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Timing Your Next Move? Interest Rate Is Now More Important Than Home Prices

 
Watching Home Prices Could Be a Costly Mistake
With interest rates at historic lows and expected to increase over the next few months, it is important to realize that the home you could afford today could be quickly beyond your reach. 
 
Home prices rise and fall, but most people don’t realize that the interest rate is what really has a dramatic effect on your home purchase.  Instead of watching home prices, smart investors watch interest rates.  In today’s market, you can find foreclosures, Short Sales, and bargain low low prices, but the REAL bargain is the low low interest rate.  
 
For example:  if you buy a home today for $500,000 with 20% down payment
 
·         At today’s low interest rate of 5%.  Your monthly payment would be $2147.49
 
·         If you buy the same home next month at a 6% interest rate, your payment would be $2398.20
 
·         If you buy the same home the few next months at a 7% interest rate,  your payment is $2661.21
 
That simply means you can buy more home for less money per month now than you will tomorrow.  It also means that the home you can afford today, you might not be able to afford tomorrow.
 
Continuing our example:   The amount you qualify for also changes as interest rates rise…
 
·         For a payment of $2150.00/month you would need to make approx. $5,657/gross per month
 
·         For a payment of $2661.00/month you would need to make approx. $7,002.63 gross per month.
 
What this means is you will need to make $1,345.63 per month to afford the exact same mortgage or buy a home that is about $77,000.00 less!
 
Why the interest rate is effects you more than price
Current forecasters expect a moderate rise in home prices in Orange County of 6% or more over the next 12 months.  Some are more optimistic, some are more conservative.  But even the more conservative projections for the lower price ranges is positive.
 
If you wait for prices to drop and if they happened to drop an unexpected 5% ($25,000) on a $500,000 home, your payment would only $107.37 less.  Whereas, the expected increase of interest rate to 7% would increase your payment by $513.00 
 
 
How this also effects how much you get for your home when you sell
The problem with waiting for home prices to go up to sell is that when you do sell, you have to buy your replacement home.  Whatever gains you make by selling at a better time for a higher price will be wiped out by what you lose on the purchase of your replacement home.  If your home’s value goes up, the price of the home you’ll buy will equally go up. 
 
However, the big difference is the change in interest rates.  If you have a home to sell the demand for you home is highest while interest rates are low making it more affordable to more buyers.  A rise in the interest rates eliminates a pool of buyers for your home. 
 
Also, if you’re Selling, the interest rate effects the purchase of your replacement home.  A higher rate means you’ll make higher payments and be able to afford and qualify for less home.
 
These numbers are for illustration purposes only.
Please consult your mortgage professional for exact numbers and details.  Or I can help you evaluate your options.  

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For buyer tax credit, you must be in escrow by April 30, 2009, FHA or Conventional Loan

Reminder about the tax credit! Check it out, let me know what you think.

Are the market trends showing us an increase in price, or is it just an illusion?

The article below cam from the Associated Press. The last thing I want to do is be pesimistic about our real estate market, but at the same time it’s critically important to be realistic and transparent right now. We have recently seen some upticks in price and number of sales here in Socal. That in itself is good news. However, with the tax credits available for first time buyers and move up buyers ,the number of  foreclosures that seem to be ready to hit the market soon and the 5 year arms that are ready to re-cast this year, it looks like thie “uptick” in values in some area could be very short lived. Time will tell, like always.

In the mean time, we all have our reality to live. IF there is a true compelling reason to move, then move. If you want an investment that will bring appreciation in the future, buy a home today. With the low rates, and low prices, now is a fantastic time to buy.

Tell me what you think, because when it comes down to it, what you think is all that matters.

The median home price in Southern California posted its first year-on-year gain last month since the summer of 2007, as more high-priced homes in relatively expensive neighborhoods continued to enter a market that had been dominated by lower-end sales, a tracking firm said Tuesday.

San Diego-based MDA DataQuick said the median home price in the six-county region of Southern California was $289,000 in December, up 4 percent from $278,000 in December 2008. The price also represented a roughly 1 percent bump up from November’s $285,000 median.

The sales of higher value homes, combined with a leveling off of prices in more affordable inland communities, had pulled the median out of the monthslong nosedive seen following the market’s collapse, said DataQuick president John Walsh.

“That simple shift of what’s selling and what’s not selling puts upward pressure on the median,” he said. “But we’ve also seen price floors, however temporary, form in many areas recently as the foreclosure inventory dwindled and buyers took advantage of lower prices, lower mortgage rates and tax credits.”

DataQuick also said home sales increased more than 12 percent from a year ago to more than 22,300, making for 18 consecutive months of year-on-year gains.

The largest gains were seen in high-end markets that saw few sales last year, such as Beverly Hills, Santa Monica and Newport Beach, while more affordable inland areas that had robust 2008 sales recorded year-over-year declines last month, DataQuick said.

Foreclosures comprised nearly 40 percent of resales last month, down from almost 54 percent in December 2008, but up nearly a percent from November’s figure.

The increase marked the first month-to-month increase in foreclosed homes’ share of the resale market since February, but DataQuick spokesman Andrew LePage said it was too early to say whether the uptick indicated the start of a new trend.

FHA changes guidelines for buying, 90 day flip rule

HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS
Measure to help bring stability to home values and accelerate sale of vacant properties

WASHINGTON – In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.

To move or to remodel, that’s the question!

 

Remodel or move?  In the November 2009 publication of Remodeling Magazine there was an article about the return on investment of various home improvement projects.  They ranged from 128% return on investment for a new steel front door to 50% return on investment for a sunroom addition.  So, how long are you planning on staying in your home?  This is the first question that you need to answer when trying to decide which to do.  The returns may not seem like they are worth the investment, but that doesn’t mean that you shouldn’t consider it.  If you are planning on staying in your home for more than a few years now may be the best time to start your remodeling project.  Due to the lack of new construction and the fact that we haven’t seen a natural disaster in a while material cost are fairly low.  Another good reason is that due to the slowdown in the construction industry many contractors are doing work at lower prices in order to stay in business until the economy turns around.  A third reason is that interest rates are low which can decrease the long term cost of the project.

  On the other hand, if you do not plan on staying in your current home for more than a few years and have lived there for more than 5 years you could qualify for the homebuyer tax credit.  On top of that interest rates are at or near all time lows, which could mean huge savings in the long run.  I know that this might not help you make your decision any easier, but I hope that I have given you a little information on the topic.  If you are thinking of buying or remodeling there may never be a better time to do either than right now.  How long will it last?  Nobody really knows, but if you are in a position that allows you to act know I would strongly recommend that you do so.

 

The Real Estate Year in Review

When we look back at real estate in 2009, the view from the front porch will likely be through a squint, much like after witnessing a car crash, when one waits for the dust to settle before assessing the carnage.

But there will be a time when 2009 is scrutinized through the wide eyes of history. It is only then that the full measure of the historic level of government intervention in the market will be deemed a success, failure or ineffective.

Even then, it is doubtful there will be a consensus on the impact of the numerous government programs and policies aimed at keeping the real estate market from imploding in 2009 and beyond. Some see Social Security as a failure, 75 years after the first payments went out, although the skeptics are usually those who don’t need the checks to make ends meet.

The government’s goal this year was to construct policies and programs that would act as a bridge and deliver real estate, and therefore the economy, relatively safely over the economic chasm we all helped create.

Some critics believe that real estate should be allowed to run its course, even if that takes the market, and a big chunk of the economy, over the cliff. The free-market evaluation holds that what remains will be strong and provide a solid foundation on which to rebuild. But this clinical approach largely ignores the human suffering that would accompany it.

As a society, we tend not to ignore humanity and, if anything, err on the side of the human condition. We rightfully preach responsibility, to be accountable for one’s actions. But we also recognize human frailty. We don’t want people to go without food, shelter or health care.

The Obama administration’s response to the economic calamity came from a desire for government to do what it should — address a need that can’t be met by the private sector. It recognized the importance of real estate in general and homeownership in particular as a pillar of our economy.

Here’s a brief look at how government is attempting to control the depth and breadth of the worst real estate market since the Great Depression.

Improve home sales

 

Under President Bush, the first-time home buyer’s credit was instituted. This program was more of an advance than a credit because it had to be repaid. The second incarnation began working its way through the Washington maze late in Bush’s tenure and awarded up to $8,000 in actual tax credit for first-time buyers. The program was expanded in November and now includes repeat home buyers.

Reduce foreclosures

 

The Obama administration’s Making Home Affordable program includes two ways to keep people in their homes. The Home Affordable Mortgage Program aims to reduce a troubled homeowner’s interest rate or even the amount owed to make their loan affordable. The Home Affordable Refinance Program is targeted to those who can afford to make their payments now but have less desirable loans, such as an adjustable rate mortgage or an option-ARM.

Keep interest rates low

 

The Federal Reserve reduced its lending rate to banks to from zero to .25 percent. This has kept mortgage interest rates artificially low. In November, the 30-year fixed-rate mortgage hit historic lows at around 4.5 percent. Low interest rates and dropping home values have combined to improve home affordability.

Guarantee loan purchases

 

Through Freddie Mac and Fannie Mae, the government has committed to buying more than $1 trillion in residential mortgage-backed securities. Without this effort, there would have been significantly fewer mortgages purchased, which reduces the amount of money lenders can lend, creating a dearth of money available to borrow.

The private sector is also contributing to keeping the real estate market afloat, albeit for more self-serving reasons. Many lenders are holding back foreclosures or delaying taking homes altogether. This keeps their balance sheets looking better and their stock price up. Still, the action keeps the market from being flooded with foreclosures, further driving down prices, pushing more homeowners underwater, thus increasing the number of foreclosures.

But even with all of these mechanisms in place, the real estate market faces an unsettling view of 2010 thanks to unemployment, inflation and foreclosures. Most economists believe that the economy won’t take the next step until unemployment drops and people are either working or feeling more secure in their jobs.

The government had committed to begin phasing out its purchase of residential mortgage-backed securities and end the orgy of buying by March 30. Officials are hedging now, but at some point they will have to back off buying mortgages or risk driving up the deficit even further than its historic high of more than $12 trillion. If not, inflation could accelerate.

And even if the government programs help reduce foreclosures, it is unlikely we won’t see a record number of defaults in 2010. Part of the reason is the existing “shadow  inventory” which consists of homes that lenders are holding off the market or refraining from foreclosing to reduce their holding costs.

According to most experts, government programs and state initiatives have created temporary delays in foreclosures. When these are unleashed, we could be awash in defaulted properties. It’s expected that we will hit 4 million foreclosures in 2010, up from an estimated 3.2 million in 2009 and 2.3 million in 2008.

Of course, this all means we’re in for a long, slow price recovery. On the rosy side, Lawrence Yun, economist for the National Association of Realtors, sees the possibility of a 1 to 2 percent price gain in some markets by mid-2010. Rick Sharga, vice president at RealtyTrac, which publishes the nation’s largest foreclosure database, says home prices won’t get better until 2013.

Regardless, it appears 2010 will be another year of watching and waiting. Of hoping and hanging on.

One thing is for certain, one day we will be standing on the good side of this mess. But history will have to tell us if we walked across the bridge or had to climb out of the chasm.

2010, set to be the best year yet!

As we find ourselves in the middle of the first month of a new decade, it’s exciting to anticipate the possibilities that this year and this decade hold for all of us.  Although there have been many difficult situations upon many of us over the last few years, it is now time to shake off the past, look forward to the future, and take massive action today to move towards our goals tomorrow and beyond. The possibilities are endless, if, and only if we work daily on our mindset.

When we choose to stop thinking and focusing on the bad, negative and devistating past and focus on the possibilities, the good, and all that we have to be greatful for, our world naturally allows all that is good to flow almost magically into our lives.

What ever it takes, this is the year to make it happen. Each of us was designed and created for greatness. Greatness for ourselves and for others. Serve like you’ve never served before. Love like you’ve never loved before. Live in the now more than ever.  Each and every day be greatfull to have all the possibilities in the world before you. Embrace today and make the most of it.

My hope and prayer is that 2010 is your best year yet, in all areas of your life.

Citigroup to Postpone Foreclosures for the Holidays

This happens every year with just about every bank. I’m actually surprised we’ve made it this far into December without more announcements like this.

The Associated Press reports:

Citigroup Inc. will suspend foreclosures and evictions for 30 days in a temporary break for about 4,000 borrowers during the holiday season.

The New York-based bank said Thursday the suspension will run from Friday through Jan. 17. It applies only to borrowers whose loans are owned by Citi. Borrowers who make payments to Citi but whose loans are owned by other investors are out of luck.

“We want our borrowers to have a much less stressful time, to spend their time with their families during the holidays as opposed to worrying about their homes,” Sanjiv Das, head of the company’s mortgage division, said in an interview.

The suspension means Citi will halt foreclosure sales and stop evicting homeowners from properties it has already seized. The company projects it will help 2,000 homeowners with scheduled foreclosure sales and another 2,000 that were due to receive foreclosure notices.

Das also said the company is working on “some long-term fundamental alternatives” to foreclosure, but declined to be specific. “We know that moratoriums are not permanent solutions,” he said.