Feb

20

Mortgage Loans Getting More Expensive

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The administration recently announced increases to the insurance premiums that the Federal Housing Administration (FHA) charges. FHA is the dominant loan program in the marketplace today. The FHA has two types of Mortgage Insurance Premiums – Up Front Mortgage Insurance Premium (UFMIP) and the Monthly Mortgage Insurance Premium (MMIP). Let’s see how these impact a borrower’s ability to purchase.

UFMIP is typically added to the loan amount and financed over the term of the loan. MMIP is part of the monthly mortgage payment for a minimum of five years and a maximum of fourteen, depending on the loan-to-value.

For the majority of FHA Insured loans, the MMIP will be increasing .25% effective April 18th which is, in effect, equivalent to a .25% increase in interest rates. The income ratios that lenders use in qualifying borrowers look at the total payment. Therefore, the MMIP hike has the same impact on affordability as a rate hike. Higher monthly costs mean lower loan amounts and lower loan amounts mean lower offers that borrowers can make on houses. This will translate into lower sales prices. Nothing is good in this news. The increase in Annual Mortgage Insurance Premiums for forward mortgage amortization terms is effective for case numbers assigned on or after April 18, 2011.

Mortgage Insurance Premiums

Now, in my market, the average sales price is double this example. A $66 increase in monthly cost is like a $12,000 reduction in borrowing power…which will eventually result in another 3% drop in home values. Cross your fingers that rates don’t surge up because it could perpetuate a slide in prices with no real value for buyers. Sellers get less (hurts the recovery) and buyers’ mortgage payments stay the same.

By Dean Hartman
Chief Planning Officer
Continental Home Loans

For more information on the mortgage process, please sign up for one of the daily webinars listed below, hosted by Dean.

Every Morning at 10:00

Nightly at 7:00 Registration

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Feb

17

What Will My Home Be Worth In 5 Years?

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This article is going to attempt to tackle the question; what will my home be worth in 5 years? I know many homeowners are struggling with the idea of whether or not to sell their homes. Based on industry expertise and my input in the video below, I am hoping the information helps you make a more informed decision.

In this video, I am going to talk about home values going down further this year. I am going to demonstrate how much you will lose and gain back by 2015. You may want to grab a calculator and follow along with me. If you don’t know the value of your home, visit www.HomeValuesNY.com to get a rough idea of what’s going on in your local area. Then watch this video again.

Wall Street Journals Prediction for Prices in 2011

Bank Of America Prediction for Prices in 2011

Survey of Top 100 Real Estate Industry Experts: Analysis on Appreciation by 2015

Industry Expert: Steve Harney

Much of the information I obtain is provided by Steve Harney, owner and founder of Steve Harney Inc.. This video below is from Fox Business News and I am including it in this article to help demonstrate his expertise on the subject of real estate. He knows what he’s talking about and he advises me and my company on real estate trends.

Steve Harney on Fox Business News from Steve Harney on Vimeo.

This last slide I decided to include in this article because it demonstrates what a household will lose in value on a weekly basis, assuming a further decline in prices in 2011. I am doing this not to present doom and gloom (although it’s not pretty), but rather to simply provide you with information. This information may be used to help you choose to sell your home now.

Had enough? Call me at (631)881-5959 to schedule an appointment to discuss your options.

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Feb

11

The Cost Of Waiting To Buy

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This series of articles I am posting, starting with Real Estate Return On Investment, is all about the advantages of homeownership. Many purchasers have been sitting on the sidelines waiting for home prices to hit bottom. But now it seems that many buyers agree we are at the bottom or within such a slight margin that it doesn’t make a difference…price-wise.

The question is, is it a good financial decision to wait any longer?

Should buyers not be concerned about housing prices and be more focused on cost? And by cost I mean, what a home is going to cost you both up front out of your own pocket and on a monthly basis thereafter until you pay the mortgage off?

Remember, when you buy a home, you don’t pay for it in full, a bank helps you pay for it via a mortgage which is secured by the real estate you purchase. So the “price” is only an ends to a means. This simply means that you do whatever it takes to get what you want. Hence, you borrow money to buy something you could never buy without borrowing money.

The cost of a house is made up of the price and the interest rate that will be paid on those borrowed funds. Two different pieces of news released yesterday highlight this point.

PRICES

The National Association of Realtors (NAR) released their 4th quarter housing research report. In the release, they reported that home sales rose 15.4% in the 4th quarter over the 3rd quarter. They also showed that prices remained stable during the year:

The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009.

A buyer who delayed a purchase might find solace in the fact that prices have not increased. However, the other news released yesterday paints a different picture.

INTEREST RATES

The Primary Mortgage Market Survey was released by Freddie Mac which showed that the 30 year fixed rate mortgage was at 5.05%. Frank Nothaft, vice president and chief economist of Freddie Mac said:

“Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week…As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010.”

So prices have remained stable but interest rates have risen dramatically in the last 90 days. What does that mean to a buyer looking to purchase a home this year?

The price is the same. It just costs more.

Let’s show you what the news means:

By sitting on the sidelines for the last 90 days a purchaser lost:

$89.44 a month
$1,073.28 a year
$32,198.40 over the thirty year life of the mortgage
If you buy a $340,000 home, double all these numbers.

Bottom Line

Even if prices fall another 10% this year, the cost of a home will increase if interest rates go up more than 1%. Buyers should not worry where prices are going. They should be concerned where costs will be later in the year. Hello!

If you have any questions about buying a home, please feel free to contact me at (631)881-5959.

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Feb

7

Real Estate: Return On Investment

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I’ve been reading some of the headlines about the topic of whether or not real estate is a “good investment”. I’m going to make this really simple.

Yes, real estate is a good investment.

Now let’s prove it.

Return On Investment

From MSNmoney.com, the graph above is best described in the following way:

If you took $100,000 in January of 2000 and invested in the stock market, if you averaged out the total gain/loss in the stock market, as of January 2011, you would be down just over 17%. So in eleven years, your $100,000 investment would be worth $83,000. Of course this graph is general, but performance-wise, that’s what the stock market has yielded over the last 11 years. The Nasdaq has a terrible return of 34% – overall.

Now in stark contrast to this, despite the very turbulent real estate market that has declined significantly during the past several years, the rate of return is 45%. So the $100,000 invested in 2000, would be worth $145,000. This far exceeds any investment in the stock market.

Bottom Line

Many people I know saw their 401k investments turn into “201k’s” (slang for losing half of your retirement). Despite the bad wrap real estate has gotten in the past few years, it still is far exceeding stock investments. And unlike a stock investment, you can live in a home and you can change a home and you have control over the home. Furthermore, unlike a stock investment, you can borrow money to buy a home (mortgage) so you don’t have to have $100,000 to buy it (like you would have to have in order to buy $100,000 worth of stock).

The return on investment in real estate, when you take into account the use of leverage (borrowing money to buy), is astronomical. Stock investments can not compare because you have to have a dollar for every dollar you invest. If you have $20,000 in your saving account, in order to buy 20,000 shares of Company X for a $1.00 a share, you would empty your savings and all your money would be at risk of going down or up with the ebb and flow of the market.

In contrast, if you saw a home worth $300,000, with an FHA loan, all you might need is $10,500 of your money from savings to buy it. Additionally, you get write-offs and live in it.

Yes, real estate is a ~~good~~ great investment.

Should you have any questions or would like to schedule an appointment, please call me at (631)881-5959.

I am currently working on a future article about leverage in real estate so stay tuned.

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Feb

2

How’s The Market Doing?

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The most common question I am asked when someone finds out I am a real estate agent or when I see an occasional family member or friend is, “How’s the market doing?” When I tell them that I’m doing exceptionally well, their reaction is always the same too: slant of head to the left shoulder and, “Really? I thought homes weren’t selling.”

Yes, thank you to Fox News, CNN, CBS, NBC and others for the constant doom and gloom.

Of course I mean that half-heartedly. I know many of the big media channels feature great speakers like Steve Harney and Barbara Corcoran.

I guess that reaction is a culmination of the times we all find ourselves in. People just don’t think anyone is doing good, especially in real estate.

Well, my reaction is always a positive one. I tell them that my business is doing well because I work hard and I do my best to provide excellent service, much like any good business. I talk about the importance of pricing and because I’m writing this article, I can show you, the reader, some graphs. However, of course I don’t carry graphs in my pocket when I talk with people…but I do have a presentation on my smartphone (the wonders of technology).

Return On Investment

The very fact that if you took $100,000 and put it into real estate in 2000, as of today, you’d be up over 45% while in comparison, the stock market has significantly underperformed. That’s positive!

So while I’m talking with a person who’s asked me how the market’s doing, I honestly see them acquiring information they didn’t have before and that’s always good to see.

Wells Fargo On Pricing

Of course, not all the information is “positive” per se, but it is accurate and from many different sources like The Wall Street Journal, as Wells Fargo predicts an additional 8% decline in pricing during the first half of 2011. And if I look at the Long Island real estate market, we see that supply is high and demand, while slowly increasing, is much lower.

Long Island Supply & Demand

All in all, the market is approaching the bottom. It appears from all economic indicators, that the amount of homes for sale and buying demand will level out and we will approach that magical balance that represents a “normal” real estate market. Measure that to the same conversation I would have with a friend or acquaintance three years ago, where I was predicting (accurately) that prices would drop nearly 30%.

I like my current “how’s the market doing” conversation much better.

Should you have any questions about the real estate market, please contact me at (631)881-5959. If you would like to receive local market information on home sales and available inventory, visit HomeValuesNY.com.

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Feb

20

Mortgage Loans Getting More Expensive

Feb

17

What Will My Home Be Worth In 5 Years?

Feb

11

The Cost Of Waiting To Buy

Feb

7

Real Estate: Return On Investment

Feb

2

How’s The Market Doing?

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