Orlando Real Estate Voice

A recent survey and a rate increase could mean more competition for homes

Recent indication is that first time home buyers are getting tired of sitting on the sidelines. According to a recent online poll taken by the National Apartment Association, 17 percent of renters plan to make the jump to home ownership in the next year; 41 percent of the 2,041 respondents planned to be home owners within two years. Only 31 percent planned to still be paying rent five years from now.

Another factor that could very soon contribute to an increase in home buying could be rising mortgage costs. Fixed-rate mortgage rates rose to 6.32 percent, the highest it has been since October. After months of aggressively dropping interest rates, many lenders are worried that the Fed will be forced to raise rates back up. As interest rates rise, so do mortgage rates. According to a press release on freddiemac.com, Frank Nothaft, Freddie Mac vice president and chief economist said that, “Mortgage rates jumped this week after a number of Federal Reserve officials, most notably Chairman [Ben] Bernanke and Vice Chair [Donald] Kohn, expressed concern over a threat of inflation.” We may very well be seeing the beginning of the end of the super-low mortgage and potential buyers may realize that with rising rates, now may be the time to jump in. Nothaft added, “Moreover, pending home sales for April unexpectedly rose by 6.3% and mortgage applications for home purchases … were also up last week.”

There is a growing sense that the worst of the credit crunch may be behind us. And despite a tamer-than-expected reading for April, inflation is still very much a concern for many Americans.

So with that in mind, could the Federal Reserve be forced to raise interest rates before the end of the year….even in the midst of the presidential race?

The Fed has historically been reluctant to make significant policy moves in the months leading up to the election.

The market now seems to think that Fed chair Ben Bernanke may take action just a few days before Election Day on Nov. 4.

According to futures listed on the Chicago Board of Trade, investors are currently pricing in a 56% chance that the Fed will raise its benchmark federal funds rate by a quarter of a point, to 2.25%, at the conclusion of a two-day meeting on Oct. 29. Traders widely expect the Fed to keep rates at 2% at meetings in June, August and September.

There have been calls for the Fed to, at the very least, leave rates alone for the foreseeable future. Critics of the Fed have maintained that a relatively low federal funds rate, an overnight bank lending rate that affects how much interest many consumers and businesses pay on loans, has weakened the dollar and helped fuel the boom in commodity prices.

What do you Think?

Fed steps in and cuts again
Bernanke pulls out all the stops to ailing economyThe Federal Reserve significantly cut rates for the sixth straight time since September, this time cutting 75 basis points. This follows a busy weekend where the Fed also extended its hand to Wall Street, bailing out Bear Stearns with JP Morgan Chase. While rate cuts look good at face value, you need to prepare for what’s to come.

Why did they do this?
The Fed wants you to start spending money and wants to boost consumer and Wall Street confidence. Consumers are under stress with increasing consumer prices and a slowing housing market. Wall Street banks have been under stress from mortgage defaults and their impact on corporate balance sheets.

How does this impact you?
Fed rate cuts are inflationary. Since the Fed started cutting rates in September of last year, oil prices are up nearly 40%, gold prices are up over 25%. This is the direct result of a falling dollar which occurs from Fed rate cuts.

As a result, mortgage rates will ultimately rise from here. It is inevitable. Inflation is the arch enemy of fixed-income investments, long-term bonds and mortgage-backed securities, upon which mortgage rates are based.

Here’s a look at the inflation picture: Gas prices last September, prior to the Fed’s current cutting trend, were roughly $2.75 a gallon. Today, gasoline averages $3.25 a gallon nationally, up 18% before the first rate cut. This is a sign of inflation.

What should you do now?
If you are looking to refinance, don’t wait. Act now to get a great interest rate. Home loan rates have come down over 1.00% in the last two weeks. But after each of the last five rate cuts, we have seen rates rise significantly in a short period of time. Don’t get caught saying “I wish I had…”

If you are looking to purchase a home, I want to hear from you right away. Home prices have to fall over 10% to make back what you lose in monthly housing payments if rates increase 1.00%. There are some great buys out there today!

Next step
Pick up the phone and call me. 407-580-7011 You owe it to yourself. I will review your situation and let you know what I can do to put some money in your pocket. If you wait, it could cost you thousands of dollars. I look forward to hearing from you. YES IT”S TIME TO BUY…..NOW!

Forty year mortgages can reduce your monthly mortgage payment, but is that enough to offset the extra cost of tacking 10 more years onto the conventional 30-year mortgage?

The question is probably too simplistic, says Dan Green, a mortgage planning specialist at Mobium Mortgage in Chicago.

He says loan products like the 40-year mortgage are deemed risky because they are viewed in a vacuum, without considering the needs of the individual borrower or without comparing their benefits with other mortgages.

“It’s not the loan that is risky, it’s the behavior of the person paying the loan,” is the advice he offers in his treatise on home loans longer than 30 years.

The draw of a 40-year mortgage is its relatively lower payment — compared to a 30-year loan — due to stretching out the amortization schedule over a longer period of time.

That could be attractive to those in high-cost housing areas, those who can’t qualify for a 30-year mortgage payment or for those who want to qualify for a larger home. Longer term loans are also beneficial for people who don’t plan on moving for a long time.

But here’s the rub, not only will you pay more over the life of the loan for a 40-year mortgage, the higher interest rate on a 40-year mortgage bites into some of the expected monthly savings.

According to LendingTree.com the rate on a 40 year mortgage could be 0.25 percent to 0.375 percent higher than the rate on a 30.

So let’s do the math on a $250,000 mortgage, at 6 percent for a 30 year mortgage and 6.25 percent for the 40, using Nolo.com’s “How much will my fixed rate mortgage payment be?” calculator.

The interest and principal payment on the 30-year loan would be $1,498.88 with a total of $539,593.37 paid over the life of the loan.

For the 40-year mortgage, the payment would be, $1,419.35 with a total of $681,285.85 paid over the life of the loan.

That’s less than $100 savings each month in exchange for more than $140,000 in extra cost over the life of the loan.

Also consider the fact that the principal is not paid down on a 40 as fast as it is on a 30, toss in a market with flat or falling home values and homeowners with a 40 year mortgage could really feel a pinch instead of relief.

Or so the theory goes.

“These arguments are all based on a single tenet — that paying down a principal balance is a good thing. That’s not always true,” says Green.

Green says the more a homeowner invests in the home, the smaller the return because the cash-in investment isn’t generating the return. It’s the home’s value that grows — market permitting.

The 40-year mortgage behaves somewhat like a no- or low-down mortgage in terms of using more leverage and leverage is the tool investors use to play the game, for good reason.

You get the same level of market-based equity growth with a 30-year, 40-year or even 15-year mortgage. With a 40-year mortgage it’s just that you get that equity growth at a smaller monthly cost. Greater leverage.

Most people move or refinance within five to seven years and the low monthly payment could work from them in the right market. Given home equity growth historically shows up during a 10 year housing cycle, but not for the entire cycle, timing is important.

The 40-year mortgage can be a good fit if for those at an early stage in their career. It can allow them buy a home they might not otherwise be able to afford. Later during the next equity-growth cycle they can sell and buy anew sell or refinance with the next appropriate financing tool.

A 40-year mortgage can also be advantageous for high-income earners whose mortgage interest payments may be their only large income tax deduction. And it can be used by vacation rental owners to reduce carrying costs.

Other mortgages can perform the same high-leverage trick, provided you can qualify for them, provided they are a risk-fit for your financial status and planning and provided the market cooperates.

The key, says Green, is running all the numbers, both the cost-comparisons of mortgages along with your financial goals, planned tenure in the home and lifestyle.

“New loan products like the 40-year mortgage are not dangerous to everyone. They are only dangerous to homeowners who operate without a financial plan,” says Green.

WASHINGTON — Federal Reserve Chairman Ben Bernanke Wednesday delivered an economic forecast fraught with risks from housing, labor and credit markets, suggesting policymakers remain on track to lower interest rates further next month.

Meanwhile, Mr. Bernanke indicated that inflation risks are more two-sided, though skewed slightly to the high side — a nod to the stagflationary mix of weak growth and rising price data of late.

But Mr. Bernanke made it clear where the Fed’s main worries lie. “It is important to recognize that downside risks to growth remain,” Mr. Bernanke told members of the House Financial Services Committee.

http://online.wsj.com/article/SB120412412525296845.html?mod=hpp_us_whats_news

About the author:

Jerry LaRose is an Orlando Area Residential Real Estate Expert, who can assist you with the purchase and/or sale of real estate in Orlando, Windermere, Winter Garden Florida or any place in the country. Jerry has created a team of professionals throughout Orlando and the country to ensure that you enjoy a smooth transition to your new area. Please visit http://www.jerrysellsorlando.com/ for your real estate needs. Please give me a call if you have questions about the Orlando and Central Florida real estate market.

Jerry LaRose, P.A., ABR, GRI, e-PRO, CLHMS, REALTOR® 407-580-7011

(Copyright © 2008 By Jerry LaRose, P.A. All Rights Reserved.)

With the Federal Reserve cutting the interest rate by three-quarters of a point on Tuesday and possibly another half a point shortly, as predicted, do you feel that this is a little bit too late or do you think this will have a significant effect on the economy and the predicted foreclosures?The cut in in the interest rate was designed to help in response to all the coverage on a recession which is being promoted as having a 50% chance of happening.

1. Do you think that there is a 50% chance for a recession?
2. Do you think we are already in a recession?

Let’s just refresh what recession is:

Per Wikipedia: negative economic growth for 2 or more successive quarters in a year. A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits.

and an interesting note:

There is much debate, sometimes ideologically motivated, as to whether government intervention smoothes the cycle, exaggerates it, or even creates it.

Do I think that by lowering the interest rate this will have an effect on all of the foreclosures? Yes, some. Obviously, not those already involved in the foreclosure process. Other homeowners who have adjustable rate mortgages or sub-prime  loans will now have lower payments. 

Some homeowners with those lower payments will now be able to afford their house payments and others unfortunately will not.

What this definitely, without question confirms, is that it is one of the BEST times to buy a home and/or investment property while interest rates are down and possibly going down another 1/2 point. This makes mortgage payments less which translates to a better deal for the home buyer or investor.

Now, how many times have you heard this? It’s true and for those lucky enough to jump on the bandwagon, it’s going to be a nice ride with no bumps.

If you have an equity line of credit, at 6.0% or more, definitely refinance. Anytime, there is a 1% interest rate difference in what you currently have and what is being offered on a FIXED INTEREST RATE, you should jump on it.

Just make sure that you are with a reputable Mortgage Lender. If you need a referral just give me a call. And no, I don’t make any money for the referral for those who wonder, I just get happy, well educated clients that have good loans. Love that!

Let me know your thoughts on the recession. The debate should be interesting.

AND

Do you think the Feds are a day late and a dollar short to this party?

And of course if you would like help with you   Real Estate Questions please feel free to give me a call 407-580-7011

Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 5.48 percent with an average 0.4 point for the week ending January 24, 2008, down from last week when it averaged 5.69 percent as well. Last year at this time, the 30-year FRM averaged 6.25 percent. The 30-year FRM has not been lower since the week ending March 25, 2004 when it averaged 5.40 percent.

The 15-year FRM this week averaged 4.95 percent with an average 0.4 point, down from last week when it averaged 5.21 percent. A year ago at this time, the 15-year FRM averaged 5.98 percent. The 15-year FRM has not been lower since the week ending April 1, when it averaged 4.84 percent.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.13 percent this week, with an average 0.4 point, down from last week when it averaged 5.40 percent. A year ago, the 5-year ARM averaged 6.00 percent. The 5-year ARM has not been lower since June 30, 2005, when it averaged 5.06 percent.

One-year Treasury-indexed ARMs averaged 4.99 percent this week with an average 0.6 point, down from last week when it was 5.26 percent. At this time last year, the 1-year ARM averaged 5.49 percent. The 1-year ARM has not been lower since October 27, 2005, when it averaged 4.91 percent.

“Economic news released last week confirmed the weak condition of the housing market. Housing starts fell further in December to 1.006 million units, the slowest pace since May 1991,” said Frank Nothaft, Freddie Mac vice president and chief economist. “For the year as a whole, housing starts dropped nearly 25 percent, from 2006’s level. This was the largest annual decline since 1980. New permits issued also fell to the lowest level since March 1993

The Fed expects banks to reduce the interest they charge their customers.

Q: Why did the Federal Reserve lower interest rates?A: The federal funds rate is the interest that banks charge one another for overnight loans. When the Fed raises its target for that rate — the rate itself is actually set each day by the open market — it tends to slow the economy, because everyone’s money costs more to borrow. When the Fed lowers its target rate, it has the opposite effect. So by cutting the cost of the money banks borrow from each other, the Fed expects the banks to reduce the interest they charge their customers, who in turn can spend or invest the savings, which should stimulate the economy.Q: Will the rate cut lower the cost of a mortgage?

The interest on fixed-rate mortgages is tied to long-term financial instruments, and the federal funds rate is applied to overnight loans between banks — about as short-term as you can get. So Tuesday’s drop in the fed funds rate is unlikely to affect those kind of mortgages anytime soon. But adjustable-rate mortgages are generally tied to shorter-term interest rates, such as the one-year Treasury bill. So if you’re currently making payments on an adjustable-rate loan and it’s coming up for its periodic adjustment, or “reset,” the rate should fall and your monthly payments should shrink.Q: Will credit-card interest rates fall?A: Although the interest consumers pay on credit-card balances and most other revolving debt isn’t tied directly to the federal funds rate, there is an indirect effect when that key rate changes. So credit-card balances, auto loans and other unsecured loan rates could fall somewhat. Credit cards with variable interest rates are tied to banks’ “prime rate” — what they charge their best commercial-loan customers — and that rate generally moves in tandem with the Fed’s target for the federal funds rate. So if you’re using such a card, the annual percentage rate you pay on any balance is likely to shrink. But remember: Your credit score remains a significant factor in determining your card’s APR, so the extent to which a cardholder might benefit from the Fed’s action will vary from person to person.