Low rates likely to stay awhile, but cash-outs refis elusive

The Philadelphia Inquirer (MCT) - To get us through the early part of this new year, let's get some perspective on what could be driving real estate matters in the weeks to come.

First off, it looks as if low fixed interest rates for mortgages _ now around 5 percent _ will be with us awhile. But Philadelphia mortgage broker Fred Glick warns that rates could begin to rise if the stock market recovers.

What he means is that investors who have flocked to the relative safety of Treasury bonds will shift their money to Wall Street if it seems profitable.

"If they are buying stocks" _ the Street is always ahead of what happens _ "the market has guessed that the economy is recovering," Glick said. "When economies recover, rates eventually go up to stop growth and fight inflation."

I see the point. Treasury bonds today offer little or no return to investors, who would at least get a somewhat thicker mattress if they put their money there.

As we've seen, investors are really nervous people, and the slightest bit of good or bad news sends them into buying or selling frenzies and the rest of us to the unemployment office.

Which brings us to the less-than-frenzied state of home-buying. Not much of a mood to purchase right now. Refinancing, anyone?

I asked Holden Lewis, columnist for Bankrate.com, who has the best chance to refinance today. His response:

A homeowner who owes no more than 80 percent of the house's appraised value; has excellent credit overall and has never been 30 days late on the mortgage in the last two or three years; is an employee who can readily document wages; needs a loan for $417,000 or less; and is refinancing for a better rate, not a cash-out.

Cash-out refis are what got a lot of people into mortgage delinquency and foreclosure. They pulled out wads of equity, then, as circumstances changed, ended up owing up much more than their houses were worth.

"Either they made small down payments, or got negative-amortization loans, or the property's value fell, or a combination of two or all three of those things," Lewis said. "People with little equity must get mortgage insurance, and the resulting payments could lower or eliminate the incentive to refi."

Lewis said lenders aren't keen on cash-out refis now, except when the borrower is taking out a few thousand dollars to pay the closing costs.

Back to buying and selling: Readers continue to tell me that a lot of sellers still think they can demand high prices for as-is properties. Sellers complain that buyers are too picky.

But if your place isn't ready for the market, prospective buyers will move on. If you must put your house on the market now, it makes sense to have it checked by a qualified home inspector first.

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During the housing boom, pre-inspections seemed unnecessary. If a buyer balked at a new roof or furnace, another would be along soon.

Not anymore. To sell a house quickly and for a satisfactory price, a seller must make sure the house is close to perfect. If that means spending money to make money, spend it.

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(Alan J. Heavens is the real estate columnist for The Philadelphia Inquirer. He can be reached at 215-854-2472 or aheavens@phillynews.com.)

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© 2009, The Philadelphia Inquirer.