Housing Slump

With all the dismal reports about the home real
estate market, don’t lose track of something critically important:
Mortgage interest rates have been falling quietly but steadily for
weeks, and are now at their lowest level in half a year, barely a
percentage point above 40-year lows.

New mortgage applications are up sharply, the number of pending
home sales is up, the national economy continues to expand
moderately, and the rate of unemployment just declined again to
4.6 percent.

All of which raises the question: Just what kind of housing bust is
this anyway? With gloom-and-doom purveyors forecasting
imminent crashes in dozens of metropolitan areas, how could such
key fundamentals as jobs, interest rates and even pending home
sales simultaneously be trending in the opposite direction?

Donald L. Kohn, the Federal Reserve’s vice chairman, took a stab
at that seeming conundrum in a speech Oct. 4 at New York
University. His views are worth keeping in mind if you want to put
the negative news on home prices and sales in perspective.

To begin with the fundamental point: Kohn sees no imminent bust
or crash in housing at all. It is a “correction” that’s under way a
cyclical rebalancing of a marketplace that got too hot for too long
in some parts of the country, and is now heading back toward more
“normal” conditions, where prices are more in line with what
consumers can afford.

“The reported declines in house prices in a number of areas should
help to facilitate the rebalancing of supply and demand in those
markets,” said Kohn.

Not all home sellers have fully grasped the altered realities in their
own local markets that they’ve got to reduce their asking prices if
they truly want to sell so the process is still unfolding. Re-priced
houses, in turn, should stimulate greater numbers of potential
buyers to get off the sidelines and make offers. The unexpected 4.3
percent increase in the latest monthly number of pending home
sales contracts heading for closing nationwide reported Oct. 2 by
the National Association of Realtors could be a sign that Kohn’s
prediction is already taking shape.

Second, said Kohn, the housing correction expressed through new
home starts “may be closer to (its) trough than to (its) peak.”
Translating from Fed-speak, this means that we appear to be well
on our way toward bottoming out and eventually returning to
positive growth in new home starts and resales.

Now to interest rates. Today’s “unusually low” long-term mortgage
rate environment “stands in sharp contrast to some past downturns
in the housing market that followed actions by the Federal Reserve
to tighten credit conditions significantly.” Translation: Affordable
HOUSING SLUMP NOT ALL DOOM AND GLOOM
mortgage money should help shorten the current housing down
cycle compared with credit-squeezed periods in the 1980s, when
mortgage rates sometimes exceeded 16 percent for fixed-rate loans.

A final key factor, according to Kohn: “Continuing growth in real
incomes should underpin the demand for housing, and as home
prices stop rising, help erode affordability constraints.”

Add it all up: Lower asking and selling prices on houses are integral
parts of the self-correction and should help shorten the whole
process. Lower interest rates should make those lower prices
affordable to a broader number of potential buyers. That could
become an even more important factor if mortgage rates dip below
6 percent in the coming months, as some Wall Street capital market
analysts expect.

James Glassman, a managing director at JP Morgan Chase, says 30-
year fixed-rate mortgages at 5 percent are a distinct possibility if
long-term rates in the global bond market continue to ease. The
current cyclical downturn in housing “is not your classic interest
rate story” he says. Money is available at low cost, and there’s a
good possibility “it won’t be long before we work through this.”

The source of some of the confusion about just where housing is
headed, and how bad things are likely to get? Mike Moran, chief
economist of Wall Street’s Daiwa Securities America, minces no
words: The financial press and TV news shows are overly
dramatizing what is a normal and long-predicted cyclical
rebalancing, and “portraying it as a catastrophe.”

Housing “is going through a correction that’s badly needed,” he
said. “The key issue is whether it is orderly or disorderly” and all
signs point to a continued orderly process, not a breakout bust or
panic.

Doug Duncan, chief economist of the Mortgage Bankers
Association, points out that national housing sales numbers are
merely rolling back to 2003 levels “and that was a record year.”
Serious sellers and buyers shouldn’t be misled by predictions of
imminent crashes, said Duncan. Not only do the doom reports
ignore the positives out there in the marketplace mortgage rates in
particular but “the rhetoric is just way overwrought.”

Kenneth Harney · San Diego Union Tribune · October 15, 2006

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

ARM vs. fixed-rate mortgage

Which is the better mortgage option for you: fixed or adjustable?

The low initial cost of adjustable-rate mortgages, or ARMs, can be very tempting to home buyers, yet they carry a degree of uncertainty. Fixed-rate mortgages offer rate and payment security, but they can be more expensive.

Here are some pros and cons of ARMs and their fixed-rate brethren.


Adjustable-rate mortgages

Advantages
• Feature lower rates and payments early on in the loan term. Because lenders can use the lower payment when qualifying borrowers, people can buy larger homes than they otherwise could buy.
• Allow borrowers to take advantage of falling rates without refinancing. Instead of having to pay a whole new set of closing costs and fees, ARM borrowers just sit back and watch the rates -- and their monthly payments -- fall.
• Help borrowers save and invest more money. Someone who has a payment that's $100 less with an ARM can save that money and earn more off it in a higher-yielding investment.
• Offer a cheap way for borrowers who don't plan on living in one place for very long to buy a house.

Disadvantages
• Rates and payments can rise significantly over the life of the loan. A 6 percent ARM can end up at 11 percent in just three years if rates rise sharply.
• The first adjustment can be a doozy because some annual caps don't apply to the initial change. Someone with an annual cap of 2 percent and a lifetime cap of 6 percent could theoretically see the rate shoot from 6 percent to 12 percent 12 months after closing if rates in the overall economy skyrocket.
• ARMs are difficult to understand. Lenders have much more flexibility when determining margins, caps, adjustment indexes and other things, so unsophisticated borrowers can easily get confused or trapped by shady mortgage companies.
• On certain ARMs, called negative amortization loans, borrowers can end up owing more money than they did at closing. That's because the payments on these loans are set so low (to make the loans even more affordable) they only cover part of the interest due. Any additional amount due gets rolled into the principal balance.


Fixed-rate mortgages

Advantages
• Rates and payments remain constant. There won't be any surprises even if inflation surges out of control and mortgage rates head to 20 percent.
• Stability makes budgeting easier. People can manage their money with more certainty because their housing outlays don't change.
• Simple to understand, so they're good for first-time buyers who wouldn't know a 7/1 ARM with 2/6 caps if it hit them over the head.


Disadvantages
• To take advantage of falling rates, fixed-rate mortgage holders have to refinance. That means a few thousand dollars in closing costs, another trip to the title company's office and several hours spent digging up tax forms, bank statements, etc.
• Can be too expensive for some borrowers, especially in high-rate environments, because there is no early-on payment and rate break.
• Are virtually identical from lender to lender. While lenders keep many ARMs on their books, most financial institutions sell their fixed-rate mortgages into the secondary market. As a result, ARMs can be customized for individual borrowers, while most fixed-rate mortgages can't.


All of these things should factor into your decision between a fixed-rate mortgage and an adjustable. But there are other important questions to answer when deciding which loan is better for you:

1. How long do you plan on staying in the home?
If you're only going to be living in the house a few years, it would make sense to take the lower-rate ARM, especially if you can get a reasonably priced 3/1 or 5/1. Your payment and rate will be low and you can build up more savings for a bigger home down the road. Plus, you'll never be exposed to huge rate adjustments because you'll be moving before the adjustable rate period begins.

2. How frequently does the ARM adjust, and when is the adjustment made?
After the initial fixed period, most ARMs adjust every year on the anniversary of the mortgage. The new rate is actually set about 45 days before the anniversary, based on the specified index. But some adjust as frequently as every month. If that's too much volatility for you, go with a fixed-rate mortgage.

3. What's the interest rate environment like?
When rates are relatively high, ARMs make sense because their lower initial rates allow borrowers to still reap the benefits of homeownership. Rates could fall even further, meaning borrowers will have a decent chance of getting lower payments even if they don't refinance. When rates are relatively low, however, fixed-rate mortgages make more sense. After all, 7 percent is a great rate to borrow money at for 30 years.

4. Could you still afford your monthly payment if interest rates rise significantly?
On a $150,000, one-year adjustable-rate mortgage with 2/6 caps, your 5.75 percent ARM could end up at 11.75 percent, with the monthly payment shooting up as well.

By Bankrate.com

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Market Update

Rates on 30-year Mortgages Decline, Reach Six-Month Low
Martin Crutsinger
San Diego Union Tribune
September 22, 2006

WASHINGTON – Rates on 30-year mortgages fell the week of September 22 to the lowest level in six months, offering support to the sagging home market. Mortgage giant Freddie Mac reported that 30 year, fixed-rate mortgages dipped to 6.4 percent this week, down from 6.43 percent last week. The latest drop puts the 30-year mortgage at the lowest level since it stood at 6.35 percent in late March.

Rates on 30-year mortgages hit a four-year high of 6.8 percent July 20, but since that time have been trending downward as financial markets have become more convinced that a slowing economy and recent declines in energy costs will help keep inflation contained. Such a slowdown would allow the Federal Reserve to keep interest rates on hold. Fed officials announced Wednesday that they were leaving a key interest rate unchanged for the second straight month, raising expectations that the Fed’s two-year campaign to raise interest rates to fight inflation pressures may be coming to an end.

Many analysts believe interest rates will hover around current levels for the rest of the year. Such a development is expected to help the housing industry level off after sharp declines in recent months, which have seen construction of new homes fall to the lowest levels in more than three years.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Real Estate and the Internet

There is no getting around the Internet in today’s world. From grocery shopping, to seeking medical advice, to finding your next mate—there is a web site for everything. So why should buying and selling real estate be different? We aren’t suggesting that the Internet will do away with the need to see a property in person, or list your home with a living, breathing human. It has, however, changed the way home buyers and Realtors are searching for and marketing homes.

In this newsletter, we have pulled together a series of articles that drives home the importance of the Internet in the home buying and selling process. Gone are the days of just listing a home for sale in the local paper. Gone are the days of just putting a For Sale sign with a flyer box on the front lawn and waiting for the phone to ring. Welcome to the world of unique Web IDs and personalized web sites for your properties. Marketing a home for sale requires the use of the Internet to reach prospective home buyers. Your real estate agent would be amiss to tell you otherwise.
Realtors and their clients can choose to fight this changing world, or to jump on board and trail blaze this new frontier. At Rodriguez, Wheeler & Associates, we’ve chosen the later.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

Yahoo! Online Seller Advantage

List with us and gain the advantage

Rodriguez, Wheeler & Associates is dedicated to providing our clients with cutting-edge services. We embrace technology and are always looking for that “something extra” we can provide our clients that will further distinguish their properties from the masses. This is why we have invested in a unique program called Yahoo! Online Seller Advantage. Stemming from an exclusive partnership between Prudential Real Estate and Yahoo! Real Estate, this program gives you a distinct advantage over other sellers in today’s market.
By listing your home for sale with us, it will be a part of this program and will receive the following exclusive benefits:
- Listed as a Featured Property on Yahoo! Real Estate
- Receive daily reports with detailed information about how often your home:
- Showed up in search results conducted on Yahoo! Real Estate
- Was viewed in detail format
- Was saved in a prospective buyer’s portfolio
- Installation of a Yahoo! Real Estate sign rider that is designed to streamline the process a “drive by” prospective buyer goes through to view details about the property. The Yahoo! sign rider will encourage the prospective buyer to go to Yahoo! and enter a special “Web ID” in any Yahoo! search engine. The search results for this action is the detail listing information of the featured property.

If you are thinking of selling a home and want a distinct advantage over other sellers in today’s market, call your Rodriguez, Wheeler & Associates team member and ask about how to access Yahoo! Online Seller Advantage.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/

70% of All Home Buyers Use the Internet

According to the California Association of Realtors' 2006 “Internet Versus Traditional Buyer Survey”, home buyers using the Internet are younger, wealthier, better educated and more likely to be married than traditional buyers. Internet buyers also reported greater satisfaction with the home-buying process compared with traditional buyers. However, these two types of buyers have started to converge over the last few years.

The Internet buyer has become the "typical" home buyer, C.A.R. said, though important distinctions between Internet and traditional buyers remain. Since 2001, the share of home buyers using the Internet as an integral part of the home-buying process has nearly doubled to 70 percent.

"The Internet is changing the dynamics between buyers and their agents, as well as the way business is conducted throughout the real estate industry. However, while the Internet has become an important research tool for home buyers, it has only enhanced the Realtor's role in the transaction," C.A.R. President Vince Malta said. "Buyers continue to rely on their Realtor for help with interpreting the information gathered from the Internet and to guide them through the home-buying process."

According to the survey, more than nine out of 10 Internet buyers indicated that the Internet helped them better understand the process of buying a home. Additionally, Internet buyers are accustomed to receiving more frequent communication and faster response times from their Realtors.
Other key findings from C.A.R.'s survey include:


• Internet buyers had an annual income of $184,900, compared with $148,910 for traditional buyers.
• Internet buyers spent an average of 5.8 weeks considering buying a home before contacting a Realtor, nearly three times more than traditional buyers, who spent 2 weeks in this stage of the home-buying process.
• Internet buyers spent 2.2 weeks looking for the home they ultimately purchased, compared with 7.1 weeks for traditional buyers.
• Fifty-four percent of Internet buyers said the information that they gathered from the Internet was less useful than that provided by their Realtors; none considered the information gathered from the Internet to be more useful than that obtained from their Realtors.
• All first-time buyers typically spent 5.3 weeks considering buying a home and 4.3 weeks investigating homes for sale before contacting a Realtor. They then spent 3.2 weeks previewing eight homes with their Realtor.
• All repeat buyers spent 3.3 weeks considering buying a home and nearly three weeks investigating homes for sale on their own. They spent 5.4 weeks previewing 13 homes with their Realtor.

For more information on this article or assistance with your San Diego real estate needs contact Noel Wheeler of Prudential California Realty at (619) 718-4266 or visit http://www.noelwheeler.com/