Why You Need a Good Negotiator in Today’s Market

Should You Be LOCKING Your Loans?

Should you lock in the interest rate on your mortgage? A couple of things to consider: 1. While I am confident that the Debt Ceiling Debate will be settled (whether it’s for six months or a year), my greater concern is the growing belief that the ratings agencies are looking at downgrading our government’s bonds from our AAA status.  By lowering the credit rating of the bonds being presented to the market, the confidence of those who buy our bonds will be shaken.  In order to overcome the risk of lower rated bonds, we will need to offer greater rates of returns on our bonds.  THAT will result in a rise in mortgage rates because mortgages are what make up the bonds.  This will affect virtually every conforming loan limit home buyer, whether they have conventional or government (FHA/VA) financing. 2. The pending lowering of the maximum loan amounts (slated for October 1st) that can be sold to FannieMae, FreddieMac and GinnieMae (in high cost areas from $729,250 to $625,500 for single family homes) will create more “Jumbo Loans”.  Jumbo loans have historically been .25% to .375% higher than conforming loans; however, industry insiders are hinting at a much bigger spread (.75% or more).  Granted, this will not impact most home buyers, but it is worth noting. Now, it is possible that neither item becomes effective.  Let’s keep our fingers crossed.  Yet, what is the benefit of NOT locking.  Maybe rates could go down an eighth or a quarter of a percent.  Is that worth the risk of a rate increase that would be quick and dramatick of a half of a percent or more? The safe bet is to LOCK to protect yourself……my mother always said, “better safe than sorry”.

Thank God I Didn’t Buy Gold at $400 an Ounce!

We hope that headline grabbed you. The reason we used it was to bring some perspective to the debate as to whether or not home ownership is a wise investment in today’s troubled market. A family should never look at the purchase of a home simply as a financial investment. It is so much more than that. But, even if we look at it as only an investment, we must look at it in the long term. Let’s use gold as an example. Gold had dropped from over $400 an ounce to $250 an ounce (a 40% decline) from February 1996 to August 1999. People were so glad they hadn’t bought at $400 an ounce. Lord William Rees-Mogg, the current Chairman of The Zurich Club, in 1997 said: “No investment has been so thoroughly exploded as gold; most people think that there will no more be another gold boom than there will be another boom in tulip futures in The Netherlands.” Everyone knows what happened next. The proclamation of gold’s death was rather premature. Gold rose from $250 an ounce to over $1,500 an ounce in the next twelve years. If we look at real estate in the long term, we can see that it has been a great vehicle for building family wealth. The Federal Reserve’s Survey of Consumer Finances, conducted once every three years, provides a snapshot of family income and net worth. There survey has shown every time that homeowners’ net worth far exceeds that of renters. Here is the breakdown of the last several surveys: 1998 – Homeowner net worth exceed renters by 31% 2001 – Homeowner net worth exceed renters by 36% 2004 – Homeowner net worth exceed renters by 41% 2007 – Homeowner net worth exceed renters by 46% The 2010 survey is not out yet but the National Association of Realtors’ has estimated that number to be approximately 41% in 2010. You may be thinking this is no longer the case based on the current fall in home values which have dropped back to 2000 – 2002 prices. Harvard University just completed a study that showed: “Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.” Bottom Line We are not predicting that real estate will see the same levels of appreciation that gold did. However, we do believe that the real estate market will rebound strongly.

Why Do People Actually Buy a Home?

It seems that every time we talk about real estate today the conversation immediately goes to the financial aspects of buying a home. Where are prices headed? Where are interest rates headed? Should I wait to try and get a ‘better buy’? Should I wait until I can get a ‘steal’? The odd thing about all these questions is that survey after survey keeps telling us that price is not the reason families actually buy a home. When money is considered at all, it is in light of not paying rent to a landlord. Let’s look at two recent surveys as examples: National Housing Survey The top five reasons given in the survey for buying a home, in order, are: It means having a good place to raise children and provide them with a good education You have a physical structure where you and your family feel safe  It allows you to have more space for your family  It gives you control of what you do with your living space (renovations and updates) Paying rent is not a good investment The Myers Research and Strategic Services Survey The top five reasons given in the survey for buying a home, in order, are: Home ownership provides a stable and safe environment for children and other family members Home ownership means the money you spend on housing goes towards building equity, rather than to a landlord Home ownership creates the opportunity to pay off a mortgage and own your home by the time you retire  Home ownership creates the opportunity to live in a neighborhood that you enjoy  Home ownership allows you the right to decorate, modify and renovate your home as you see fit Bottom Line Price dominates conversation when we talk about buying a home. However, when it comes down to it, we actually buy for the same reasons our parents and grandparents did – we want a better lifestyle for ourselves and our families.

Selling Your House? Waiting May Not Make Sense

There have been some bright spots in the residential real estate market over the last couple of months. Several price indices have reported a stabilization of prices and some regions have even shown small levels of appreciation. This has led some to believe that we may have reached a bottom for home values. We must realize that what we are actually experiencing is a ‘window of opportunity’ as the banks are delayed in bringing certain inventories of distressed properties to the market. Let’s look at what others are reporting: Bloomberg Businessweek “The crux of Simon’s analysis is that the loose lending practices seen during the housing bubble allowed 5 million renters to become homeowners, and that the market is in the protracted process of evicting this group. He believes housing prices will decline 6 percent to 8 percent nationally, with 6 million to 7 million more foreclosures yet to come.” Yahoo Finance “The problem with the real estate market remains excess inventory. Based on Shilling’s research, there are 2 million to 2.5 million excess homes in the country — a supply that will take 4-5 years to work-off. The result: Housing prices will fall another 20% and underwater mortgages will balloon from 23% to 40%, he says.” Housing Wire “Both warmer weather and the drop in distressed sales percentage have contributed to recent home price improvements. However, given the disappointing pace in housing demand recovery, both factors may turn against us in the coming winter and push home prices lower again… This supply-demand imbalance affirmed JPMorgan analysts’ estimate of a further 4% drop in home prices from the first quarter of 2011 to a new bottom next year.” DS News “Home prices have gotten a little bit of a boost in recent months thanks to a seasonal uptick in market activity. Most analysts, however, expect further declines to characterize the later part of the year and possibly extend into next year, largely because of the huge supply of foreclosures on the market.” Bottom Line If you are thinking of selling in the next twelve months, you would probably do much better if you sold your house sooner rather than later.

Are You Afraid?

Unemployment’s Impact on Housing   What impact does rising unemployment have on the real estate market? Actually, it is quite simple: Rising unemployment creates uncertainty. Uncertainty creates fear. Fear creates paralysis. Paralysis prevents people from moving forward with their lives. Don’t allow fear to stop you from getting on with your life. Realistically look at your personal situation and decide what is best for you and your family.

5 Real Estate Headlines You'll See in the Next Six Months

  Making predictions can be the ‘kiss-of-death’ for a blog. Even if we get four out of five correct (80%), there are those in the industry who will kill us on the one we got wrong. We believe strongly that when making a real estate decision for you and your family you must look forward and take into consideration how the housing market may change.

For this reason, we are willing to take on the possible wrath of our counterparts by sticking out our necks and predicting these will be the major real estate news stories from now until the end of the year.

Interest Rates Rise

Many, including us, have been surprised that rates have not risen already. However, the next several months are going to see three distinct changes that will propel rates upward.

1.       As the government starts to leave the mortgage market, private industry will step in. Private industry demands a higher rate of return on their investments. Mortgages will be no different. Studies have shown that 30 year mortgage rates could increase by 1 to 3% over the current rate.

2.       In many higher priced markets, rolling back Conforming Loan Limits means that rates for the mortgages on these properties will resort back to the rates on private jumbo loans. The FHFA informed us that last year, the difference between mortgage rates for jumbo loans and jumbo-conforming mortgages has varied between about ½ and ¾ of a percentage point.

3.       As the economy gets better (and we believe it will), the pressure to keep rates low to stimulate growth will abate.

Some Loan Requirements Tighten but More Can Now Get a Loan

Lending institutions have already started to introduce stricter mortgage guidelines. Whether the Quality Residential Mortgage (QRM) requirements are instituted as originally proposed or eased somewhat, there is no doubt that guidelines will continue to tighten as we work through the year. However, we believe the private sector will again start introducing alternative mortgage financing but at a greater expense to the consumer. You WILL be able to get a mortgage. It will just cost you more.

Housing Sales Increase

Contracted sales have shown consistent improvement over the last six months and we feel this will continue and actually begin gaining even greater momentum. We believe there is a ‘pent-up’ buying demand caused by the volatility of the market over the last several years. When interest rates start to move upward and alternative financing becomes more available, these buyers will start to jump off the fence. We believe there will be a major upswing in sales over the next six months.

Distressed Properties Increase Markedly 

More people are paying their mortgage on time and that is great news for housing in the long term. However, the numbers of distressed properties currently in the foreclosure process is still very swollen. These properties will begin coming to the market in the second half of the year as short sales and foreclosures. The numbers will be staggering in some areas.

Prices Continue to Soften in Most Markets 

The current housing inventory for sale and the distressed properties about to come on the market will vastly outnumber the increased supply of purchasers we will see over the next six months. There will be more houses for sale then there will be buyers purchasing them. That oversupply will continue to put downward pressure on prices through the rest of this year and into 2012.

You now know what we believe will take place in real estate between now and the end of the year.