Million Dollar Homes at Bargain Prices

Now could be a great time to buy a million dollar home in a nice area at a bargain price.

Forbes magazine has identified Rancho Santa Fe, Calif., Marco Island, Fla., Castle Rock, Colo., Annandale, Va., and Bergen County, N.J., as five high-end areas where million dollar foreclosures abound.

Traditionally good borrowers with strong credit scores previously purchased a lot of these homes. In many cases, the foreclosure has come about because the homes are now worth significantly less than the inflated prices the owners originally paid. The homes have sunk into negative equity situations and the previous owners don’t want to make the payments, so they walk away, says Wendell Cox, founder of Demographia, a housing research company.

But foreclosures are not all bad news for the high-end real estate market. Nelson Gonzalez, a practitioner with Esslinger-Wooten-Maxwell, specializing in Miami Beach, says that the rash of foreclosures in Florida, which has the second-highest foreclosure rate in the country, has driven interest from out-of-town and foreign buyers looking to snag a deal.

"They think that every house in Florida is in foreclosure," he says. "The offers we're getting are fairly decent, but the sellers are not coming down yet."

Source: Forbes, Matt Woolsey (03/13/08)

Fed’s Bold Move Building Confidence

Liquidity, easy credit and steadiness are the main factors that the market was missing these last couple of quarters.

The Fed and the government are trying their best to bring investor confidence back by establishing different programs to lend money to investment banks and securities dealers, and by periodically slashing the Fed Funds rate and Discount Rate. That’s why the first half of the short week was completely dominated by news from the Fed. It started with an emergency move on Monday morning to cut the Discount Rate from 3.5% to 3.25%. In addition, the Fed established the Prime Dealer Credit Facility so that primary securities dealers can directly borrow money from the Fed and set up a $30 billion line of credit to assist JP Morgan. On Tuesday, The Federal Reserve cut its Fed Funds rate by three quarters, from 3% to 2.25%, and the Discount rate again by three quarters, from 3.25% to 2.50%. Investors have shown their support for the Fed’s move and both stocks and the Dollar rallied in response.

Why Fed Rate Cuts Do Not Equal Lower Mortgage Rates

I have had several clients of mine call me whenever the Fed lowers rates, only resulting in me being the "bearer of bad news" when I tell them that rates actually went up as a result of the Federal Reserve cutting rates. Here is an great explanation as to why this is...

The Federal Reserve has been on a rate cutting spree once more. Many mortgage applicants are calling their mortgage representative and expecting a lower interest rate. Others who have been waiting to refinance are puzzled as to why mortgage rates have not moved lower during the recent five Fed rate cuts. This is difficult to explain to consumers who have watched a 2.25% reduction by the Fed with very little benefit in mortgage rates.

Is a Fed rate cut really good news for mortgage rates? The facts may be surprising. The Fed can only control the Discount Rate and the Fed Funds Rate. This is very different from mortgage rates. A mortgage rate can be in effect for 30-years while a rate set by the Fed can change from one day to another.

It is often said history repeats itself. And if history is any teacher, we can learn from what happened to mortgage rates the last time the Federal Reserve was in a rate-cutting cycle.

The last time the Fed was in a lengthy rate cutting cycle was back in 2001 from January 3, 2001 to December 11, 2001. In the span of 11 months, they cut the Fed Funds rate 11 times with eight of those cuts by 50bp. This resulted in a total of 475bp or 4.75% in short-term interest rate cuts taking the Fed Funds Rate from 6.00% down to 1.75%. Now most uninformed people would naturally think because the Fed cut rates by so much during this time that mortgage rates would follow suit and trend lower as well. Not so. Mortgage rates actually moved higher during this time of significant rate cuts because inflation, the arch enemy of bonds, gradually rose.

Now let’s take a look at what happened with the Fed’s most recent cutting cycle, the first since 2001. On September 18, 2007 the Fed cut the Fed Funds Rate by 50bp. The mortgage bond market briefly enjoyed a “knee-jerk” reaction to the Fed move by closing higher that day, but lost 140bp over the following two sessions. Then on October 31, 2007 the Fed lowered the Fed Funds rate by 25bp. The mortgage bond market responded by losing 78bp over the following five trading days. On December 11, 2007 the Fed once again lowered rates by 25bp and the mortgage bond market lost 88bp in the next three days. So far this year, the Fed delivered a surprise 75bp rate cut on January 22, 2008 and mortgage bonds lost a whopping 144bp in just 2 days. Eight days later and as widely expected, the Fed cut rates by 50bp. Within 13 days from that 50bp cut, mortgage bonds lost 269bp.

Please refer to the Table below.

Fed Rate Cut Date Rate Cut Size Mortgage Bonds Pricing Change 09/18/2007 50bp -140bp in 2 days 10/31/2007 25bp -78bp in 5 days 12/11/2007 25bp -88bp in 3 days 01/22/2008 75bp -144bp in 2 days 01/30/2008 50bp -269bp in 13 days

What the Federal Rate Cut Means for Homeowners

The Federal Reserve’s rate cuts aren’t doing much to lower mortgage rate for new buyers, but they could help holders of existing adjustable rate mortgages.

Rates on home-equity lines of credit, credit cards and auto loans have all dropped. In addition, millions of homeowners won't face higher rates as their adjustable-rate mortgages reset.

Applicants for new mortgage are likely to continue to pay more. Mortgage rates typically follow the 10-year Treasury and have historically traded at about 1.8 percentage points above the 10-year Treasury yield. Those Treasurys currently yield about 3.451 percent. But investors, including pension funds, insurance companies and bond mutual funds, are demanding a greater premium these days for mortgages over less risky U.S. Treasurys.

The best advice for those seeking a mortgage: shop around. All mortgages aren’t priced alike, experts say.

Source: The Wall Street Journal, Jane J. Kim and Ruth Simon (03/19/2008)

Complete Article

FEDS CUT RATES BY .75%, WHICH PUTS PRIME AT 5.25%!!!

The Federal Reserve Board, slashed its key lending rate by 75 basis points Tuesday to jumpstart the sagging economy and boost confidence in the U.S. financial system.

The central bank's action, which drops the federal funds rate target down to 2.25% from 3% -- its lowest level since December 2004 - was the latest in a series of extraordinary moves by the Fed carried out in the last week against a background of turmoil and crisis.

The Fed said the size of the rate cut was enough to promote growth, but left the door open to future cuts. Wall Street had expected the central bank to cut rates by a full percentage point, which would have been the largest cut since 1982. .

"Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity," the Fed said.

Last Tuesday, the central bank announced a $200 billion loan program that would allow the nation's biggest banks to borrow Treasury securities and post mortgage-backed securities as collateral. The financing gave 20 top investment banks 28-day loans at what amounted to wholesale rates — at or slightly below the Fed's benchmark rate on overnight loans between banks.

Henry Paulson Jr., the Treasury secretary, vigorously endorsed the Fed's rescue efforts on Sunday and made it clear he was much less worried about the "moral hazard" of bailing out a Wall Street firm than he was about a chain reaction of defaults if Bear Stearns were to abruptly collapse.

"The right decision here, I am convinced, was the decision that the Fed made, which was to do things, work with market participants to minimize the disruptions," Paulson said on "This Week With George Stephanopoulos" on ABC.

Median prices of Valley homes are all over the map

Catherine Reagor and Ryan Konig
The Arizona Republic
Mar. 15, 2008 06:16 PM

The housing market's troubles are showing up in many neighborhood home prices, but not all.

The north-central Phoenix neighborhood ZIP code 85021, peppered with historic homes, posted a 16 percent increase in its median price during 2007.

• Condominium prices in the west Phoenix ZIP code 85037, which is at the junction of the Loop 101 and Interstate 10, climbed 21 percent. This area is also south of Glendale's sports stadium hub and the new Westgate shopping center.
• The central Ahwatukee ZIP code 85042 saw home prices climb 9 percent.

• None of the ZIP codes in Tempe, surrounded by other communities, fell by double digits. The median condo price in ZIP code 85281 climbed almost 11 percent.

• The median home price in the Mesa ZIP code 85207 climbed 17.7 percent, to $365,000.

• The median price in north Scottsdale's 85262 ZIP code, home to high-end golf developments, increased almost 7 percent, to $1.1 million.

"The bottom of the housing market may occur in 2008 or 2009, but a full recovery will probably take three to five years," said Elliott Pollack, an Arizona economist and real-estate investor. "This slowdown ends when housing prices stabilize."

Full Article

Housing Slump...Is NOW the time to make your move???

March 13, 2008

Tap Today's Housing Opportunity

Falling home prices spell opportunity for buyers, even if they already own a home and don’t want to be a landlord.

Here are three smart ways to invest in today’s housing market.

Trade up. Nows the time to buy a larger home in a better neighborhood at what will almost certainly be a good price. To be sure, buyers will have to sell their old home at a modest price. Still this could be an excellent time to improve quality of life at a bargain rate.

Buy a vacation home. Buyers, especially those who are a few years away from retirement, could find this is the perfect time to buy a place that will be more than a vacation home down the road.

Help offspring go from renters to owners. This is a great time to give the kids an advance on their eventual inheritance so they will have enough money for a down payment.

Source: The Wall Street Journal, Jonathan Clements (03/12/2008)

Link to complete article
http://www.realestatejournal.com/buysell/tactics/20080313-clements.html

Websites That Work...Add These 7 Features and Clients Will Take Notice!

Rise Above the Crowd

Lets face it, when it comes to websites consumers have so many choices in their head, it makes their head spin! Here is a great article from Realtor.org that outlays some modest changes to your website to separate you from the rest and drive more traffic to your site. They state that some real estate practitioners are earning more business and repeat customers as a result of using unique technology on their website.

Click below to take you to the link:
http://www.realtor.org/rmomag.NSF/pages/Feat1200803?OpenDocument

Good Luck!

Why Now is a Smart Time to Buy

March 11, 2008

Now is a great time to buy a home, say the financial gurus at the Wall Street Journal.

The Journal calls it a buyers market and offers these suggestions for first-timers getting their feet wet. While their advice is solid, it’s not revolutionary, but some potential customers might find it reassuring.

Remember this is a place to live not a stock market investment, they say. Lenders want buyers to spend no more than 28 percent of their gross monthly income on mortgage payments, real estate taxes, and home insurance. Buyers shouldn’t count on stretching further because lenders won’t approve their loans.

• Cash is king. Having enough money in the bank to pay closing costs that are typically an additional 2 percent to 3 percent of the price of the home is necessary.

• Location. Location, location. As any good real estate professional knows, homes in good school districts where the crime is low are much more likely to hold or increase their value.

• Compare. Besides just looking at the comps, buyers should examine what it would cost to rent a similar house in the same area and they might consider what it would cost to buy land and build a comparable home.

• Think long haul. It will probably take at least six or seven years of living in the house to be able to sell and come out ahead.

Source: The Wall Street Journal, Shelly Banjo (03/11/08)

Link to Full Article:

http://www.realestatejournal.com/buysell/tactics/20080311-banjo.html?mod=RSS_Real_Estate_Journal&rejrss=frontpage

Where Do We Go From Here???

March 11, 2008

Last week I attended two insightful meetings. One was put on by the Home Builders Association of Central Arizona (HBACA) and the other was put on by Fannie Mae.

Both of these groups said two things need to happen, we need to re-establish confidence in the market and in doing so, banks need to loosen guidelines. Let examine the first statement about confidence. As Real Estate Professionals need to be out there preaching the "good word" of the Real Estate market. I know I am preaching to the choir, but they said in order for the market to even BEGIN to make a comeback, we re-establish confidence in buyers to come out and buy. We need to be stressing that Interest rates are STILL LOW and home prices have fallen significantly! Until we get these messages out to the public, we aren't going to make a significance impact on the inventory we have on hand. Due to this excess inventory, sellers and builders alike are going to continue to cut prices until their homes start selling. However, they forewarned of the potential hazards of doing this. As builders cut prices, that may have a short term affect (3-5mos) in moving homes, the market will adjust to these lower prices and thus cause the market to contract further, the same goes with resale "fire sales."

In the Fannie Mae meeting, they echoed what the HBACA said in that until the banks have assurance that there is confidence in the market, big banks are going to continue to tighten the lending guidelines. I once heard Wayne Stutzer from RBC Dain Raucher state, what is happening with the banks and the Fed "is equivalent to driving a "stick shift" car going 60mph, then putting it into first gear. The car over revs and the wheels lock up." As a result, home sales "lock up" and since buyers complaining they can't qualify, "the engine roars." If you add to the mix, the rapid increase of foreclosures, banks seem to have painted themselves into a corner. For instance, in the month of January alone, there were over 5,300 Notices of Pending Foreclosures filed in Maricopa County! With this staggering number of foreclosures, NOW is a perfect time for people to be buying homes. If ever there was a "buyer's market" this is it! One thing that was constantly being repeated was that we need to "get back to basics" and to transition away from risky, aggressive loan programs. "Back to basics," includes doing more Full Doc, Fannie/Freddy/Gov't Loans. With the addition of the High LTV/Lender Paid MI programs like "My Community" programs plus an increase in FHA limits, we can now help buyers get into the home they REALLY want and better yet...can afford!

Here are some recommendations that were given:

SELLERS:

Know who the target market of your buyers and plan on selling below "fair market value." We need to stress to sellers, that if they want to sell their home they need to be realistic in price. As Real Estate professionals, we are cautioned not to cut prices too low that will have negative impact on market.

BUYERS:

Buyers, be a local player or at least partner up with someone who is local. Locals know the areas and how they can differentiate one block from the next and where area of growth are heading. With this in mind, I have seen a HUGE influx of Canadian investors! But be cautious, many banks have since gotten rid of their Non-Resident Alien programs, so this may be difficult to get them financing. I work with 3 banks that can still get these loans done.

THE REST OF US:

Keep head down and forge forward! Now is the time to be working "ON" our business, building vital relationships for when the market does return.

Keep costs down. With the uncertainty of business, now is the time to keep our expenses low and making sure we are getting the most out of our dollar.

Increase versatility. For those "cave dwellers" who have been order takers for the past few years, we need to get out of our comfort zones and be out meeting new people and being open to NEW business opportunities.

Know competition. See what others are doing. See what is working and what isn't. Success always leaves clues!

Network...Network...Network!!!

Lastly, get paid for your work! Make sure the things you are doing are making you money to cover your expenses. We need to make sure we don't fall victim to overloading ourselves in low paying, "busy" work.

Continued Success and Significance!

FHA Limits Raised in Pinal and Maricopa County

The new FHA Limit has increased in Maricopa County to $346,250.00 – Up from $263,150.00!!!

Remember on FHA:
* No minimum credit scores required
* 3% down payment
* Non occupant buyers are allowed
* Owner occupied multi family ok
* Down Payment Assistance Programs are STILL available
* Seller can pay 6% in borrower’s closing costs and prepaids

We have the 203 (k) FHA REPAIR PROGRAM (currently due to our declining market, our borrower’s would have to have a down payment of 8% but down payment assistance programs are available)

New limits are as follows:
One Family- $346,250
Two Family- $443,250
Three Family- $535,800
Four Family- $665,850

CNN - Declares it’s the Best Time to Buy in Four Years

Just a thought...Maybe we should start marketing homes the same way Dept. Stores market us...AND JUST MAYBE we will have the people coming out in the droves to buy homes!

Below is a link from CNN.com. They are now steering away from the "nay sayers" and are now saying "It may be the best time to buy a house in more than four years." They proceed to say that,

"Home values have declined across the country, giving homebuyers the best buys they've had since 2004."

I am excited that the media is now portraying some positive light rather than the "doom and gloom" it is always so eager to send out to the masses! Be sure to remind your clients who are ‘waiting for the bottom’ before jumping in, that they run the risk of missing out on the best deals... As my mom used to say, "The early bird gets the worm!"

Complete article:
CNN.com