Is There a National Real Estate Recovery?

Is American real estate in full recovery? Or something closer to half recovery? New data compiled from multiple listing services across the country suggest it’s the latter. Though they get relatively little public attention, the stark fact is that more than half (75 out of 146) of the top metropolitan real estate markets surveyed by Realtor.com in its latest monthly study are not seeing anything like a recovery.

Their median list prices have either declined during the past 12 months or stayed flat, and their houses can take exceptionally long times to sell. The number 75 is significant: It’s up from 69 just a month ago, so the lackluster performance phenomenon could be spreading, despite record low mortgage rates and modest growth in the overall national economy.

On the flip side of this sobering picture, of course, are the 71 major real estate markets that are seeing undeniable recoveries: fast rising prices, declining inventories of homes available for sale, and quick median turnaround times from listing to sale. Among the standouts in the price recovery category are:
–Sacramento, Calif., where median list prices in October were 31 percent higher than they were in October of 2011 and where houses sell in a median 32 days after listing, one third the national median of 97 days.

–Phoenix, where prices are up 26 percent year-over-year and houses sell in a median 47 days.
–San Francisco, where the October median price of $750,000 is 17.4 percent higher than 12 months earlier, and the median list-to-sale time span is just 44 days.

–Seattle (12.5 percent median list price increase, 53 median days to sell; )

–Washington D.C. metro (prices up 11 percent, 49 days from listing to sale;)

Add to these cities like Miami (prices up 11.6 percent), Las Vegas (prices up 12.4 percent) and Atlanta (prices up 13.1 percent) and you begin to get a sense of what it’s like in the fast lane of the recovery. Some of them have actually gone from price boom to price bust to boom again, all within the span of a decade.

Contrast these numbers with what’s going on in the less vigorous markets, some of them among the largest and most prominent cities in the country. Though Chicago’s 5.9 percent median list price decline is not the worst – that dubious distinction is held by Peoria, also in Illinois, where prices in October were 11.5 percent lower than the year before – but it is certainly the most populous and most economically significant city on the downgrade. Chicago houses now take a median 101 days to sell after listing. Philadelphia is another in this category: prices down 2.2 percent, 105 days median time to sell, and the inventory of homes on the market up by 6.4 percent – never a good sign for future price movements.

Though areas with negative median prices are heavily concentrated in the central states — where local economies have been struggling for years and may not have ever emerged from the recession — a number are also in the northeast and along the Atlantic coast. They include Hartford, Conn. (-1.4 percent), Newark, N.J. (-2.9 percent), Norfolk-Virginia Beach, Virginia (-5 percent), Myrtle Beach, S.C. (-3.1 percent), Harrisburg, Pa. (-3.4 percent), Charleston, W.V. (-9.7 percent) and Reading, Pa. (-7.8 percent). Not all of them are concentrated in the eastern half of the country, however, witness regional outliers such as Salem, Ore., where prices are down 4.6 percent over the year.

The takeaway here: Not only is there no “national” real estate market, there’s also no “national” real estate recovery. And until local economies do what they have to do to support vibrant real estate markets – produce new employment, sustain net new household growth and resolve deep-rooted fiscal problems – there likely won’t be local real estate recoveries either.

Full Story

How to Cut the Cost of Your Mortgage Loan by at Least $50,000

November 14, 2012

 

 Despite the roller coaster-like ups and downs the housing market has experienced over the last several years, home ownership remains the key component of the American Dream for most citizens. But even considering that we’re seeing the best mortgage rates in history right now, financing the purchase of a home is a financial obligation that can put a great deal of strain on family budgets.

However, because mortgages are such large and long-lasting debts, significantly cutting their cost can be done by making fairly minor adjustments to the loan terms. It may sound impossible, but reducing the cost of your home loan by $50,000 — or much more — doesn’t require any drastic moves at all.

Two Ways to Knock Off $50k or More in Interest from Your Mortgage

Let’s use a 30-year fixed mortgage loan of $250,000 as our example. The following are two different refinancing strategies you can use to eliminate $50,000 in mortgage debt from your life.

Scenario #1: Reduce Your Mortgage Interest Rate by 1%

Mortgage interest rates have fallen dramatically in the past few years. According to HSH.com, the average interest rate for a 30-year fixed mortgage in 2008, just off the heels of the market crash, hovered above 6%. Today, mortgage interest rates for the same term average about 3.4%.

So consider the hypothetical mortgage loan above — even if you just recently obtained financing on a home within the last year or two and agreed to a mortgage rate of 5% APR, you can now refinance to, say, 4% APR. It doesn’t seem like much, but here’s how much you would save:
Using this mortgage calculator, we find that a $250,000 loan with a 5% interest rate, paid over thirty years, equals 360 payments (12 months multiplied by 30 years) of $1,342.

This equates to spending a total of $483,120 over the life of the loan. Subtract the initial principal of $250,000, and that leaves $233,120 worth of interest paid over the 30-year loan.

Now, calculate payments again with the lower interest rate of 4%. Instead, you would make 360 payments of $1,194, or $429,840 in total. Subtract the $250,000 principal and you’re left with $179,840 in total interest paid.

You just saved $53,280 on your mortgage.

Scenario #2: Cut Your Mortgage Term Length in Half

It’s easy for home owners to get caught up in the size of their monthly mortgage payments, rather than consider the entire cost of the loan. Unfortunately, lessening monthly payments often results in greatly increasing the overall amount of money you will pay for home financing.

Consider again the above 30-year fixed mortgage with a principal loan amount of $250,000 and the 4% interest rate. If instead of opting for a 30-year term, you agree on a 15-year mortgage instead — and we’ll keep the interest rate at 4% for simplicity’s sake — you will significantly reduce the total amount of interest paid over the life of the loan.

According to the above mortgage calculator, a $250,000 loan at 4%, paid over 15 years equals a monthly payment of $1,849.

This is a much larger payment required every month, but consider this: $1,849 multiplied by 180 payments (15 years) equals a total loan cost of $332,820. Subtract the $250,000 principal and you’re left with $82,820 in total interest paid over the life of the loan.

By simply opting for a 15-year fixed rate mortgage rather than the 30-year as depicted in Scenario #1, you save $97,020 in interest. That’s almost one hundred grand to put toward other important goals like a college fund, retirement savings or investing.

Should I Refinance?

While the hypothetical savings are impressive, refinancing is not a one-size-fits-all solution to saving money on a mortgage. It’s important to consider things like closing costs and how far into your current mortgage you have already paid before changing the terms of your loan.

For instance, refinancing means ending an existing mortgage and opening a new one, whether that’s with your same lender or someone else. Closing costs must be paid to refinance a loan, just as they were to obtain the original loan. Ensure that the amount of the total closing costs doesn’t cancel out the savings you would enjoy from a decreased interest rate.

Secondly, when changing the term length of your mortgage, consider how long you’ve held the current loan. Your loan amortizes according to a schedule devised by your lender, and most amortization schedules allocate a larger percentage of monthly mortgage payments towards interest rather than principal in the initial years of the loan. As the home loan gets closer to being paid off, more of your payments go toward paying down the principal.

That means if you’ve held your current mortgage for a long time, much of the money you’ve put into it has already paid down a large portion of interest. Refinancing the loan with new terms may not be a wise move.
A mortgage will likely be the biggest financial responsibility you ever take on, so it’s important to be realistic about what you can afford. But when determining that number, don’t forget to consider the long-term costs of a home loan — especially how much interest you will pay in total — and don’t get stuck on that monthly payment figure.

Full Story

Five Frequently Asked Questions on Mortgage Rates

Mortgage borrowers ask lenders a lot of questions, and the first usually is: What's your rate?
Whether they plan to purchase a home or refinance an existing mortgage, borrowers' chief concern is how they can get the lowest rate and save the most money.

By raising the rate question early, borrowers are also asking, though perhaps indirectly, whether a new loan is a good option for them, suggests Peter Thompson, a senior loan officer at Prospect Mortgage in Naperville, Ill.

"People want to make sure they're getting as good a deal as possible," Thompson says. "Even if they don't shop the rate, (they want to know) they're not getting taken advantage of, that they're getting the best deal. But they're also saying, 'What can you do? Is this something that's going to be possible?'"
Below are five of the most frequently asked questions about mortgages and mortgage rates that borrowers have for lenders.

What's Your Rate?

The question, "What's your rate?" is only natural, yet there is no one rate for all borrowers.
Rather, Thompson explains, lenders offer a range of rates, depending on myriad factors that include the property type, loan term, borrower's credit score, rate-lock duration, and whether the borrower will pay points or receive a rebate credited against the closing costs. (A point is an upfront fee equal to 1% of the loan amount.)

That variability means the lender needs more information from the borrower to quote a rate accurately, adds Greg Cook, a loan consultant at Golden Empire Mortgage Inc. in Temecula, Calif.
"Is this a purchase or refinance? A 30-year loan or 15-year loan? How much of a down payment are you going to make? Those are questions that we, as lenders, are trained to ask, but sometimes we don't get that chance," he says.

Can You Give a Lower Rate Than the Other Guy?

Many borrowers pose the rate question repeatedly, calling multiple lenders because they think that's a good way to shop for a mortgage. It isn't.
"They want to hear someone tell them a number that was lower than the last person. That's what they're looking for," Cook says.

Unfortunately, this quest for the one true lowest rate is mythical. All rates fluctuate from week to week, day to day or sometimes hour to hour.

Personalization and market risk make rate shopping difficult for borrowers, though many experts advise borrowers to shop for a loan, and the federal government requires lenders to use disclosure forms that encourage comparisons.

Jim Pomposelli, a mortgage banker at The Federal Savings Bank in Chicago, suggests that consumers should shop around -- up to a point.

"Don't run a Dutch auction where you are going back to everybody three times because at some point, you'll get what you pay for," he says.

Can I Get the Lowest Rate Among my Friends?

Another reason why some borrowers push so hard for the ultimate lowest rate is bragging rights. Cocktail-party talk and water-cooler chitchat are so important to them that reason flies out the window or at least takes a back seat to emotion.

"There is money to be saved, but when people really, really, really want to get that last bit off the table, I don't think it's fundamental economics," Pomposelli says. "It makes you feel good. It makes you feel smart. People want to feel they are smarter than the market."

May I Float Down the Rate?

Some lenders offer borrowers an option to "float down" a rate as an inducement to lock it -- in other words, to have a second chance to lock the rate if rates fall. Pomposelli says such programs are "quite expensive" for lenders, who have to make up the difference in another way.

"Banks aren't stupid," he says. "If you lock in at one rate and then you want to go lower, there is a charge in there somewhere."

Alternatively, borrowers can allow the rate to float to try to capture a downward tick, though that can be risky since rates can rise as well as drop, Pomposelli warns.

"You're thinking you might be able to save $20 (a month), but what if all of a sudden, you're paying $40 more?" he asks.

Can You Tell Me More About the Loan Terms?

Once the rate question has been raised and addressed, borrowers typically want more details about loan terms. Thompson says some frequently asked questions include: When can we close? Can you do this loan as a no-cost refinance? Is this a 30-year fixed-rate loan? Is there a prepayment penalty?
"A lot of the conversation is about making sure they know that it's the deal that it really is," he says.


Full story and why you need HomewardBoundPro to help

US mortgage rates for past 52 weeks at a glance

Average U.S. mortgage rates were little changed this week, staying near their record lows.
Here’s a look at rates for fixed and adjustable mortgages over the past 52 weeks:

	CurrentAvg.	Last week	52-weekHigh	52-weekLow
30-year Fixed	3.40	3.39	4.00	3.36
15-yearFixed	2.69	2.70	3.31	2.66
5-yearadjustable	2.73	2.74	2.98	2.71
1-yearadjustable	2.59	2.58	2.98	2.57
All values inPercentage points
Source: Freddie MacPrimary MortgageMarket Survey

Full Story

7 Real Estate Risks: Are They Over- or Under-Estimated?

We tend to speak of the risks of various courses of action in black and white, as risky or not. But the truth is, everything in life has risks - even doing nothing! Behavioral experts, economists and my dear old Dad agree: we’re most likely to make decisions we later regret when we under- or overestimate the risks of the outcomes we hope to avoid. So, outside of extremely high-risk endeavors like base jumping and going on blind dates, the real challenge in life is not to avoid risk entirely, but to assess it accurately and manage it accordingly.

This need to assess and act on risks appropriately, neither overblowing them or blowing them off entirely, is particularly critical when it comes to real estate risks. It’s easy to let your personality determine how you view and manage real estate risks. But that’s a costly approach: if you let your personal tendency to be risk averse stop you from ever owning a home, you will also miss out on the personal and financial advantages of home ownership, and the opposite is true. If you take a devil-may-care attitude toward your real estate and mortgage matters, you’re highly likely to make some highly regrettable decisions along the way.

So, instead of going on risk assessment autopilot, let’s take a quick, yet deep, dive into seven of the real estate-related risks that come up the most often in the minds of smart buyers, sellers and owners like you and how you can manage each of these risks wisely.

Risk #1: The Risk of Foreclosure. The risk of losing a home has only recently moved to the front of our collective national consciousness. Foreclosure was once a very, very rare event, seen as an unlikely worst-case scenario. But it became a vivid nightmare come true for an all-time high number of home owners during the recession. The risk and fear of foreclosure is largely due to this increase in foreclosure rate over the past few years, and to the vivid, catastrophic nature of the event. Also, almost everyone knows someone who either lost a home or had serious mortgage distress, so it seems like a very common occurrence.

When we take a look at the facts behind this risk, we realize that the risk of foreclosure appears to be much higher than it truly is. There are roughly 76 million owner-occupied homes in the U.S., according to the Census Bureau. Earlier this year, real estate data firm CoreLogic revealed that there had been 3.4 million foreclosures since 2008. That would mean only about 6 percent of homes in America had been through a foreclosure - and this, through the very worst recession of most of our lives.

The more probable risk is the risk of ending up underwater, which more than 25 percent of American homes were at some point during this past 5 years.

The fact that home values rise and fall cyclically is not a risk or a probability - it’s a fact of the real estate market, and one that you can’t do anything about. Your aim should be to manage and minimize the risk of serious mortgage distress (i.e., struggling to make the payment) or foreclosure. And you have the power to manage these risks by:

• Making smart mortgage choices. Buying at a price well within what you can afford, selecting a mortgage that your household finances can sustain over time, and not overleveraging by borrowing cash against your home equity for things like cars, clothes or ready cash.
• Making smart financial moves over time, including building a cash savings cushion you can turn to if a job loss or disability interrupts your income.
• Buying a home in as desirable a location as you can afford - and in an area with strong prospects for economic and population growth.
• Making small, extra payments to bring down the principal balance on your loan, if and when you can afford to.

Risk #2: The Risk of Overextending Yourself. This is a very real risk - more real, even than the risk of actually losing a home. Home buyers can overextend themselves when they take loans that give them falsely low upfront payments;. This was common in the subprime era that many believe led to the recession, but is less likely with today’s tighter lending guidelines and narrow loan programs...
Full Story

6 Ways to Sell Your Home This Fall

BOSTON (TheStreet) -- Fall is second only to spring as the busiest time of the year for home sales -- and Idaho Realtor Gail Hartnett sees this autumn as an especially good time to have your property on the market.

"Inventory is low, so if you have your house on the market and is priced well, it's going to sell," says Hartnett, a National Association of Realtors regional vice president and an agent with Keller Williams Realty Boise.

Home sales in Idaho and many other U.S. locales are rebounding this fall as low prices, improved consumer confidence and rock-bottom mortgage rates bring buyers out. At the same time, many would-be sellers are either too discouraged to put homes on the market or are waiting for prices to rise, creating a shortage of available homes in much of the country.

Add in the fact that many people travel to their hometowns for Thanksgiving, football games and the like and Hartnett believes it's a bad idea to keep your property off of the market this fall.
"People who've been thinking of moving back home will look at some houses when they come for a visit, and finding the perfect place will push them into action," she says. "But if your place isn't on the market, they won't see it."

Houses that boast green grass and lush gardens in the spring, though, look a lot less inviting during the fall.

Here are six things Hartnett recommends all would-be sellers do this autumn to adjust for that and get a home moving:

Give your home a cozy smell
Fall brings back childhood memories of hayrides and Thanksgiving dinners for many, and Hartnett recommends maximizing your place's "homey" feeling this time of year.
The Realtor always has spiced cider, fresh-baked cookies or other warm and friendly fare cooking up in during showings and open houses at properties she's listing.

"We take some big old pots and dump cider in them, then warm it up and the whole house smells good," Hartnett says. "It's just a warm, homey smell that makes people feel good when they enter."
She places cider and cookies ready for serving in a strategically out-of-the-way place visitors reach only after touring the house. That way Hartnett has a chance to "pitch" the house to buyers while they snack.

Full story

Real estate investors are optimistic about housing market

By Justin Pierce

Despite some shifts in the housing market that make it more difficult to earn money investing in residential real estate, a large majority of people in that field plan to buy as many or more properties in the next 12 months to rent out or sell for profit.

That’s one of the findings of a study released last month that attempted to measure the impact people involved in income or speculative real estate are having on the housing market .

The survey — sponsored by BiggerPockets.com, the nation’s leading social Web site for real estate investors, and Memphis Invest, one of the largest providers of single-family rentals — shows that 65 percent of investors plan to buy a lot more homes during the next 12 months.
Still, from my experience in the Washington area, business conditions are changing with rising home prices, stiffening competition and shrinking margins. Anyone seeking to get into real estate investing should proceed with caution and not expect to earn the same money that has been made in the past few years.

The report points out that investors played a fairly substantial role in the housing recovery. The housing crisis pushed nearly 4 million foreclosures onto the open market, devastating home values. This and the coinciding financial crisis squashed homebuyers’ confidence and their ability to buy. At that time, real estate investors began buying up the foreclosures when few other people could enter the market. They bought up so many properties that they established single-family rentals as a $100 billion business. In fact, the report says that single-family rentals now outnumber apartment units.
They are also renovating the homes they buy and spending an average of $7,500 per home. That totals more than $9.2 billion every year in construction-related spending, according to the report. This is critical business for an industry that was hit hard by the recession.

In 2008, Congress approved the Neighborhood Stabilization Program to provide funds to municipalities and not-for-profit organizations to repair damage to foreclosed homes. Up to this point, they have spent a total of $7 billion of tax payer money.

Real estate investors are doing more than this every year with their own money or money that they borrow. Surprisingly, the report finds that only one in four real estate investors are cash buyers. In fact, slightly more than half make down payments and finance the rest of the purchase amount. If you read my last post, you’ll see just how much most real estate investors pay for financing.
This strikes at one of the prevailing myths about real estate investors. Very few have cash for their projects. I can also tell you that most real estate investors are more afraid of you, the retail buyer, than you are of them. Real estate investors have to pay higher interest rates than owner occupants and they have many more additional costs. Back in 2006, real estate investors would come in and buy properties at market value and then gamble that they would make their profit within a year on appreciation alone. I can tell you that most all of those investors are out of business now or they’ve learned very painful lessons.

Some 3 percent of American adults or 7 million people are active real estate investors, according to the report. These people are actively looking to buy more property and about half of them make more than five purchases each year. This is a diverse group of people. About 76 percent are under the age 55. They are more likely to live in the South or West of the country and about two-thirds of them make less than $75,000 per year.

Even more interesting, the report tells us that this group of active investors does not plan to slow down despite rising home prices and increased competition. About 65 percent of the active investors plan to buy as many or more properties in the next 12 months as they did in the past 12 months. This is big news considering that fact that real estate investors accounted for as much as 25.3 percent of all home purchases as of May 2012. This indicates that investors have confidence that the housing recovery will continue and their robust activity will help ensure it.

Keep in mind that this is a national survey. The Washington area doesn’t exactly fall in line with national trends. But real estate investors are very optimistic creatures. When the report says 65 percent of investors plan to buy more property in the next 12 months, I believe it. But the key word is plan. I’ve never met an investor who plans to do less this year than last year.

The real estate market in this area has been on a steady climb for a while. New waves of foreclosures have provided targets and opportunities for investors over the past few years. But as illustrated by data from RealEstate Business Intelligence and MRIS, inventories are down and prices are up. Prices in some areas are up to 90 percent of where they were at the peak. Investors will be pressured to pay way more than they’d like for fixer upper homes and many of them will get in trouble if they’re not careful. Nothing throws cold water on investors like a bad deal.

I would expect investor activity to stay fairly strong in this area but I think demand for rentals will slow a bit as home prices increase. I also think rehabbers and home flippers will face stiff competition and less opportunity. I’m already seeing that in my business. I’m getting tighter on my budgets and spending more time and money to find viable projects. If interest rates stay low and prices continue to rise, investors will likely move to land development, commercial real estate or possibly other markets. At some point, we might also see investors become sellers as we did in the late 1990s and beyond as they liquidated holdings they’d accumulated in the down market 20 years ago.

This market should continue to be strong but I would advise investors to begin reassessing their business models. I would also recommend extreme caution to those looking to begin a real estate investing career. You are probably not going to make money in the next few years in the same manner it was made in the last few years.

Full story