Though home prices continued to fall in July, there are growing signs that — in some regions at least — the market may be stabilizing as lower prices lure some buyers off the sidelines. But a broad housing recovery faces stiff headwinds in the form of rising unemployment, tighter credit for borrowers and a huge inventory of unsold homes.
The widely watched Standard & Poor's/Case-Shiller national home price index fell by a record 15.4 percent during the second quarter compared to the same period a year ago.
Still, the report offered a glimmer of hope that the slide in home prices may be easing: The rate of price drops slowed from May to June, and regional price data showed that nine of the 20 cities tracked by the index posted slight month-to-month gains.
"If you look at the year-over-year numbers they are still going down but not accelerating to the downside quite as much as they had been in a number of cities,” said David Blitzer, chairman of the index committee at Standard & Poor’s. “So we are seeing hints of bottoms.”
Other housing news this week also gave reason for cautious optimism. Sales of new homes posted an unexpected gain of 2.4 percent in July, and sales of existing homes rose 3.1 percent, more than expected.
But in both cases, the reports were mixed. Median prices for existing homes are still falling, and the number of unsold homes on the market hit an all-time high.
“The question is 'Where is the economy going?'” said Robert Brusca, chief economist at Fact and Opinion Economics. “If the economy gets weaker, this stability we see in housing will give way and we’ll get traditionally weakness in housing that will come from the economy itself. So we have to be concerned about that."
Even the usually optimistic White House was extremely cautious in its reaction. "The data today paint a mixed picture, but it's clear it will still take some time to work through the downturn in housing," White House spokesman Tony Fratto said in Crawford, Texas, where President Bush was spending time at his ranch. "Once housing prices stabilize that will signal a return to a housing industry that can contribute to economic growth."
Like discounted merchandise in a department store, lower home prices should eventually spur sales. Buyers who were priced out of the market during the peak of the housing boom have a better shot at homeownership as prices fall.
The national “affordability index” — which tracks incomes, mortgage rates and home prices —fell a bit in July, meaning houses became a bit less affordable, mainly due to rising mortgage rates. But overall, homes are generally more affordable than they were at the height of the boom.
The recovery in the housing market is being slowed by the availability of credit, now that lenders have substantially tightened up guidelines on approving loans. The supply of mortgage money has also been crimped as the two government-sponsored mortgage finance companies, Fannie Mae and Freddie Mac, struggle to cope with mounting losses from foreclosures.
The heavy pace of foreclosures has also been a major force pushing home prices lower, as lenders aggressively price their backlogs of repossessed real estate, hoping to unload them before prices fall further. Once the pace of foreclosures begins leveling off, the pressure on prices will ease.
“I anticipate seeing price support probably sometime in the first or second quarter of next year when the foreclosure market stabilizes back to more normal numbers,” Damian Kassab, CEO of Warren Bank in Clinton, Mich., said on CNBC.
Foreclosure filings continued to rise in July — up 8 percent from June and 55 percent higher than last July. Last month, the White House signed housing legislation designed to head off foreclosures by allowing an estimated 400,000 homeowners swap their mortgages for more affordable loans.
But homeowners can only participate if their lender agrees to take a loss on the loan. Even if the plan works as intended, some 2.8 million U.S. households will either face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, according to estimates by Moody's Economy.com.
Signs of a bottom in the housing market are further clouded by the recent rise in the unemployment rate. Homeowners who might have otherwise managed to keep up with their mortgage payments will have a harder time doing so if they’re out of a job.
Consumer budgets are also being squeezed by higher food and energy prices, though household budgets have recently gotten something of a reprieve as gasoline prices have eased. That helped lift overall consumer confidence a bit in July, though the outlook for jobs turned bleaker, according to the latest monthly survey from The Conference Board.
“We are not out of this," said Ken Goldstein, an economist at the Conference Board. “We still have months to go before the economy and the housing market will be improving. That's not going to happen until 2009, maybe not until the summer of 2009.”
By: John W. Schoen MSNBC.com
Tuesday, August 26, 2008
Monday, July 14, 2008
Imagine Housing Without a Secondary Market
In 1974, the United States was reeling from Watergate and the Vietnam War and stuck in a vexing recession. Inflation was out of control and President Gerald Ford was struggling to get control of the country and its economy. A collectible from those days is a "WIN" button, which stood for "Whip Inflation Now" -- a promotional device that the desperate Ford administration ginned up.
At the time, I was fresh out of college, living in Peoria, Ill., and working as an urban planner. One distinct memory I have was passing the downtown office of Peoria Savings with a sign on the window that read "No Home Loans."
A moratorium on home loans -- can you imagine?
Get ready.
In the early 1970s, the housing market had no meaningful secondary mortgage market. When passbooks savings -- which capitalized most mortgages -- shrank, money for home loans dried up.
In 1968, Fannie Mae and Freddie Mac were re-chartered by Congress as shareholder-owned companies funded solely with private capital raised from investors on Wall Street and around the world. But it was not until the 1980s that they found their footing and their growth mushroomed. Mortgage-backed securities got traction in the early part of this decade with the national push for home ownership. New mortgage instruments were invented to capture global interest in U.S. home loans.
In this period, a secondary market came onto the scene with brute force. By 2005, the size of the market had ballooned to $3 trillion.
And today? It has collapsed. Even Fannie Mae and Freddie Mac are poised for a government bailout. Today, Fannie Mae's stock has tumbled 45 percent and Freddie's has fallen 20 percent. This is after steep declines all week.
So, imagine a return to a housing market without a robust and functional secondary housing market. In other words: a severe credit crunch.
Here are 10 things that I predict will flow from its collapse (many of which have already hit the beleaguered housing market):
1. The capital that exists from direct lenders such as community banks, savings institutions and large commercial banks will fall short of potential demand and focus on bread-and-butter loans, leaving most borrowers out in the cold.
2. Exotic loans of any kind will be completely out of favor, leaving many borrowers and many properties unfundable.
3. Home sellers will become active lenders, but only those who have equity. Seller financing will help some transactions.
4. Second homes, expensive houses and certain types of investment property will be penalized and difficult to fund.
5. Small boutique lenders will enter the business, capitalizing on market voids, funding specialized but secure niches.
6. Investment banks will take care of unleveraged high-net-worth customers, but terms will be unfavorable so this market will further shrink.
7. Sovereign wealth funds are not the solution, because many were burnt on mortgage-backed securities.
8. Those that do lend will revert to back-to-basics underwriting: perfect credit, large down payments, proof of income, personal character and good family upbringing.
9. Housing industry lobbyists will make the mortgage liquidity problem their number one policy issue in the next two years. They will argue that the sky is falling and it is.
10. The trend will keep the housing market starved for capital, prolonging the slump.
Like so many parts of our American culture, the accessibility to unlimited and poorly scrutinized debt helped turn Americans into a sloppy group of consumers, which spawned greedy Wall Streeters, out of control lenders and starry-eyed investors.
By: Brad Inman is founder and publisher of Inman News
At the time, I was fresh out of college, living in Peoria, Ill., and working as an urban planner. One distinct memory I have was passing the downtown office of Peoria Savings with a sign on the window that read "No Home Loans."
A moratorium on home loans -- can you imagine?
Get ready.
In the early 1970s, the housing market had no meaningful secondary mortgage market. When passbooks savings -- which capitalized most mortgages -- shrank, money for home loans dried up.
In 1968, Fannie Mae and Freddie Mac were re-chartered by Congress as shareholder-owned companies funded solely with private capital raised from investors on Wall Street and around the world. But it was not until the 1980s that they found their footing and their growth mushroomed. Mortgage-backed securities got traction in the early part of this decade with the national push for home ownership. New mortgage instruments were invented to capture global interest in U.S. home loans.
In this period, a secondary market came onto the scene with brute force. By 2005, the size of the market had ballooned to $3 trillion.
And today? It has collapsed. Even Fannie Mae and Freddie Mac are poised for a government bailout. Today, Fannie Mae's stock has tumbled 45 percent and Freddie's has fallen 20 percent. This is after steep declines all week.
So, imagine a return to a housing market without a robust and functional secondary housing market. In other words: a severe credit crunch.
Here are 10 things that I predict will flow from its collapse (many of which have already hit the beleaguered housing market):
1. The capital that exists from direct lenders such as community banks, savings institutions and large commercial banks will fall short of potential demand and focus on bread-and-butter loans, leaving most borrowers out in the cold.
2. Exotic loans of any kind will be completely out of favor, leaving many borrowers and many properties unfundable.
3. Home sellers will become active lenders, but only those who have equity. Seller financing will help some transactions.
4. Second homes, expensive houses and certain types of investment property will be penalized and difficult to fund.
5. Small boutique lenders will enter the business, capitalizing on market voids, funding specialized but secure niches.
6. Investment banks will take care of unleveraged high-net-worth customers, but terms will be unfavorable so this market will further shrink.
7. Sovereign wealth funds are not the solution, because many were burnt on mortgage-backed securities.
8. Those that do lend will revert to back-to-basics underwriting: perfect credit, large down payments, proof of income, personal character and good family upbringing.
9. Housing industry lobbyists will make the mortgage liquidity problem their number one policy issue in the next two years. They will argue that the sky is falling and it is.
10. The trend will keep the housing market starved for capital, prolonging the slump.
Like so many parts of our American culture, the accessibility to unlimited and poorly scrutinized debt helped turn Americans into a sloppy group of consumers, which spawned greedy Wall Streeters, out of control lenders and starry-eyed investors.
By: Brad Inman is founder and publisher of Inman News
Tuesday, July 8, 2008
Fed Adopts Plan to Curb Shady Mortgae Practices
Federal Reserve gives home buyers more protection against shady lending practices.
The Federal Reserve has adopted rules to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis and propelled foreclosures to record highs.
Chairman Ben Bernanke and his central bank colleagues approved a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest "subprime" borrowers -- people with tarnished credit histories or low incomes.
In that regard, the plan would:
-- bar lenders from making loans without proof of a borrower's income.
-- require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.
-- restrict lenders from penalizing risky borrowers who pay loans off early. Such "prepayment" penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can't be imposed in the first two years of the mortgage.
-- prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value. The borrower need not have to prove that the lender engaged in a "pattern or practice" for this to be deemed a violation. That marks a change -- sought by consumer advocates -- from the Fed's initial proposal and should make it easier for borrowers to lodge a complaint.
"Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy," Bernanke said.
"Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower," he added.
For all mortgages, the plan would require advertising to contain additional information about rates, monthly payments and other loan features, and it would curtail certain deceptive or misleading advertising practices.
Other practices also would be clamped down on. Lenders, for instance, have to credit a mortgage payment to the homeowner's account on the day it is received. And, brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.
Consumer groups initially complained that the new rules are not strong enough. Lenders worry they are too tough, could limit mortgage options for people and made it harder for some to obtain financing.
The new lending rules may not get a test for some time because there are fewer home buyers these days, given all the problems in the housing and credit markets. Also, some of the shady practices -- along with some lenders -- have not survived, felled by the mortgage meltdown.
"Clearly this is closing the barn door after the fact," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business. Yet, she said, "this is a very important move. It absolutely will make a difference going forward."
Much will hinge on effective enforcement.
The plan would apply to new loans made by thousands of lenders, including banks and brokers. It would not cover current loans.
Those different lenders fall under a patchwork of regulators at the federal and state levels. So it will be up to each of these authorities to enforce the new provisions.
Fed Governor Randall Kroszner, the central bank's point person on the new rules, said the Fed's goal was to protect borrowers from unfair or deceptive practices while also not impeding the flow of credit.
The Fed's rules, he said, should "better protect consumers, while preserving their access to credit as they make some of the most important financial decisions of their lives."
By: AP Business Writer Alan Zibel contributed to this report.
The Federal Reserve has adopted rules to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis and propelled foreclosures to record highs.
Chairman Ben Bernanke and his central bank colleagues approved a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest "subprime" borrowers -- people with tarnished credit histories or low incomes.
In that regard, the plan would:
-- bar lenders from making loans without proof of a borrower's income.
-- require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.
-- restrict lenders from penalizing risky borrowers who pay loans off early. Such "prepayment" penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can't be imposed in the first two years of the mortgage.
-- prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value. The borrower need not have to prove that the lender engaged in a "pattern or practice" for this to be deemed a violation. That marks a change -- sought by consumer advocates -- from the Fed's initial proposal and should make it easier for borrowers to lodge a complaint.
"Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy," Bernanke said.
"Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower," he added.
For all mortgages, the plan would require advertising to contain additional information about rates, monthly payments and other loan features, and it would curtail certain deceptive or misleading advertising practices.
Other practices also would be clamped down on. Lenders, for instance, have to credit a mortgage payment to the homeowner's account on the day it is received. And, brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.
Consumer groups initially complained that the new rules are not strong enough. Lenders worry they are too tough, could limit mortgage options for people and made it harder for some to obtain financing.
The new lending rules may not get a test for some time because there are fewer home buyers these days, given all the problems in the housing and credit markets. Also, some of the shady practices -- along with some lenders -- have not survived, felled by the mortgage meltdown.
"Clearly this is closing the barn door after the fact," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business. Yet, she said, "this is a very important move. It absolutely will make a difference going forward."
Much will hinge on effective enforcement.
The plan would apply to new loans made by thousands of lenders, including banks and brokers. It would not cover current loans.
Those different lenders fall under a patchwork of regulators at the federal and state levels. So it will be up to each of these authorities to enforce the new provisions.
Fed Governor Randall Kroszner, the central bank's point person on the new rules, said the Fed's goal was to protect borrowers from unfair or deceptive practices while also not impeding the flow of credit.
The Fed's rules, he said, should "better protect consumers, while preserving their access to credit as they make some of the most important financial decisions of their lives."
By: AP Business Writer Alan Zibel contributed to this report.
Wednesday, June 25, 2008
California Attorney General Sues Countrywide Financial
California's attorney general has filed a civil lawsuit against Countrywide Financial Corp. , claiming the mortgage lender used misleading advertising and other unfair business practices to trick borrowers into taking on risky home loans they didn't fully understand.
The Los Angeles County Superior Court lawsuit comes on the same day Countrywide shareholders are scheduled to vote on the company's takeover by Bank of America Corp. The AG started gathering information last fall, when it started investigating the troubled company's business practices as foreclosures began to skyrocket nationwide.
The attorney general in Illinois is filling a similar lawsuit there
The Los Angeles County Superior Court lawsuit comes on the same day Countrywide shareholders are scheduled to vote on the company's takeover by Bank of America Corp. The AG started gathering information last fall, when it started investigating the troubled company's business practices as foreclosures began to skyrocket nationwide.
The attorney general in Illinois is filling a similar lawsuit there
Thursday, June 12, 2008
5 Rules and Secrets you MUST Know
First, IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS
But you didn’t really need us to tell you that, did you? Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?
Second, YOU GET WHAT YOU PAY FOR
If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and we wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said – we are not the cheapest. Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.
Third, MAKE CORRECT COMPARISONS
When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls. And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.
Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND
This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.
Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY
This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.
Again, our advice to you is to be smart. Ask questions. Get answers.
As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.
Please call us with any further questions you may have at this time – we are ready to work for your best interest!
But you didn’t really need us to tell you that, did you? Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?
Second, YOU GET WHAT YOU PAY FOR
If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and we wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said – we are not the cheapest. Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.
Third, MAKE CORRECT COMPARISONS
When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls. And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.
Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND
This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.
Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY
This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.
Again, our advice to you is to be smart. Ask questions. Get answers.
As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.
Please call us with any further questions you may have at this time – we are ready to work for your best interest!
Wednesday, June 4, 2008
BUY ONE HOUSE, GET ONE FREE!
As though Southern California's fine weather and beaches weren't attractive enough, a San Diego developer desperate to clear inventory is offering potential home buyers a buy-one-get-one-free scheme.
In a market beset with foreclosures and plummeting sales following the mortgage meltdown in 2007, Michael Crews Development will give away a row home valued at $400,000 with the purchase of a $1.6 million luxury estate home in the upscale city of Escondido in northern San Diego County.
"We are targeting a niche market of investors who are interested in the opportunity to buy a new home for themselves and get a free rental property or second home for family members," developer Michael Crews said in a statement.
The developer claims the row homes are not shoddy townhouses that are being given away with luxury estate homes. The two-acre Royal View luxury homes with four bedrooms, four baths, up to six car garages, swimming pools would be paired with 2,000 square-foot upscale row houses.
"People don't expect to get what they are getting with the row-homes," said marketing director Dawn Berry. "These are well appointed luxury houses."
Originally the offer was to run for two weeks in May but the developers decided to extend it through June to give potential buyers more time to mull over it.
Since the first advertisement went up nearly two weeks ago, one man has made an offer to buy a Royal View estate home, but chose not to take the free row-home. The developers have a solution for that as well.
"If you don't know what to do with your free home, you could always give it away," Berry said.
That would be welcome help for many a young buyer struggling to get a loan amid tightening credit rules that require larger down payments and established credit histories.
Home sales in San Diego County were down 18 percent in April from a year-earlier, while the number of homes going into foreclosure rose 130 percent in the first quarter from a year earlier, according to DataQuick Information Systems.
By Mike Blake REUTERS
In a market beset with foreclosures and plummeting sales following the mortgage meltdown in 2007, Michael Crews Development will give away a row home valued at $400,000 with the purchase of a $1.6 million luxury estate home in the upscale city of Escondido in northern San Diego County.
"We are targeting a niche market of investors who are interested in the opportunity to buy a new home for themselves and get a free rental property or second home for family members," developer Michael Crews said in a statement.
The developer claims the row homes are not shoddy townhouses that are being given away with luxury estate homes. The two-acre Royal View luxury homes with four bedrooms, four baths, up to six car garages, swimming pools would be paired with 2,000 square-foot upscale row houses.
"People don't expect to get what they are getting with the row-homes," said marketing director Dawn Berry. "These are well appointed luxury houses."
Originally the offer was to run for two weeks in May but the developers decided to extend it through June to give potential buyers more time to mull over it.
Since the first advertisement went up nearly two weeks ago, one man has made an offer to buy a Royal View estate home, but chose not to take the free row-home. The developers have a solution for that as well.
"If you don't know what to do with your free home, you could always give it away," Berry said.
That would be welcome help for many a young buyer struggling to get a loan amid tightening credit rules that require larger down payments and established credit histories.
Home sales in San Diego County were down 18 percent in April from a year-earlier, while the number of homes going into foreclosure rose 130 percent in the first quarter from a year earlier, according to DataQuick Information Systems.
By Mike Blake REUTERS
Wednesday, May 28, 2008
5 new rules for home buyers
Rule 1: You can't time the bottom
Face it: The house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It's harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low.
Pace yourself, find the perfect place and drive a hard bargain: Ignore the seller's asking price and bid 10% below what comparable homes are selling for. If the seller balks, move on. Remember that if you're trading up, your home could sit. So sell before you buy.
Real Estate Survival Guide
Rule 2: One reason to buy now - mortgage rates
Homes are plentiful and will remain so, but financing will be getting more expensive. True, the Federal Reserve has slashed interest rates, but fixed mortgages don't directly follow the Fed. They reflect the bond market's expectations about inflation, which remains a concern. The 30-year, now at 6.1%, will likely reach mid-6% by December and 7% in 2009, says Celia Chen of Moody's Economy.com.
That means there could be a penalty for waiting to buy even if prices fall more. Today a $250,000 loan would set you back $1,500 a month. At 7%, a $1,500 payment gets you only a $225,000 mortgage. As for variable-rate loans, the spread between conforming ARMs and fixed loans is too narrow to do you much good.
Rule 3: Another reason to buy - rates on big mortgages
Mortgages in amounts greater than $417,000 - the limit for buying by federally sponsored mortgage agencies - usually run a fifth of a percentage point above conventional products. But investors are shunning jumbos, which now average 7.2% and are unlikely to drop much this year, according to HSH Associates.
Certain jumbo borrowers could get relief, however. A new law allows Freddie Mac and Fannie Mae to buy loans as large as $729,750 in 71 high-priced areas. So far "jumbo conforming" loans average 6.6%. The program has gotten off to a slow start; you'll need to shop around. And unless Congress acts, this bargain will disappear at year-end.
Rule 4: Don't buy cheap; buy good schools
By now you've heard from somebody who knows somebody who got a great deal on a foreclosed property. But when you buy a house, you're also buying into a neighborhood. And foreclosures tend to be bunched in areas where residents and speculators alike took out exotic mortgages to get into homes they subsequently found they couldn't afford. That's not a recipe for stability. Prices and quality of life could both decline further.
Similarly, avoid developments that popped up in the past few years. They too likely have a lot of owners with risky loans and little equity, says Mike Larson of Weiss Research. Instead, go for areas with highly rated schools. They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.
Rule 5: Make sure your agent has your interest at heart
The real estate game has a built-in conflict of interest, since the listing agent and your agent both get paid by the seller. And these days more sellers are offering extra cash to buyer's agents.
So make sure you're not being steered to a house that's better for your agent than for you. Agree up front on his commission (typically 3%) and that any extra payments will go to you, says Jon Boyd, past president of a buyer's agent trade group.
As a professional agent I have your best interest at heart. So give me a call with all you mortgage financing needs.
By Amanda Gengler, Money Magazine
Face it: The house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It's harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low.
Pace yourself, find the perfect place and drive a hard bargain: Ignore the seller's asking price and bid 10% below what comparable homes are selling for. If the seller balks, move on. Remember that if you're trading up, your home could sit. So sell before you buy.
Real Estate Survival Guide
Rule 2: One reason to buy now - mortgage rates
Homes are plentiful and will remain so, but financing will be getting more expensive. True, the Federal Reserve has slashed interest rates, but fixed mortgages don't directly follow the Fed. They reflect the bond market's expectations about inflation, which remains a concern. The 30-year, now at 6.1%, will likely reach mid-6% by December and 7% in 2009, says Celia Chen of Moody's Economy.com.
That means there could be a penalty for waiting to buy even if prices fall more. Today a $250,000 loan would set you back $1,500 a month. At 7%, a $1,500 payment gets you only a $225,000 mortgage. As for variable-rate loans, the spread between conforming ARMs and fixed loans is too narrow to do you much good.
Rule 3: Another reason to buy - rates on big mortgages
Mortgages in amounts greater than $417,000 - the limit for buying by federally sponsored mortgage agencies - usually run a fifth of a percentage point above conventional products. But investors are shunning jumbos, which now average 7.2% and are unlikely to drop much this year, according to HSH Associates.
Certain jumbo borrowers could get relief, however. A new law allows Freddie Mac and Fannie Mae to buy loans as large as $729,750 in 71 high-priced areas. So far "jumbo conforming" loans average 6.6%. The program has gotten off to a slow start; you'll need to shop around. And unless Congress acts, this bargain will disappear at year-end.
Rule 4: Don't buy cheap; buy good schools
By now you've heard from somebody who knows somebody who got a great deal on a foreclosed property. But when you buy a house, you're also buying into a neighborhood. And foreclosures tend to be bunched in areas where residents and speculators alike took out exotic mortgages to get into homes they subsequently found they couldn't afford. That's not a recipe for stability. Prices and quality of life could both decline further.
Similarly, avoid developments that popped up in the past few years. They too likely have a lot of owners with risky loans and little equity, says Mike Larson of Weiss Research. Instead, go for areas with highly rated schools. They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.
Rule 5: Make sure your agent has your interest at heart
The real estate game has a built-in conflict of interest, since the listing agent and your agent both get paid by the seller. And these days more sellers are offering extra cash to buyer's agents.
So make sure you're not being steered to a house that's better for your agent than for you. Agree up front on his commission (typically 3%) and that any extra payments will go to you, says Jon Boyd, past president of a buyer's agent trade group.
As a professional agent I have your best interest at heart. So give me a call with all you mortgage financing needs.
By Amanda Gengler, Money Magazine
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