Month: March 2011

MASS HOME SALES DOWN


The Boston Globe reports:

Massachusetts home sales went into a deep freeze last month with the worst numbers in more than 20 years, according to data released yesterday.

Single-family home sales fell 15.7 percent and condominium sales dropped 18 percent in February compared with the same month last year, according to Warren Group, a Boston company that tracks local real estate.

Median prices also declined last month, with single-family homes sinking to $255,000, a 5.5 percent drop compared with February 2010. Condo prices fell to a median of $225,000, a 4 percent drop compared with last year, according to Warren Group.

Housing industry specialists attributed the slowdown partly to the harsh winter weather, which kept prospective buyers at home and made sellers hesitant to put their properties on the market.

Also, during February 2010 the housing market was propped up by the now expired federal home buyer’s tax credit.

“While only remnants remain of the multiple feet of snow we had in December and January, the impact on home sales was evident in February,’’ said Laurie Cadigan, the president of the Massachusetts Association of Realtors.

Eric Belsky, managing director of Harvard University’s Joint Center for Housing Studies, said many people are still reluctant to purchase a home, scared off by the sluggish economy, high oil prices, and worldwide turmoil. In the most expensive Boston-area communities, he said, prospective buyers also are still taken aback by high prices.

“People don’t jump into deflationary markets,’’ Belsky said. “There’s not been a great deal of job growth.’’

For those people looking to buy a home, the choices remain limited. Inventory of homes for sale sank in February — 3 percent for single-family homes and 11 percent for condos compared with the same month last year, according to the realtors group, which also released data yesterday.

Homes also generally took longer to sell in February. Detached single-family homes took an average of 152 days to sell in February 2011, compared with 137 days during the same month last year, according to the local real estate association.

Adding to evidence that the housing market has not yet rebounded, the S&P/Case-Shiller Home Price Indices released data yesterday showing that home values in 20 major metropolitan areas dropped 3.1 percent in January compared with the same period last year. Boston fared slightly better than average — dropping 0.6 percent compared with January 2010. The index measures repeat home sales and is considered by many in the industry to be the best measure of housing values.

Edward L. Glaeser, a Harvard University economics professor, said new data show that the local housing market is stagnating, with buyers staying away and sellers unwilling to sell properties at discount prices. He said median price declines reflected in the Warren data are more likely due to more homes being sold at lower prices than a decline in values.

“During these periods where the market has dropped substantially, people are unwilling to take the loss from their homes, the market just dries up,’’ Glaeser said.

“I think of this as being a period of long, slow price stagnation rather than a big double dip,’’ he added.

Home values in the Boston area dropped about 20 percent from their peak in 2005 to a low in March 2009, and have been wavering over the last two years, according to Case-Shiller data.

Northeastern University economist Alan Clayton-Matthews pointed out that values are still more than 4 percent higher than they were two years ago and the economy appears to be improving.

“It certainly suggests the housing market looks like it has stabilized,’’ he said. “It is probably not going to get worse, but it has yet to really take off.’’

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More Borrowers Are Opting for Adjustable-Rate Mortgages


More Borrowers Are Opting for Adjustable-Rate Mortgages

The New York Times
By LYNNLEY BROWNING
Published: March 17, 2011
IN the years since the financial crisis, adjustable-rate mortgages, or ARMs, with their low initial interest rates that changed over time, have been considered riskier than fixed-rate loans and shunned by most buyers. But these days more people are being persuaded to give the loans a try.

This time around, lenders are rolling out more conservative ARM products — without the gimmicky extra-low “teaser” rates that adjust every six months, or the “pick-a-pay” and “option” features that allow borrowers to pay less than the monthly interest, only to be hit with a huge bill down the road.

Those ARMs were hallmarks of the subprime mortgage boom that fueled the soaring rate of mortgage defaults and home foreclosures nationwide.

“An adjustable now is basically a prime product,” said Michael Moskowitz, the president of Equity Now, a lender in New York. “There’s definitely a comeback in their popularity.”

Bank of America, for example, had nearly twice as many ARM transactions last month as it did a year ago, according to Terry H. Francisco, a spokesman, and ARMs now account for 10 percent of all its home loans.

Mortgage brokers and lenders say the loans most in demand are the “5/1” and “7/1,” in which the initial interest rate is fixed for the first five or seven years — after which many homeowners typically think about selling or refinancing anyway — then adjusted annually at a capped rate toward a maximum level.

In contrast to fixed-rate loans, whose interest rates never change, ARMs start out at one rate and then adjust typically once a year at a capped rate, often two percentage points, based on changes in the interest-rate indexes to which they are tied. The adjusted rates can go up or down, and the total increase over the life of the loan is capped.

According to Stephen Habetz, the vice president of DRB Mortgage, the lending division of Darien Rowayton Bank in Darien, Conn., the maximum caps are around 6 percent above the initial rate.Bankrate.com said the initial rate for a 5/1 ARM in the New York area averaged 4.04 percent as of Wednesday, compared with 3.74 percent nationally. For 7/1 ARMs, the average was 4.74 percent, versus 4.10 percent.

Starting rates are usually one to one and a half percentage points below those of 30-year fixed-rate loans.

But one catch is that getting an ARM may now be harder.

Last summer Fannie Mae, the government buyer of home loans, said lenders must qualify borrowers on either the initial rate plus two percentage points, or on the full index rate to which the initial rate is tied, whichever is greater.

Back in 1994, ARMs were used for around 70 percent of all home purchases, according to a study by the Federal Reserve Bank of New York released in December. By early 2009, after the onset of the financial crisis, the share had fallen to 2.3 percent, the study showed, but as of April 2010, it had climbed to about 4 percent.

Freddie Mac, another government-buyer of loans, said in January that it expected the share of ARMs for home purchases to rise to 9 percent this year.

Among those borrowers choosing adjustable-rate mortgages are buyers of property costing more than the $729,750 limit at which Fannie Mae and Freddie Mac will buy back loans from lenders, said Mary Boudreau, the owner of Penfield Financial, a mortgage broker in Fairfield, Conn. (Without the government buyback, fewer lenders are willing to make these “jumbo” loans, which carry interest rates one or two points above those of conventional loans. The Fannie and Freddie limit is set to drop to $625,500 in October.)

With an ARM, the savings can be significant. Sean Bowler, a loan officer at DRB Mortgage, said someone borrowing $500,000 with a 5/1 ARM at 3.5 percent would save $42,507 in the first five years, before it adjusts, compared with a 30-year fixed-rate loan of 5.25 percent. A 7/1 ARM at 4.125 would save $38,330 over the first seven years.

A version of this article appeared in print on March 20, 2011, on page RE9 of the New York edition.

 

If Your Goal Is to Buy Low, Buy Now!


There is a very famous saying which asserts “Sell High, Buy Low”. It is obviously great advice no matter what the investment. Below is a graph showing the cycle of investments. It shows the points of maximum risk and maximum opportunity when purchasing. We want to sell high (point of maximum risk) and buy low (point of maximum opportunity).

The challenge is how to determine when we have hit bottom if you are a purchaser. The only time you can guarantee a bottom is after you pass it.

However, there is more and more evidence that the COST of a home has in fact hit bottom. Notice we have used the word COST. Unless you are an all cash buyer, you must take into consideration the expense of financing a property to determine the true cost of purchasing the home. Interest rates have increased over the last quarter; and the rise in rates has counteracted any fall in prices.

Let’s look at an example:

Let’s say you were going to take out a $200,000 30-year-fixed-rate mortgage in November of 2010. At that time, interest rates were 4.17% (as per Freddie Mac). Your principle and interest payment would have come to $974.54. According to the most recent report from Case Shiller house prices fell 3.9% in the 4th quarter of 2010. The most recent report from the Federal Housing Finance Agency shows a 0.8% fall in prices. Let’s use the larger percentage decrease: 3.9%.

For the sake of keeping the math simple, we will now say you can get the same house with a $192,000 mortgage (4% discount from November price). Interest rates are now 4.95% (as per Freddie Mac).

Your principle and interest payment would now be $1,024.84.

By waiting to pay less for the PRICE of the house, the COST increased over $50 a month. That adds up to more than $600 a year and over $18,000 over the life of the loan.

We realize that there are other things to consider (ex. the mortgage tax deduction, etc.). This example is just a simple way to show that there is a difference between COST and PRICE.

Bottom Line

If you want to buy low, buy now. It appears COST has hit its lowest point.