Thursday, September 30, 2010

How Much Lower Can Mortgage Rates Go?

Something to keep in mind as the resurrection of the real estate market kicks into gear- and hopefully sooner rather than later. This might be the time to buy and get in when you can get interest rates at their historic lows. Timing the mortgage rates may be a tough task. Here is a little information from Elizabeth Martinez in Miami to give you some food for thought. Log on to my website to see the latest foreclosure properties in the Keys at www.keystropicalproperties.com. Rhonda

How much lower can mortgage rates go?
Top News
Wednesday, 29 September 2010 17:52
By Elizabeth Martinez

Miami, FL- Just last week, reports from Freddie Mac's weekly survey showed that rates were averaging 4.37%. Rates on 30-year fixed-rate mortgages have dropped more than a percentage point since June 2009. With mortgage rates dropping like this, and the financial situation showing no improvement yet, many have started to wonder how low mortgage rates can really go.


Some analysts in the mortgage industry suggest that mortgage rates could keep going down in the direction of 0%. Rates will receive additional pressure as the Federal Reserve recently indicated that it is willing to take extraordinary steps to keep the economy growing.

"So long as the Fed allows the word 'deflation' to get bandied about, mortgage rates will ease lower," said Dan Green, a loan officer with Waterstone Mortgage in Cincinnati.
It is not unreasonable to say that mortgage rates could keep declining from their current level. Even two years ago when mortgage rates were much higher, very few would have believed that mortgage rates could get down as low as they are now. So, it is very likely due to the current situation that mortgage rates could continue moving down.

"In theory, the only stopping point is 0%—that's where all nominal interest rates have to stop," said Mike Larson, real-estate analyst for Weiss Research.

Larson said that a 0% mortgage could be compared to the 0% financing that has been in place for a long time in the auto industry. In addition, home builders also have been known to pay down mortgage rates for their clients. So, introducing lower rates than the ones we have right now wouldn’t be completely unheard of, at least for a period of time, explains Larson.

“But mortgages are different from car loans. Do I think we will see [0% mortgages] in our lifetimes? No, I don't," he said.

Furthermore, it is not very clear how a 0% mortgage could be funded. Jim Sahnger, a mortgage planner with Palm Beach Financial Network said that in essence, to fund a 0% mortgage, the investor would get a negative return—"unless there were significant fees on the front to compensate for costs to originate, deliver, default, etc."
Although unlikely, if rates do fall to or near 0%, this could bring more first-time home buyers to seek out extremely favorable financing for a house, Mr. Sahnger said. If you get more buyers in the mix, the demand for homes could kick up, thus helping home prices rise, he said.

Assuming that the 0% scenario is possible, the issue will come up with the eligibility for this type of mortgage rates. Eligibility would become an issue as the number of homeowners who are underwater on their mortgages has increased greatly. In addition, borrowers need income and a good credit score to be eligible for a mortgage. Recent studies from Zillow Mortgage Marketplace found that nearly one-third of Americans are unlikely to qualify for a mortgage due to their low credit score. Furthermore, only 47% of Americans qualify for the best rates (these are borrowers with credit scores of 720 or higher).

Because of the difficulty eligibility just mentioned, without the help of a government program, many of those homeowners are not able to refinance.

"We are in an era of historically low mortgage rates, reaching levels not seen in decades. Coupled with four years of home-value declines, homes are more affordable than we've seen for years," said Stan Humphries, Zillow's chief economist. "But the irony here is that so many Americans can't qualify for these low rates, or can't qualify for a mortgage at all."

Wednesday, September 29, 2010

Home Prices Might Rise Sooner than you think!

I found this on the web and thought it was interesting enough to add to my blog about prices for home sales in the next few years....

Why Home Prices Might Rise Sooner That You Think
Published on Friday, September 17, 2010, 2:50 PM Last Update: 5 day(s) ago by James Crumbaugh III

I have been arguing that home prices will come back faster and stronger than anyone thinks. I have been making the case for this idea for some time now. I know most everyone thinks I’m out of my mind, including a close friend in the business who we had dinner with the other night.

I’ve been making this argument because I see a serious inventory situation shaping up in this country, and when there is no inventory to buy, prices skyrocket.

I’ve heard every argument - why I’m a fool, a moron, an idiot, my crystal ball has holes in it, and it’s Bush’s fault.

However, with all that said, let me give you another part of my argument of why I see the home values returning faster than anyone imagined – if we ever get Washington in order again and if we get our economy righted.

Today, I read an article that I have read dozens of variations of over the last three years. The article discussed how many homeowners are under water on their mortgages. We are talking about 4.1 million homeowners who are underwater. These are homeowners, for the most part, who aren’t in foreclosure and are making every effort to stay in their homes, with the plan of not moving, and knowing that someday they will have their mortgages paid off.

This is another reason I see the values returning. The sellers can’t sell these homes because they aren’t at this time worth what a homeowner would have to sell for to pay off their mortgage and have enough left over to buy another home. As a result this adds to the inventory shortage.

Also today, I read an article which stated that August 2010 had the highest number of home foreclosures ever in a given month. However, the banks are going to release these homes to the market slowly for the same reason I’ve been discussing. They know that an inventory shortage will cause home values to rise. The banks want to also see an inventory shortage knowing what I know. Prices will rise. This also adds to the inventory shortage.

I read another article today about a community in Southern California where the inventory is between 2 months and 3 months. And Surprise-Surprise, they saw homes values rise 11.4 % this year.

I guarantee you; I did not fall and hit my head. I’m not smoking anything funny, and I’m not blaming President Bush.

This economy will turn around. We will fix Washington, or vote all the bums out, and when we do turn this economy around, I would not be surprised if we weren’t down to a 2 or 3 month inventory in every desirable location in this country.

Only time will tell if I’m the biggest crack pot in this industry. So I ask you to watch this industry for the next two years. If we start seeing a 5% growth rate in this country, if we start getting the country’s debt under control, or at least not add any new debt, we will see the confidence factor for our country go up. When that happens, we will see people buying homes and second homes again, and when that happens we will see the inventory shortage become the next hot story, which in turn will create a demand. In our company, close to 50% of all buyer controlled sales are being bought with cash.

All of this portends a good time for our industry in the not-so-distant future.

Please don’t shoot the messenger.

James A. Crumbaugh III is CEO of Allison James Estates and Homes, a National Internet Based Real Estate Brokerage. You may reach Mr. Crumbaugh at jcrumbaugh@allisonjames.net

Monday, September 27, 2010

HURRY, Higher Loan Limits expire soon for Luxury Home Financing

Higher conforming loan limits due to expire
WASHINGTON – Sept. 27, 2010 – Unless Congress intervenes, the maximum loan amount the Federal Housing Administration will back, as well as loans backed by Fannie Mae and Freddie Mac, will return to $417,000 in most areas and $625,500 in high-cost areas. The higher loan limits are due to expire Dec. 31, 2010.

Over the last two years, the government raised the limits in some high-cost areas to $729,750.

If Congress doesn’t extend higher limits, home prices would “drop precipitously” because it would be “impossible to finance homes in most parts of Los Angeles and certain other major cities,” said Rep. Brad Sherman, a California Democrat and member of the House Financial Services Committee.

But many economists support the end to higher limits. “We need to think how we are going to exit from a Fannie-and-Freddie world, and this is a very small step toward that exit,” said Richard K. Green, director of the University of Southern California’s Lusk Center for Real Estate. “Dialing it back to $625,500 is a perfectly reasonable thing to do.”

Source: The Wall Street Journal, Nick Timiraos (09/23/2010)

© Copyright 2010 INFORMATION, INC. Bethesda, MD (301) 215-4688

Friday, September 24, 2010

Home Construction about to take off!

MIT prof: Housing demand about to take off
William C. Wheaton, professor of economics at Massachusetts Institute of Technology, argues that the housing market is due for improvement, calling home construction, “a sleeping giant that is about to wake up.”

Wheaton believes because there has been so little construction that demand exceeds the level of building and it will soon absorb excess inventory.

“Housing construction will not only rise, but it will stay high for a while, which didn’t happen in previous recoveries,” Wheaton predicts.

Source: Fortune, Nin-Hai Tseng (09/17/2010)

© Copyright 2010 INFORMATION, INC. Bethesda, MD (301) 215-4688

Thursday, September 23, 2010

Rent or Own; What are the advantages to home ownership?

I found this article online at www.HomeKeys.com about the advantages to homeownership as opposed to renting, so I thought I would share it with you today...

7 Reasons to Own Your Home!

1. Tax breaks. The U.S. Tax Code lets you deduct the interest you pay on your mortgage, your property taxes, as well as some of the costs involved in buying your home.

2. Appreciation. Real estate has long-term, stable growth in value. While year-to-year fluctuations are normal, median existing-home sale prices have increased on average 6.5 percent each year from 1972 through 2005, and increased 88.5 percent over the last 10 years, according to the NATIONAL ASSOCIATION OF REALTORS®. In addition, the number of U.S. households is expected to rise 15 percent over the next decade, creating continued high demand for housing.

3. Equity. Money paid for rent is money that you’ll never see again, but mortgage payments let you build equity ownership interest in your home.

4. Savings. Building equity in your home is a ready-made savings plan. And when you sell, you can generally take up to $250,000 ($500,000 for a married couple) as gain without owing any federal income tax.

5. Predictability. Unlike rent, your fixed-mortgage payments don’t rise over the years so your housing costs may actually decline as you own the home longer. However, keep in mind that property taxes and insurance costs will increase.

6. Freedom. The home is yours. You can decorate any way you want and benefit from your investment for as long as you own the home.

7. Stability. Remaining in one neighborhood for several years gives you a chance to participate in community activities, lets you and your family establish lasting friendships, and offers your children the benefit of educational continuity.

Online resources: www.homekeys.com

Tuesday, September 21, 2010

Luxury Home Purchases Soar

Hi again, everyone! Well, the news is out that we are supposedly out of the "Recession"- the worst one since the Great Depression! I don't know about you, but it sure doesn't feel like it- at least not yet. Yesterday I included a blog on the potential flooding of the market with bank owned properties or foreclosures. If you read yesterday's blog you would know that this release of the so-called shadow inventory that we have been worrying about for at least a year has never happended. Today I received this artical regarding the Luxury Homes Sales that I think is pertinent so I thought I would include in today's information.
Luxury Home Purchases Soar:
The real estate market has been going through some challenging times this year. The National Realtors Association’s (NAR) last Existing Homes Sales Report showed that sales were down 25.5% from the same time last year. Media headlines screamed that the housing market was screeching to a halt the following day.

There is a segment of the market that is actually flourishing however: luxury homes.

According to NAR’s 2Q Report on Home Sales Statistics, every price ban under $1 million showed a decrease. Here are the numbers:

§ Homes less than $100,000: sales down 17.1%

§ Homes $100 -$250,000: sales down 35.3%

§ Homes $250 – $500,000: sales down 27.9%

§ Homes $500 – $750,000: sales down 12.8%

§ Homes $750,000 – $1 million: sales down 6.7%

At the same time, the sales of homes over a million dollars are UP 6.1%. Many people were shocked that the upper-end market is beginning to recover. It seems that this trend will continue as we move forward.

Unity Marketing, a market research firm specializing in the luxury consumer, just completed their study, Home Is Where the Style Is, which showed that the luxury home buyer has plans to re-enter the market in a big way. When asked if they plan to purchase a home in the next twelve months:

§ 11% responded that they would build a new primary residence (up from 3% in 2008)

§ 11% responded they would buy a new primary residence (up from 6% in 2008) and

§ 11% responded they would buy a second/vacation home (up from 2% in 2008)

Why this sudden resurgence in upper-end purchases?
We think there are three major reasons:

1. The affluent were less impacted by the economy.

An article in the Wall Street Journal reported the number of millionaires is soaring:

“… the number of American households with investible assets of $1 million or more rose 8% in the 12 months ended in June … There now are 5.55 million U.S. households with investible assets of $1 million or more.”

2. The wealthy understand investment cycles.

There is no doubt that the wealthy will have a better feel as to when the market will return. They are more accustomed to the up/down movements in the cycle of any investment. They are seeing value in today’s real estate and acting on what they perceive as an opportunity.

2. Mortgage rates for luxury properties are at historic lows.

Jumbo interest rates have fallen a full percentage point in the last year (from approximately 6% to 5%). The difference in a $1,000,000 mortgage payment from last year to now is $3,216.40/month. The annual savings of over $38,000 may be too good to pass up.

Bottom Line
With property choice almost unlimited, values at pre-bubble prices and interest rates at historic lows, it might make sense to buy the home or vacation spot your family always dreamed of. It appears the wealthy are doing just that.

Monday, September 20, 2010

Bank Foreclosures- what ever happened to the shadow inventory?

Hi Everyone, For over a year now, realtors have been waiting and worrying about the release of a huge amount of foreclosed properties into the market. Many realtors, sellers, and buyers have feared there were going to be so many that it would hurt the already depressed prices. Where is this shadow inventory? Here is a report that tells a little about what has happened with all of these bank owned properties...

WASHINGTON – Sept. 20, 2010 – For the last year, the real estate industry has been talking about shadow inventory and the coming flood of distressed properties. Where are they?

Here’s what’s happening, according to a recent paper by Alan Mallach, a senior fellow the Brookings Institution:

• Some delinquencies have been resolved through loan modifications or people working out the problems on their own.

• Banks are getting better at managing short sales.

• Investors are aggressively buying up properties, sometimes in bulk, directly from the banks or at courthouse auctions so they don’t hit the market.

The likeliest outcome, Mallach predicts, is a steady flow of foreclosures over a long timeframe that will prevent another crash in home prices – but it will probably lead to low or no appreciation in home prices for a while.

Source: The Wall Street Journal, Nick Timiaros (09/16/2010)

© Copyright 2010 INFORMATION, INC. Bethesda, MD (301) 215-4688