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The cost of waiting
January 13, 2010 /I just listened to a great call with an eye towards what we can expect in the year 2010 in the housing and rate market. A great point was brought up about the cost of waiting. Right now the government has pushed some major incentives into the market. In December of 2008 the government announced a purchasing program that pushed rates roughly 1% lower than where they were the previous month, and had been for almost a year. The Government is also allowing for a TRUE TAX CREDIT of $8000 for first time home buyers that is set to expire in April. These 2 things can make a huge difference for a first time home buyer. If you wait to buy and rates go up the roughly 1% that most experts are forecasting, you would be looking at a cost of about 5% of your loan amount upfront to buy down your mortgage rate back down to current levels, on a $200,000 loan that is $10,000. Add to that the loss of the tax rebate, that is nearly $20,000, or about 10% of the purchase amount. A more impressive number is the lifetime cost of a mortgage that is 1%…Read more
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The $64,000 Question
April 1, 2009 /I had a client the other day ask me about the real estate market and waiting for the bottom. In this case he was hoping for real estate prices to come down so he could buy at a lower price. I told him that was a great idea, but it is really tough to time the market and that many professionals get that type of thing wrong, so I would be wary of trying. In his case he was looking for a $200,000 house, and a 5% price reduction which represented a $10,000 difference in the cost of the house. We agreed that was a lot of money. However, I told him that if the bottom of the market was already here, and we just didn’t recognize it yet, waiting longer could cost him a bunch more. I explained that once the housing market bottoms and we see the market for homes stabilize, demand will increase and we will probably see a significant amount of buyers since plenty of people have had the same thoughts about waiting for the market to bottom. Because of that we could see prices rise quickly. This would actually not be the most costly part of…Read more
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Our thoughts on the “bail out”
September 30, 2008 /I was talking with a customer yesterday and they asked me what I thought about the 700 Billion dollar “bail out” of Wall Street using tax payer dollars. Well, I said, I am not an economist, but I think it is a good deal for tax payers. The response from my client was a gasp of surprise. A good deal for tax payers? How could funneling $700 billion to Wall Street be a good deal for us? Well, I said, it depends on how the money is spent. These funds are not designed to just be handed over. The government, thus you and I are buying mortgages from the banks. These mortgages, while underperforming and in many cases are for an amount over the current market value of the property, are backed by REAL property. A house, or condo, a real asset that has value. The governments plan is to buy these mortgages at .40 to .50 cents on the dollar of what the face value is. So lets look at the math really quick. The bank did a mortgage at 95% of the value of a house worth $300,000, so they now have a mortgage at $285,000. Economy is bad, house values decline, buyer can’t pay the mortgage…Now we have a…Read more
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Bright Spots: A story of Fred and Fan
September 18, 2008 /Water cooler conversations, the media and your pocketbook make it hard to escape the fact the economy is affecting personal finances. Grocery prices are climbing, gas and oil are near all time high and goods and services have increased across the board. If these concerns are on your mind you are like most Americans. There is a bright spot on the horizon. In the past few days, the U.S. government has taken over mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). The rescue puts the companies under the control of their regulator, the Federal Housing Finance Agency, and includes a plan for the Treasury to purchase these mortgage bonds as well as the firms' senior preferred stock. The government's plan should alleviate growing concerns about the financial sector in general now that two of the most troubled companies enjoy the explicit backing of the U.S. government. Fannie Mae and Freddie Mac own or guarantee more than five trillion dollars in mortgages and play an essential role in supporting the U.S. housing market. This will provide a sizable boost to the market for mortgage bonds guaranteed by Fannie Mae and Freddie Mac. In a nutshell, this is a positive step…Read more
