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.

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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.

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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.


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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

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