's not going to goose the trade-up market," says Thomas Lawler, a housing economist. "That's because most trade-up buyers use the equity from their previous home for a down payment, and that equity often doesn't exist anymore."

KB Home is one builder that isn't chasing buyers with low mortgage rates, for now. Instead, the Los Angeles-based builder is focusing on offering smaller houses that are competitively priced with foreclosed houses. The strategy seems to be helping KB, which reported last month that its sales improved more than some analysts expected.

While some builders acknowledge that price cuts are the most effective way to move inventory, such cuts could cause buyers who have already bought a house at a higher price to walk away from their deposits.

It can be costly for builders to offer the low rates because the companies typically pay mortgage investors cash upfront in exchange for the low interest-rate loans. Federal regulations limit how much the builders can contribute to buy down mortgage rates. Currently, if a homebuyer puts down 5% or less, the builder is limited to incentives worth 3% of the sales price, Klinger says. For down payments of 10%, the limit climbs to 6%.


*This article was written by Michael Corkery and Dawn Wotapka of The Wall Street Journal.

Wells Fargo economists see recession's end in late 2009

Wells Fargo economists see recession's end in late 2009

Charlotte Business Journal

The deepest and longest recession since the 1930s will end in the second half of 2009, Wells Fargo & Co. economists say in their annual forecast.

The third quarter of next year will be “better than expected” by many, says Jim Paulsen, chief investment strategist. “It’s like you’re at a cookout and you’re trying and trying to get your charcoal going and you keep squirting on lighter fluid, and all of a sudden it goes ‘poof!’ ”

Paulsen says “fear mongering” by government officials who were trying to sell the $700 billion Troubled Asset Relief Program in the fall made the situation much worse, freezing everyone in their tracks and bringing on “economic paralysis.”

Senior economist Scott Anderson predicts that housing will lead the way back. “One bright note is that the sector that led the economy into this morass is about to turn the corner, perhaps as soon as this summer, and will start to lead us out.”

The job market is now one of the worst in decades, with 3.7 million more jobs expected to be lost next year, Anderson says. That means 5.5 million jobs will be lost in this recession, twice as many as were lost in the 1981-82 recession, the second-worst since World War II.

Eugenio Aleman, senior economist at San Francisco-based Wells Fargo (NYSE:WFC), says he is concerned that injecting of hundreds of billions of dollars into the economy through the financial sector is not helping those who need it most.

“Current monetary policy will help only those households that do not need help — those that have plenty of money and have a stable job,” he says. “They will refinance, buy homes and consume. It will not help those who are struggling to make ends meet, or have lost their jobs or may soon lose them, because no financial institution is going to lend them money to buy a home, no matter what the interest rate is.”

He says the new administration will need to help those households through fiscal policy, with government spending that will create jobs.

Article provided courtesy of Charlotte Business Journal

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