Investing
The Incredible Falling Mortgage Rate
Of all the factors that helped push the recent real estate boom of the last 5 years, low mortgage rates were perhaps the biggest. A recent climb in mortgage rates was also thought to be one of the big reasons the market can cooled so quickly. But with recent economic news showing a drop in rates, does that mean the bust is coming to a premature end?
Not so fast say the experts. Housing inventories are through the roof across the United States, and sales are down in most of those same markets. Recent rate news is good, however, with mortgage rates peeking in July of 2006 at 6.79 percent for a fixed mortgage (30-year), while rates in mid-October have slid to 6.40 percent. While that may be cause for relief on the surface, if you take a look at where rates were last year at the same time, they are up from 5.8 percent.
Rates were at their lowest in the last 5 years during June of 2003 when they sat at 5.2 percent.
The reason the mortgage rate has such an impact on housing sales is because the rate has direct bearing on how much a person’s mortgage payment is going to be. The higher the rate, the more the payment and vice versa. Most industry experts believe, however, that if the mortgage rate continues to fall and return to its 2003 lows, the housing market will recover nationwide sooner rather than later.
Many experts, however, point to the longer trend in mortgage rates and point out that while rates are up a bit over the last three years, they are still extremely low compared to trends in the last 50 years.
Adding to the pessimism is the absolute glut of inventory on the market right now. There is an increase of almost 40 percent in inventory available compared to last year, and while lower interest rates may persuade first-time buyers to take the leap, it’s convincing those that helped fuel the boom the last five years (people that bought homes for either investment purposes and people buying second homes) to re-enter the market. This, as they say, is easier said than done.
Taking a broad view, the mortgage rate is an essential part of a healthy real estate market. But its impact can be overstated. There any many other factors that would need to line up for the current housing slump to evaporate. If some of those other factors can line up, than a lower mortgage rate can help lead the real estate market back to the promise land.
The Prediction Game
While discussion on the state of the current US housing market is pretty much finished, experts have turned their attention from Is the housing market falling to Where is it going to fall first? And hardest?
There are many methods to predicting, and while none of them can even be qualified as scientific, there are trusted voices in the din that people look to to see a glimpse of what might happen with real estate markets around the country.
Mark Zandi is one of those voices. He works for Moody’seconomy.com, and he has taken it upon himself to attempt to formulate a prediction as to which housing markets are doomed and which may get off easy.
The results? Zandi predicts dire results in Cape Coral, Florida, where he sees a decline in home values of almost 19 percent. Reno, Nevada will be hard hit as well, with a predicted 17% drop in housing prices. Stockton, California will also be creamed, suffering from a 15% drop. How did Zandi come up with these numbers? His recipe consisted of a few heaping helpings of supply and demand, a generous serving of changes in local mortgage rates, a smidge of demographic trends, a teaspoon of job market analysis and a pinch of new housing numbers.
A second, and far less analytical prediction method is floating around, too. Traders at the Chicago Mercantile Exchange can actually trade real estate futures in ten different housing markets. Their findings? San Diego will be the hardest hit, with declines around 8 percent. Los Angeles won’t be much better off, with an expected decline in value of just under 7 percent. Las Vegas, which many people see as being over valued because of the endless influx of new residents in the last 20 years, is predicted to see a drop of almost 8 percent.
There were several areas where the two predictions matched. Both predicted almost the exact same decline in San Diego and in Washington D.C.
But there were also major differences. Boston, which has already been taking the brunt of the current housing market is predicted by Zandi to only see an increase of just over 2 percent in value lost. The CME traders, however, see a continued decline of 7 percent.
While no one knows for sure what’s going to happen, the one thing pretty much everyone agrees on now is that the market is headed south. The best choice might be to just hang onto that property until things start going your way again, but it’s anyone’s prediction as to how long that is going to be.
Tips for a Smooth House Purchase
Making the decision to buy your own home can be one of the most stressful but rewarding choices of all. If you’re a first time buyer, the entire process can seem very intimidating. A few common sense tips can help you ease your way through it much easier.
First off, go visit your local library and borrow a few books on basic real estate principals. Make a sincere attempt at learning the jargon associated with the real estate process, so once you’re sitting in a meeting with a seller, a real estate agent and a bank officer, you’ll have a better idea of what everyone is talking about.
Second, know what the difference is between “pre-qualified not pre-approved”, “pre-qualified” and “pre-approved”. Sound confusing? It can be. It all relates to how serious of a buyer you are. If you’re “pre-approved not pre-approved” it simply means that you have given a letter to a potential seller that you can afford their property. It’s nice, but it doesn’t mean much. If you’re “pre-qualified” it means that you have a letter from a mortgage broker saying what he thinks you can afford. This is better than not having a letter, but you can do better still. If you’re “pre-approved” it means that you not only have a letter from a broker, but everything in the letter was shown to be true by a lender and most of the work for a loan has already been done. You’ll have a MUCH better chance of getting the house you want if you’re “pre-approved” than if you are only on one of the other stages.
Choose the right lender. One of the phrases you’re bound to get sick of hearing when you’re thinking about buying a home is, “do the research!!” This can’t be emphasized enough since banks offer different rates across the board. The more banks you visit, the better the chances are of you getting a better deal.
Make sure that you plan for possible delays in processing. Any business that deals in red tape is going to have problems getting things done on time. Real estate purchases are no different, so make sure you factor these likely problems into your plans.
While none of these tips are fool proof, they can help you through a very stressful time. No doubt you will still have times where you feel like putting your fist through a wall, but a little common sense goes a long way when dealing with real estate, and the more you know, the better off you’ll be.
When Disaster Strikes: Keeping Your Investment Safe
Once you’ve finished searching for that real estate investment of a lifetime, you’ve gone to the open houses, you’ve gotten the financing, made an offer, sat at home worrying if it’s going to be accepted, had the celebratory dinner once it was and then moved in, you’re faced with the chore of protecting it. The number of threats that your property faces can be staggering. It’s not just termites and crude neighbours that are looking to sink your land value, natural disasters are a part of owning land, too.
It doesn’t seem to matter where you live in North America, there is a natural disaster with your name on it. The south has their hurricanes, the northeast and Midwest has blizzards and the west has earthquakes. A quake is the most sinister of all natural disasters. People in the rest of the country can see a hurricane and blizzard coming days, sometimes even weeks away and properly prepare their property for the coming storm. With quakes, there is no warning (usually), there is no report on the news that morning saying you’re scheduled to get one. They just happen. So, how can you protect your investment from getting a bad case of the shakes? Here are a few tips.
A good first step would be to pick up the phone or log onto the company that carries your home insurance. Almost no homeowners policies cover earthquakes. If you have the extra cash every month, earthquake insurance is a very good idea, but be warned, it is considered catastrophic insurance, so the deductible is going to be very high, usually between 10-15 percent of the amount of your policy. It’s still a good thing to have. Check the website of the US Geological Survey to see if you live in a high enough risk area to warrant extra insurance.
A quick quake-proofing of your home is another good idea. This won’ so much protect your house as it will protect you if one strikes. Use latches to keep cabinets closed, always make sure you have fresh water around and working batteries in all flashlights. These are common sense steps that anyone who lives in any sort of disaster area should follow, whether it be earthquakes, hurricanes or blizzards.
A final step to safeguard your home is to know where your utilities shut offs are. Fires are common after earthquakes and you’ll want to know where your gas main shut off valve is so that you can turn it off and hopefully keep your house safe after a major quake. Also, do not turn the gas back on until you are told it’s safe to do so.
Keeping your investment safe from natural disasters can seem impossible, but with a little common sense planning, you can minimize the damage.
When Good Renovations Go Bad
It is common sense to think that if you fix up your place, maybe add a little more counter space in the kitchen or maybe another bathroom, you’ll be able to sell your home for more than you bought it for. And in most cases, you would be right. But in a recent study done by Remodelling Magazine, there are some renovations that can actually cost you money and hurt the value of your house.
One of the biggest signs in today’s world that you’ve “made it” is the back yard pool. Maybe no other home improvement screams to the world that you’ve reached a level of financial security that you’re comfortable with like a pool. Well, not everyone feels the same way. Studies done in Florida and Arizona show that having a pool is still a big part in building equity in your property. But what about the rest of the country? How about places where it isn’t warm year-round? It turns out that a pool can work against you in parts of the country that have four seasons. The cost of upkeep and insurance are the main turnoffs. But there is one other turnoff, too. The risks of raising young children in a home that has a pool has become a red flag for many new parents. The fear of a drowning accident is very real for many, and the presence of a pool can turn a first-time home buyer away from your property.
Be careful when you try to get too trendy when you go to remodel. An extremely important point to remember is that while you may think a special touch is cool and fashionable, the people coming to look at your house may not think so. And while most remodel touches can be changed, you may have a hard time talking a prospective buyer into that. If you are not completely sure that the house you’re living in isn’t going to be the house you die in, try to make any remodelling touches neutral so that if the time comes to sell, you won’t regret what you did.
A final risk to avoid is the Jacuzzi tub. While you may have the time to sit in a hot tub for an hour a day, most people don’t, and most people won’t use it. You would be better off with an elaborate shower system than a big, fancy bathtub.
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