California’s Real Estate Market The united States have been greatly affected by the economic crisis and the state of California is no exception. California is one of the most expensive places to live in America and property in California has always been first class. Getting a mortgage for buying a home is barely troublesome because of the increase in value of land in California whether they are developed or undeveloped. A credit worthy buyer can buy a home with most of the price funded by loan. Since the housing market is unpredictable due to the decline of real estate values, the slowdown of credit gives a financial opportunity to the homeowner to refinance their loan.
Prime Rate at Record Lows While the current economic crisis has brought a drastic fall in the price of homes in California, the Federal Reserve has decreased interest rates to record lows. The so-called “prime rate” is the rate at which banks lend money to each other; the prime rate serves as a basis point for the interest rates of loans available to consumers. As recently as June of 2006, the prime rate was 8.25. The current prime rate is 3.25, the lowest since August of 1955. The phenomenally low interest rates now available represent a once-in-a-lifetime opportunity for the California home owner to refinance their property. This window of opportunity will not last long. While interest rates have fallen steadily over the past two and a half years, this is expected to change.
The Current Trend in California Home Sales While home sales in California decreased slightly, less than one per cent, from January to February of 2009, in February 2009 nearly forty-three percent (43%) more homes were sold than in February 2008. Additionally, the ten-month trend of falling home prices came to an end in February. Home equity is on the rise; interest rates are projected to increase as a result of President Barack Obama‘s economic stimulus. Furthermore, Treasury Secretary Tim Geithner’s proposed economic reforms suggest the favorable climate for the home owner to refinance their mortgage is likely to change.
Flexibility When the California home owner refinances their home loan, they get a chance to reduce the amount of their monthly mortgage payment. Not only that but it also increases the payback or amortization payment.
This heightens the time value of money since a lower monthly mortgage gives the home owner a chance to invest in more profitable assets or to simply have more money to spend.