Archive for the ‘Economics’ Category

FHA BONUS

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Interest Rates

Interest Rates (Photo credit: 401(K) 2013)

FHA loans with a 3.5% minimum down payment are often the only choice for 1st time buyers.
They get a lot of bad publicity from uninformed sources who compare them wrongly to conforming loans needing much higher down payments.

The reality is that the FHA loan is neither designed, nor sensible, for high down payment buyers.

However it does have one very powerful advantage over the traditional conforming loans; FHA LOANS ARE ASSUMABLE at the same interest rate as they started at.
In future years this may be a very valuable feature when selling the property.

First let’s understand that 1st time buyers in California typically sell that 1st house after approx 5 years.

Now let’s consider what level mortgage interest rates will be at that time, and compare with todays. We will assume a $400,000 FHA mortgage

CURRENT (historically low) 3.5% = $1,796/ month.

FUTURE (5 years)(20 year average) 6.0% =$2,398/month.

SAVING = $602/Month.
Now in 5 years time you are selling your home and have a smart buyer trying to decide which of 2 similar houses is the best deal might they well prefer the one where you can:
1. Buy and take over the existing mortgage which is $602/month cheaper for all time
OR
2. Go through all the hassle of getting a much more expensive mortgage for as long as you own it.
Assuming they sell after a typical 5 year period there is a difference of $36,120!!!.

MAYBE IT’s WORTH FINDING OUT WHICH IS THE BEST MORTGAGE FOR YOU, Not for the loan Agent who did not take the time to explain ALL your options, and the long term implications of each one.

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INVESTORS MOVING IN

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San Francisco Bay Area highlighted in red on a...

San Francisco Bay Area highlighted in red on a map of California (Photo credit: Wikipedia)

Another sign that Real Estate is fast recovering from its bottoms is that investors, individual and business, are making major moves to capitalize on today’s opportunities all over the Country.
A recent story from Bloomberg covered how Blackstone Group, the largest U.S. private real estate owners, sped up its purchases of homes to try to beat out fast rising prices.
This is a sign for on the fence buyers to start their hunt before the weather heats up and they face more competition than they can handle.
This is just one of the many indicators that point to a continued increase in prices, and proof once again that where the Bay Area leads the rest of the Country will follow

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THE RECOVERY

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In stark contrast to this time last year, the housing market is chugging into 2013 with a head of steam.
Home-listing prices were up 5.1% nationally in December on a year-over-year basis, according to data released Thursday by real-estate listings and data company Trulia. Out of the 100 major metro markets covered by the report, 82 of them saw year-over-year gains. At the end of 2011, asking prices had fallen 4.3%, and only 12 markets had posted positive price changes.
“Prices are going into 2013 with strong tailwinds,” said Jed Kolko, chief economist for Trulia. He cites a general strengthening of the job market, which in turn means more families able to cover a sizeable down payment. An increase in household formation, which is also the product of improving job prospects, and home construction could further bolster demand.
Mr. Kolko notes that the sharpest tightening of inventory is taking place in Western states. Four of the top 10 cities to see the largest asking price recovery were in California, including Oakland, San Jose, Sacramento and Fresno.

FOREIGN REAL ESTATE BUYERS

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Here in Silicon Valley were hearing a great deal about the Asian Buyers who are fueling the crazy boom market now in full force.
Every new listing is selling with multiple offers within day of hitting the MLS, and often not even getting to the MLS.
Buyers with less than 20% down payment have very little chance of even getting their offers considered, much less accepted.
While this is true it’s not accurate to suggest that any one ethnic group is driving this situation.
If we just consider the 2 States where most outside money is driving the market we find some interesting statistics:
o. 26% of all sales involving out of the country Buyers are happening in Florida.
o. 11% are in California.
o. In both cases 24% of such sales are coming from Canada.
o. 11% are from China.

REFINANCE BLUNDERS

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TURNING 26 YEARS INTO 30 YEARS.

It’s not always a good idea to refinance a mortgage simply to lower the Monthly Payment.

Before you refinance a 30 year mortgage which has 26 years to go, and take a new 30 year loan, you must compare the total amount which will be paid over the life of each loan before deciding whether it makes economic sense.

The smartest way to take advantage of lower interest rates would be to calculate the amount you would have to pay each month in order to have the new loan paid off in 26 years, and then make an extra payment each month to achieve that highly desirable result.

If the new lower payment plus the extra to make it a 26 year loan is less than the amount you are currently paying then go for it. If not then you should reconsider other options before proceeding.

I cannot go into details regarding other options within a simple post such as this, but I can assure you they do exist. However the regular Loan Officer is not going to bring them to your attention. 

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A TALE OF 2 BUYERS

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BUY IN HASTE, REPENT AT LEISURE.

John and Dave are as close to identical as is possible without actually being twins.

They both work at the same company, make the same money, had saved up the same 20% down payment for  a nice 2bed 2 bath condo in the same favourite complex for up to $250,000.

Problem was that only one unit was for sale back in April. Being good friends they agreed to spin a coin to see who got to buy 1st. John won and bought that one, and Dave waited for the next listing to come up.

That duly came up in late May and Daves offer of the same amount that John had paid was accepted.

They both got their 30 year mortgage for the same amount from the same Broker 6 weeks apart.

What’s interesting here is that for the next 30 years John will pay approximately $75/month more than Dave. This is due entirely to the drop in interst rates during the time between the 2 purchases.

Obviously John will hope to refinance to a lower rate as soon as possible but there is no guarantee that will be possible.

The most interesting part of this story is that due to the continued econonmic chaos it world wide Bond Markets mortgage interest rates are now even lower that Dave got, and are now at 40 year lows.

My message here is to pay more attention to how mortgages really work , and consider whether the 30 year fixed really is the best for you. For 90% of all buyers it is not.

If anyone would like to know how to make this decision just send me an e-mail and I’ll be happy to explain.

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Inside Job. Must see movie. Very Interesting

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If you truly want to understand how our economy got into it’s current mess, who’s responsible, and where they are now this is a must movie.

It does a great job of pulling together the threads and showing the whole cloth.

Foreclosure Moritorium.

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There’s been a lot of babble in the media about the possibility of a Federal halt to ALL foreclosures. Being the MASS Media there seems to be 100% agreement that this would be catastrophic for the crippled Economy, and disasterously expensive for the poor Banks.

The reasons stated are that it will slow down the recovery which needs lots more honest decent folks to lose their homes.

I beg to differ.

I suspect that a moritorium would actually result in Banks putting more effort into Loan Modifications and, where not feasible, Short Sales, which cost 20% less than foreclosures but need a small element of intelligence. These options are both far less traumatic and would get the bad loans reseolved quicker.

Anyone care to guess why the Banks aren’t doing this already?

Given that the Banks caused this situation with their stupid lending practices, is it too much to ask that they give us a little help in digging out of it.

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Higher interest rates likely Soon??

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The Federal Reserve (the Fed) took aggressive steps during 2009 and early 2010 to drive mortgage interest rates down in order to encourage more people to buy homes and revive the real estate industry.

To understand how they did this we need to know what actually controls mortgage interest rates for the home buyer.

 It is the price of Mortgage Backed Bonds (MMB’s)and NOTHING else. The bulk of these are created by Fannie Mae and Freddy Mac who buy your mortgage from the Bank or Mortgage Broker who originally made it. They then package hundreds of mortgages together as a Bond and sell it off to private investors (Pension and Insurance companies are typical buyers). The proceeds from the sale are used to buy new mortgages from the Banks and Brokers. This virtuous circle is the motor that drives the Real Estate market.

The Private Investors stopped buying when they realized that a lot of the individual mortgages inside the Bonds were badly designed (Sub-Prime) and payments from were less reliable than they had been told.

When investors stop buying MMB’s the Mortgage Lenders have no money to lend and the Real Estate Market freezes up.

One solution would have been to increase the interest rate on new mortgages in order to offer a higher rate to the investors to compensate for the higher risk. In normal times this is how the market works. In the current circumstances the Investors were not going to buy at any price.

In early 2009 the Fed came to the rescue to avoid a total shut down of the housing market. They began buying these MMB’s in huge numbers and aaccepted very low interest rates. This restored the supply of money available to make new mortgages at historically low rates, and stabilized the whole residential real estate industry.

These Fed purchases have been completed and the challenge now is to attract Private Investors back as buyers for MBB’s. They are there, but will not accept the low rates that the Fed did. Therefore the interest rates paid to get a mortgage will have to go up.

Potential Buyers need to be getting serious if they want to take advantage of these historically low rates.

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Cupertino Schools Reputation-Co-incidence?

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Most Silicon Valley residents consider Cupertino schools are the reason why people will gladly spend more for their house than for a similar one in the surrounding Cities. I agree.

However, here’s a brief excert from a Mercury News Article discussing how different School Districts are handling the swinging budget cuts they are getting as the State works on cutting it’s huge deficit. http://www.mercurynews.com/cupertino/ci_15090121

“The exception to continued cuts is the Cupertino Union School District. A teacher union agreement to take furlough days, plus an unprecedented community campaign that raised more than $2 million, saved 107 teacher jobs and will preserve 20-to-1 class-size ratios in primary grades”.


Anyone aware of other school districts where all interested parties are co-operating to ensure the level of education is treated as the most important factor?

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