Home Loan Focus

Archive for December, 2007

There was an anemic improvement in the housing market in November.  Home sales increased from 4.98 million to 5 million homes.  This happened at the same time that 30 year mortgage rates dropped from 6.38 to 6.21% in November.

There were other small but positive signs in the housing market as well.  The number of homes available for sale dropped to 4.27 million homes, about a 10.5 monht supply.  This indicates about a 3.6% drop in a bloated housing market that never heard of ephedra diet pills.

There was some bad news, the median home price dropped from $217,300 in November of 2006 to $210,000 in November 2007.

Among other things it should be noted that a pick up occurred in the presence of two historically significant factors, lowering house prices and lowering mortgage rates.

Existing-Home Sales Edged Up In November, but Remain Weak – WSJ.com

I have a suggestion that could provide average Americans with a solution in the face of the Mortgage crisis and a troubled real estate market.  (and it contradicts my last article on incentive arbitrage a bit but not in spirit as taking advantage of the incentives to save real money also takes something back to the major builders that have contributed to the problem.  We’re talking major price concessions in that article as opposed to some trivial gift like a Technomarine watch or a toaster or DVD player.)

Here’s the solution in 2 parts:

1.  Do not buy a new home from a builder.

2.  Only buy a home from an actual home owner that has lived in the home.

Now the point of this illustrative solution is to help increase the number of home sale transactions for existing homes, relieving the burden on existing home owners that live there as opposed to helping out the major builders that are partly responsible for the run up in real estate prices, the over supply of new homes, and the past sales tactics that have under priced new homes to sell as compared to existing homes.

Here’s the latest statistics on home sales

A Commerce Dept. report released on Dec. 28 showed U.S. new-home sales plunged 9%, to a 0.647 million unit annual rate in November, from a downwardly revised 0.711 million in October (from 0.728 million previously). Market forecasters had expected a more modest decline to 0.715 million. Following downwardly revised numbers for August and September, new-home sales are stuck in a steep downtrend.

New-home sales dropped by 19.3% in the Northeast, 27.6% in the Midwest, and 6.4% in the South. However, sales increased by 4% in the West. Over the last 12 months, new-home sales nationwide have tumbled by 34.4%, the biggest annual slide since early 1991, and stark evidence of the painful collapse of the once high-flying housing market.

The supply of homes for sale rose to 9.3 months’ worth from 8.8 (revised from 8.5). Whereas earlier sales and price data had suggested big price cuts by homebuilders were clearing inventory, this pattern has been reversed with the November data and revisions.

New Home Sales: A Stunning Slide

What can you do in a market where you wake up one morning and look down the street and see a contractor offering the same house for $50k less than what you paid for your own house?

Well, you could buy that house . . .

IF you could sell your current house for what you paid for it or better. Today, many builders are offering huge incentives to sell their houses and clear out their inventory.  They are discounting the house, the extras, the taxes, the appliances and much much more.

If you can unload your current home and get your money out of it and then buy into one of these discounted and heavily incentivized (almost a word!) houses, you could save yourself a lot of money.

Look at it this way.  Let’s say that you have a mortgage on your current home for $250k, and you paid $275k.  Down the street a new but essentially the same house is selling for $225k.  If you can sell your house today for $275k, pocket the $25k in equity and turn around and buy a home for $225k just down the street, then you have made a good deal.  (Assuming that the move and all the changes of address and things are worth it.)

That’s the general concept.  I am not saying that it is easy, not as easy as switching your Nike golf shoes, but possibly easier than currency arbitrage.  The real trick is selling your own house and getting the value out of it.  If the builders could sell their houses they would, unless they are currently under the gun to sell fast, and then you may have an opportunity!

Quicken Loans offers up a short and somewhat useful article detailing how the recent Federal Reserve’s Rate Cut might impact your mortgage.

Now, I personally do not trust Quicken Loans as they once promised me a rate on my own home refinance.  I locked in at the rate and 2 weeks before the close they called to tell me that it was no longer possible unless I paid a higher interest rate.  They offered up excuses that were unprovable, but the reality was that it was either their way or the highway. 

I chose the highway and refinanced with Wells Fargo instead!

Regardless, their short article Does the Fed rate cut affect your mortgage rate? offers up the examples necessary to understand how the Federal Reserve Rate Cut a can impact your finances ( a little ) both positively and negatively.  The article is not likely to save you a fortune this year or even save your house from foreclosure if you are in trouble, but understand the situation might save you enough money to buy a truck rack on clearance from an after christmas sale.

The key concept to understand is that the Federal Reserve has the ability to impact short term interest rates.  Here are some loans that may be impacted in the short term:

Credit Cards
Adjustable Rate Mortgages (ARMs) – under 7 years, even more if 3 or under
Home Equity Lines
Some (but not all) Student Loans
Your Savings Account rates
New Vehicle Loans – Ergo new loans that you take out as opposed to the loans that you already have.
Other Lines of Credit – such as Overdraft Protection

Can you live in a diamond ring?  Can a diamond ring keep you or your kids warm and dry?

The answer is no.  So why would you waste money on a Christmas gift this year that does you no good?

I’d suggest that instead of wasting money on diamond rings, you should consider doing one of the following things that will actually help you protect your biggest investment, your home.

Quite simply, make an extra house payment this month.  Save the money on presents you do not need and drop a grand or two on your house.  This is good for your own finances as it increases your equity, reduces your total interest expense and helps the US economy by putting money in the sector of the economy that needs it the most right now.

If you are not sure about your own finances as you look 3-9 months into the future, then take that same couple thousand dollars that you might spend on Christmas and park that money into a 3 month CD.  Renew that CD every 3 months, and if by chance you come up short for your house payment, this becomes your financial reserve for a rainy day.  It might just save you from foreclosure.

Similarly, if you want to help your finances tremendously, pay that money towards your credit card debt, do not spend any money on your credit cards and reap the rewards.

There is some irony in a recent editorial by the Chicago Tribune.  The article talks about how Democrats are looking to fleece borrowers as a solution to the melt down in the mortgage industry, partially fueled by sub prime loan foreclosures, even though the editorial notes that sub prime is only a small part of the problem.

From listening to the critics, you’d never guess that. Sen. Barack Obama (D-Ill.) denounces “predatory lenders” for “driving low-income families into financial ruin.” Barney Frank (D-Mass.), who chairs the House Financial Services Committee, blames everything on an epidemic of “abusive lending.”
But lenders who made bad decisions are already paying the price. Many mortgage firms have gone bankrupt. And if these loans are so unconscionable, the question is not why the foreclosure rate is so high but why it’s so low.  Democrats may commit the real mortgage fraud — chicagotribune.com

While the State of Illinois begins to investigate the largest mortgage lender in the country, ironically named Countrywide, the Chicago Tribune would pretend that lenders are not guilty of the melt down in the markets.

Maybe the Tribune did not pay attention when banks stood up in 2005 to lobby Congress for bankruptcy laws that would elevate credit card debt over mortgage debt, forcing borrowers into foreclosure 2 years later, while they continue to pay 28% interest on the credit cards.

Maybe the Tribune did not notice the predatory lending practices that the mortgage industry engaged in as they suddenly flipped a switch and over night stopped engaging in red lining one day, and started offering up billions of dollars in credit to the people they had formerly blacklisted.

Maybe the Chicago Tribune did not notice that when the people that finally received this credit, had to honor their contracts there were thousands of examples where the mortgage brokers lied about the paper work, the loan documents, even the terms of the mortgage itself all so that they could earn a higher commission from people that were lumped into the sub prime bucket.

Maybe the Chicago tribune also did not notice that mortgage lenders were shifting people that had good credit into mortgage agreements that were sub prime days before the home closing, just so that the broker could again receive a higher commission.

So I find it a little shallow that the Chicago Tribune would snipe at Democratic politicians for wanting to do something about all of these predatory lending practices.  Even Republican politicians recognize that there is a problem.  Even if you want to look at this from the perspective of the very wealthy, these mortgage houses at best are guilty of mis-managing the funds of their clients by utilizing unsavory business practices that induced a high level of risk into the US financial system so that the managers could benefit in the short term. 

Maybe the Tribune needs to go back to commenting on local news and selling advertising hand outs for the latest sales on electronics and maternity clothing, they obviously seem to be disconnected from the reality of finance and national politics.

Last week, President Bush attempted to offer Americans an 800 number to help them solve their mortgage problems.  Unfortunately, the president didn’t know the number.  He offered up an 800 number when the number was actually an 888 number.  This resulted in many Americans facing foreclosure calling a Texas home schooling telephone number, but Americans do not need to be homeschooled in mortgages, they needed help. 

It remains to be seen, just how much this phone number will actually help Americans, but if you are looking for assistance in avoiding foreclosure the correct telephone number is 888-995-HOPE.

For what it’s worth, the White House press office sent out a correction via a press release. The president was only a few digits off. “CORRECTION TO THE PRESIDENT’S REMARKS: THE TOLL-FREE PHONE NUMBER FOR THE HOPE NOW HOTLINE IS 1-888-995-HOPE.”  President Bush: Call 1-800-OOPS

The president’s most recent plan, a micro-bail out, would enable mortgage holders of cheap homes, luxury homes and everything in between that are facing an ugly arm adjustment to freeze their variable interest rates for five years.  So if your mortgage rate is supposed to adjust upwards, it could be frozen at the current rate for five years while you attempt to straighten out your mortgage or sell your house.  It’s not a true solution, but it does keep things from getting terribly ugly while the president is still in office.

If you want a real solution, you better pick the right president in 2008.

They say that the eyes are the windows to the soul, and in a house the windows do enable us to see the soul of a potential home in more ways than one.  The windows on a home let light into your house, they let cool breezes and during the spring, and they let you watch your children play in the backyard to make sure that they’re safe.

Old windows, cloud up and often times refused to be cleaned.  They let you have the wintertime and hot air and during the summertime.  The pinch her fingers when you try and open or shut them, and over time they can be the bane of your existence.

Replacing your windows can save you pockets full of cash in electricity, gas and heating bills, and it can make your home beautiful. If you are looking to buy or sell you should definitely look at the windows and how well they are or are not working. Do not buy a house with old inefficient windows. If the windows are old, find a house that has new windows and don’t waste your time with a house that has not been maintained.

Don’t settle for old windows win you are  moving into a new home. Have the seller replace the windows with the windows that you choose, with the guidance of a contractor that you can trust.  Including new windows into the cost of a new home, will typically save you a good deal of money on heating and air-conditioning costs over the first two years in your new home.  It will also give you peace of mind that your hard-earned money is not going out the window every time you turn the heater or air conditioner on.

If you are moving into a new area, you often times will not know one contractor from the next.  With that in mind we offer a window contractor guide to help you source window contractors and find a window contractor that is right for you and your future home.  Look for contractors that are bonded and insured, especially if you party purchased the home. 

One thing is for certain,once you have had the experience of having new windows in your home,you will not be able to go back to a lifestyle with older, less efficient windows, not without window addiction treatment. 

Nothing dates your home like an old kitchen.  Updating and upgrading your kitchen is one of the best things that you can do to add value to your home before you sell it.  Upgrading your kitchen can add upwards of 30 to 40% to the value of your home.

Upgrading a kitchen is also one of the things that is the most difficult to for a do-it-yourselfer.  Working with tile, marble, granite, water and electricity all come into play in the kitchen and if you do it wrong or make a mistake a home buyer will notice it.  This makes it all the more important to utilize a very good kitchen contractor.  Someone that knows what they’re doing with the kitchen, how to achieve the best results, and how to make the kitchen stand out as the centerpiece to your home.

There are many extremely complicated steps and choices to make as you put together a plan for your kitchen.  Don’t fear a migraine, just move forward and make one decision and choice at the time.  Work your way from the floor up and take off the milestones as you go.  Wherever possible, make your choices count in the areas of efficiency, organization, and opened workspaces.  Once you have those areas covered, then consider the areas where you may add glitz and glamour, but keep in mind nothing but to date on a kitchen like the latest fashion her style is available at today.  Similarly, avoid low-quality products that won’t stand the test of time with a heavy use the kitchen undergoes.  Remodeling the kitchen can be a large budget items and make sure that you do the math, hold your budget tight and ensure that your home has enough room to move in the marketplace compared to other homes and where they’re selling today.

Money Saving Tip!

If you are not certain if you can afford a contractor, or if you think you might be in over your head with a particular remodeling project, it never hurts to get an estimate our opinion from a professional.  You might learn a thing or two and figure out what you’re missing, you might come up with a better plan, layout or design,and you might get your remodeling project on time if you do opt for a professional.

Here’s a tip that can help you sell your home this spring by making your home more attractive, and more affordable to live in for potential buyers.  Replace the siding and upgrade the exterior insulation.

Its a simple move and simple investment and can make a major difference in curb appeal (the trick that actually gets them to stop and look at the house) and counter top appeal.

What’s Counter Top Appeal?

Counter top appeal is the feeling a potential buyer experiences when they walk into a house and read up on some of the facts about the house left on the kitchen counter.  This can include a home warranty offer, it can also include another flyer in color of the home describing the house.  Plus, it should include a 1 year history of the homes heating and electric bills so that a potential home buyer can see just how well the homes systems and insulation perform.

There is nothing better than having a home that has great curb appeal, great door way appeal (that warm fuzzy “Ooh that’s really nice” mention when they walk through the front door) and especially counter top appeal.

Siding a home these days is not terribly expensive and considering heating and cooling costs with oil at $100 a barrel, it is an investment that can save a new home buyer a great deal of money. 

Counter top appeal is not created by leaving your liquor out on the counter and offering free beers and shots hoping to find a buyer willing to put beer goggles on and spend $300k, unless you are sourcing your home buyers before they go to an alcohol rehab.

Where to Find a Siding Contractor?

Now you could probably walk out to the mail box and pick up the siding flyer of the day.  You might even check the yellow pages, but these sources do not guarantee a great siding contractor.  They may not even guarantee a contractor that even knows that they are doing with siding.

However, you can check here to find siding contractors and determine which ones meet your needs and budget.

See our article for Find a Heating or Air Conditioning Specialist to significantly increase the resale value of your home and enable it to sell at all.