During the last decade, Adjustable Rate Mortgages (ARMs) have increased in popularity among consumers. These days, few homeowners (especially first-time buyers) remain in their homes for more than seven years. In this case, it often makes sense to get an adjustable rate mortgage with a lower rate, especially one with a 5-year or 7-year fixed portion, since they won't have the loan long enough to be concerned about rate fluctuation.
Adjustable Rate Mortgages have three main features: Margin, Index, and Caps. The Margin is the fixed portion of the adjustable rate. It remains the same for the duration of the loan. The Index is the variable portion. This is what makes an ARM adjustable. Margin + Index = Interest Rate.
It's important to understand that there are many different indices: The 11th District Cost of Funds (COFI), the Monthly Treasury Average (MTA), The One Year Treasury Bill, the Six Month Libor, etc. Each index has its own strengths and weaknesses; some are slow moving, others are more aggressive.
The third and final component of Adjustable Rate Mortgages is Caps. Caps limit how much the rate can fluctuate over time. Annual Caps limit changes to the annual rate, whereas Life Caps provide a worst case scenario over the life of the loan.
Thursday, May 11, 2006
Wednesday, May 10, 2006
Survey: Younger Generations Spend More on Housing
(May 10, 2006) -- A recent survey of home buyers in three generations — Gen Y (those born between 1979 and 1994), Gen X (born between 1978 and 1965), and baby boomers (born between 1946 and 1965) — show that Gen X and Gen Y are outspending boomers in their first home purchase.
Both of the younger generations also devote a larger portion of their salaries to housing costs, according to the survey, conducted by Century 21 Real Estate. The goal of the survey was to understand and compare the experiences of the first-home purchase among members of three different generations.
Unlike boomers who purchased their first homes in response to life events such as a marriage or birth, financial incentives motivate both Gen X and Gen Y buyers with investment value cited as the “key driver” by the Century 21 survey with 42 percent of Gen X respondents and 39 percent of Gen Y respondents citing a “safe investment” as the reason for purchase.
A similar business-like approach is applied to the home search and purchase. “These guys don’t get caught up in the process. They’re very bottom-line oriented and results oriented,” says John Tuccillo, former NAR chief economist and principal of John Tuccillo Associates, an economics and business consulting firm in Virginia.
“Don’t expect them to fall in love with the property,” he cautions. “What matters is whether the house works for them and whether it’s a good deal.”
“Real estate professionals shouldn’t only get to know this group, they should also begin to look at their own materials, particularly Web sites, from the perspective of this demographic,” Tuccillo says.
A higher proportion of younger buyers use the Internet. For Gen Y it ranked as the primary source of home shopping information according to the survey. Experts such as Tuccillo and Melody Bohrer, vice president for education for ERA Real Estate say that being able to remain anonymous while they gather information is a top criterion for younger buyers.
Less relationship oriented than boomers, younger buyers are also more likely than boomers to say “next” if a salesperson doesn’t meet their expectations. However, Bohrer says, “They will be loyal if you work the way they want.”
— By Camilla McLaughlin for REALTOR® Magazine Online
Both of the younger generations also devote a larger portion of their salaries to housing costs, according to the survey, conducted by Century 21 Real Estate. The goal of the survey was to understand and compare the experiences of the first-home purchase among members of three different generations.
Unlike boomers who purchased their first homes in response to life events such as a marriage or birth, financial incentives motivate both Gen X and Gen Y buyers with investment value cited as the “key driver” by the Century 21 survey with 42 percent of Gen X respondents and 39 percent of Gen Y respondents citing a “safe investment” as the reason for purchase.
A similar business-like approach is applied to the home search and purchase. “These guys don’t get caught up in the process. They’re very bottom-line oriented and results oriented,” says John Tuccillo, former NAR chief economist and principal of John Tuccillo Associates, an economics and business consulting firm in Virginia.
“Don’t expect them to fall in love with the property,” he cautions. “What matters is whether the house works for them and whether it’s a good deal.”
“Real estate professionals shouldn’t only get to know this group, they should also begin to look at their own materials, particularly Web sites, from the perspective of this demographic,” Tuccillo says.
A higher proportion of younger buyers use the Internet. For Gen Y it ranked as the primary source of home shopping information according to the survey. Experts such as Tuccillo and Melody Bohrer, vice president for education for ERA Real Estate say that being able to remain anonymous while they gather information is a top criterion for younger buyers.
Less relationship oriented than boomers, younger buyers are also more likely than boomers to say “next” if a salesperson doesn’t meet their expectations. However, Bohrer says, “They will be loyal if you work the way they want.”
— By Camilla McLaughlin for REALTOR® Magazine Online
Tuesday, May 09, 2006
Housing Takes Breather, But Strong Year Still Expected
May 9, 2006) -- The housing market is settling but should experience its third-best year in 2006, with job creation and a growing economy offsetting some of the effects of rising interest rates, according to the NATIONAL ASSOCIATION OF REALTORS®.
David Lereah, NAR’s chief economist, says the market is adjusting to higher mortgage interest rates. “Coming off a prolonged period of record sales, housing is taking something of a breather this year,” he says. “Even so, interest rates remain historically low, we’ve added about 2 million jobs over the last 12 months and the economy continues to grow – that will sustain healthy levels of home sales in 2006, but they’ll stay below the peaks experienced during the last two years.”
Lereah forecasts the 30-year fixed-rate mortgage to rise to 7.0 percent this summer and hold at that level during the second half of the year. The unemployment rate is expected to average 4.7 percent, compared with 5.1 percent in 2005, while growth in the U.S. gross domestic product is seen at 3.5 percent in 2006, the same as last year.
Existing-home sales are likely to fall 6.4 percent to 6.62 million in 2006 from a record 7.08 million last year. New-home sales are projected to drop 11.6 percent to 1.13 million from last year’s record of 1.28 million. Housing starts should decline 3.7 percent to 1.99 million this year compared with 2.07 million in 2005.
NAR President Thomas M. Stevens from Vienna, Va., says home prices are returning to normal patterns.
“Since the supply of homes on the market has improved to roughly balanced levels, overall home price appreciation has cooled to single-digit rates,” says Stevens, senior vice president of NRT Inc. “Most of the country is now entering a period of equilibrium in the housing market, which is good for the long-term health of the sector. Owners in most areas can now expect steadier and more normal rates of return on their housing investment.”
The national median existing-home price for all housing types is expected to rise 5.7 percent this year to $232,200, while the median new-home price is forecast to increase 2.2 percent to $242,500.
Inflation as measured by the Consumer Price Index is projected at 3.4 percent in 2006. Inflation-adjusted disposable personal income is likely to grow 3.4 percent this year.
—NAR
David Lereah, NAR’s chief economist, says the market is adjusting to higher mortgage interest rates. “Coming off a prolonged period of record sales, housing is taking something of a breather this year,” he says. “Even so, interest rates remain historically low, we’ve added about 2 million jobs over the last 12 months and the economy continues to grow – that will sustain healthy levels of home sales in 2006, but they’ll stay below the peaks experienced during the last two years.”
Lereah forecasts the 30-year fixed-rate mortgage to rise to 7.0 percent this summer and hold at that level during the second half of the year. The unemployment rate is expected to average 4.7 percent, compared with 5.1 percent in 2005, while growth in the U.S. gross domestic product is seen at 3.5 percent in 2006, the same as last year.
Existing-home sales are likely to fall 6.4 percent to 6.62 million in 2006 from a record 7.08 million last year. New-home sales are projected to drop 11.6 percent to 1.13 million from last year’s record of 1.28 million. Housing starts should decline 3.7 percent to 1.99 million this year compared with 2.07 million in 2005.
NAR President Thomas M. Stevens from Vienna, Va., says home prices are returning to normal patterns.
“Since the supply of homes on the market has improved to roughly balanced levels, overall home price appreciation has cooled to single-digit rates,” says Stevens, senior vice president of NRT Inc. “Most of the country is now entering a period of equilibrium in the housing market, which is good for the long-term health of the sector. Owners in most areas can now expect steadier and more normal rates of return on their housing investment.”
The national median existing-home price for all housing types is expected to rise 5.7 percent this year to $232,200, while the median new-home price is forecast to increase 2.2 percent to $242,500.
Inflation as measured by the Consumer Price Index is projected at 3.4 percent in 2006. Inflation-adjusted disposable personal income is likely to grow 3.4 percent this year.
—NAR
Monday, May 08, 2006
Housing market feeling cooler, but not chilly
The Bay Area housing market is showing signs of cooling alongside more significant slowing in once-hot markets like Phoenix.
Housing appreciation in the Bay Area dropped below double-digit figures for the first time in more than two-years in February, according to DataQuick Information Systems.
The median-home price rose 9.6 percent to $763,000, the research firm said.
"We're in a definite market cycle. The market is adjusting right now," said Ed Krafchow, president and co-owner of Prudential California, Nevada and Texas Realty. "We're not in a buyer's market. We're in a buyer's sympathetic market."
But any sympathy cards might have to be directed to sellers who have enjoyed rapid appreciation in recent years.
"We expect the pace of price appreciation to slow from the 13 to 17 percent range of 2005 to 10 percent this year as rising inventory levels mitigate some of the upward pressure on home prices," said Leslie Appleton-Young, chief economist for the California Association of Realtors. "Unsold inventory rose again in February to a 6.7-month supply, one of the highest inventory levels in several years."
That means it would take 6.7 months to sell all homes on the market at today's sales pace, and it has some worried the housing slowdown could be more painful that expected.
Plus, the CAR's forecast for 10 percent appreciation this year is a statewide average, with appreciation in the mid-single-digits for coastal regions like the Bay Area and greater than 10 percent appreciation in inland areas.
"This is a spotty market," said Prudential's Krafchow, who says he's weathered three or four real estate cycles over the course of his career. "There are pockets of real active areas, pockets with little activity and some with no activity at all."
He points to Oakland's popular Montclair neighborhood as an area where home sellers are still receiving multiple offers. But he cites Marin County as an area of concern -- despite anecdotal evidence suggesting that Marin is still doing well.
"A $4 million house is a discretionary purchase," Krafchow said.
That point is echoed by others.
"The activity where there's more discretion in the buying decision seems to be much more slower," said Paul Zeger, president of San Francisco-based Pacific Marketing Associates.
Real estate agents also are seeing more buyers sit on their hands as long-term interest rates have begun to move higher in recent weeks.
Home builders are moving aggressively to unload inventory since they have to pay carrying costs for unsold properties.
Centex Homes sparked a buzz in January with its advertisements touting price reductions of up to $100,000 for new homes in San Ramon and other Northern California cities. Now price reductions on new construction are a common feature of the Sunday real estate ads.
Outright price reductions -- rather than help with closing costs or throwing in free upgrades -- raises the concern that comparable sales will begin to fall, making it difficult for other buyers in the market to secure financing especially in a rising-rate environment.
"The attitude has changed," Zeger said of sellers. "It has turned very much to, 'What can I do to help you?'
"Everyone is offering an incentive," Zeger said, noting some condo sellers are offering a $10,000 credit that can be used for closing costs or other purposes to get a buyer into a new condo.
While San Francisco appears to be an epicenter of condo conversions, Zeger sees the East Bay at greater risk.
"The place that's probably the biggest risk right now is the San Ramon Valley, which has about 4,000 units that have been put into the conversion pipeline," Zeger said.
But Wells Fargo CEO Dick Kovacevich told shareholders at the bank's annual meeting April 25 that he's not worried about a national housing bubble because of the local nature of housing sales.
"There hasn't been a 'national' housing market since the Great Depression," Kovacevich said.
Mark Calvey covers banking and finance and Ryan Tate covers East Bay real estate for the San Francisco Business Times.
Housing appreciation in the Bay Area dropped below double-digit figures for the first time in more than two-years in February, according to DataQuick Information Systems.
The median-home price rose 9.6 percent to $763,000, the research firm said.
"We're in a definite market cycle. The market is adjusting right now," said Ed Krafchow, president and co-owner of Prudential California, Nevada and Texas Realty. "We're not in a buyer's market. We're in a buyer's sympathetic market."
But any sympathy cards might have to be directed to sellers who have enjoyed rapid appreciation in recent years.
"We expect the pace of price appreciation to slow from the 13 to 17 percent range of 2005 to 10 percent this year as rising inventory levels mitigate some of the upward pressure on home prices," said Leslie Appleton-Young, chief economist for the California Association of Realtors. "Unsold inventory rose again in February to a 6.7-month supply, one of the highest inventory levels in several years."
That means it would take 6.7 months to sell all homes on the market at today's sales pace, and it has some worried the housing slowdown could be more painful that expected.
Plus, the CAR's forecast for 10 percent appreciation this year is a statewide average, with appreciation in the mid-single-digits for coastal regions like the Bay Area and greater than 10 percent appreciation in inland areas.
"This is a spotty market," said Prudential's Krafchow, who says he's weathered three or four real estate cycles over the course of his career. "There are pockets of real active areas, pockets with little activity and some with no activity at all."
He points to Oakland's popular Montclair neighborhood as an area where home sellers are still receiving multiple offers. But he cites Marin County as an area of concern -- despite anecdotal evidence suggesting that Marin is still doing well.
"A $4 million house is a discretionary purchase," Krafchow said.
That point is echoed by others.
"The activity where there's more discretion in the buying decision seems to be much more slower," said Paul Zeger, president of San Francisco-based Pacific Marketing Associates.
Real estate agents also are seeing more buyers sit on their hands as long-term interest rates have begun to move higher in recent weeks.
Home builders are moving aggressively to unload inventory since they have to pay carrying costs for unsold properties.
Centex Homes sparked a buzz in January with its advertisements touting price reductions of up to $100,000 for new homes in San Ramon and other Northern California cities. Now price reductions on new construction are a common feature of the Sunday real estate ads.
Outright price reductions -- rather than help with closing costs or throwing in free upgrades -- raises the concern that comparable sales will begin to fall, making it difficult for other buyers in the market to secure financing especially in a rising-rate environment.
"The attitude has changed," Zeger said of sellers. "It has turned very much to, 'What can I do to help you?'
"Everyone is offering an incentive," Zeger said, noting some condo sellers are offering a $10,000 credit that can be used for closing costs or other purposes to get a buyer into a new condo.
While San Francisco appears to be an epicenter of condo conversions, Zeger sees the East Bay at greater risk.
"The place that's probably the biggest risk right now is the San Ramon Valley, which has about 4,000 units that have been put into the conversion pipeline," Zeger said.
But Wells Fargo CEO Dick Kovacevich told shareholders at the bank's annual meeting April 25 that he's not worried about a national housing bubble because of the local nature of housing sales.
"There hasn't been a 'national' housing market since the Great Depression," Kovacevich said.
Mark Calvey covers banking and finance and Ryan Tate covers East Bay real estate for the San Francisco Business Times.
California foreclosure activity up
First-quarter foreclosure activity throughout the Bay Area and all of California rose to its highest level in more than two years as home price increases slowed, according to a report released May 2.
DataQuick Information Systems reported that 2,583 notices of default were filed in the nine-county region, an 8.3 percent increase over the same period last year and an almost 13 percent increase over the fourth quarter of 2005.
In Santa Clara County, there were 527 notices of default, a 5.4 percent increase over the year-ago period.
In Monterey County there were 129 notices, a 63.3 percent increase.
In San Mateo County, there were 186 notices -- one of the few places that saw a drop. In the year-ago period there were 188 notices.
Marshall Prentice, DataQuick president, said a number of factors are driving defaults higher. "Home values are rising more slowly than they have the past couple of years, which makes it more difficult for homeowners to sell their homes and pay off the lender."
The median first-quarter default amount on a primary mortgage was $9,220 on a loan of $280,000. On second mortgages and lines of credit, the median amount owed was $3,386 on a loan of $56,760.
In Southern California, the default rates for the quarter were much higher, with a 33 percent jump to 11,102 notices.
DataQuick, a subsidiary of Vancouver, B.C.-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide.
DataQuick Information Systems reported that 2,583 notices of default were filed in the nine-county region, an 8.3 percent increase over the same period last year and an almost 13 percent increase over the fourth quarter of 2005.
In Santa Clara County, there were 527 notices of default, a 5.4 percent increase over the year-ago period.
In Monterey County there were 129 notices, a 63.3 percent increase.
In San Mateo County, there were 186 notices -- one of the few places that saw a drop. In the year-ago period there were 188 notices.
Marshall Prentice, DataQuick president, said a number of factors are driving defaults higher. "Home values are rising more slowly than they have the past couple of years, which makes it more difficult for homeowners to sell their homes and pay off the lender."
The median first-quarter default amount on a primary mortgage was $9,220 on a loan of $280,000. On second mortgages and lines of credit, the median amount owed was $3,386 on a loan of $56,760.
In Southern California, the default rates for the quarter were much higher, with a 33 percent jump to 11,102 notices.
DataQuick, a subsidiary of Vancouver, B.C.-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide.
Thursday, May 04, 2006
What Constitutes Closing Costs?
Mortgage Rate Update
What Constitutes Closing Costs?
Closing costs are expenses that cover fees associated with the transfer of property ownership, fees paid to state and local governments, and the costs of obtaining a mortgage loan. Some of these fees are negotiable, and could be paid by either the buyer or the seller. Some costs are one-time fees (non-recurring closing costs, such as title search, termite inspection, appraisal, etc.); while other fees such as homeowner's insurance or property taxes are things you will expect to continue to pay on a regular basis as a homeowner.
As part of the loan selection process, your mortgage consultant should be giving you some idea of how much money you should have in reserve to cover your end of these costs. The Real Estate Settlement Procedures Act (RESPA) requires the lender to provide you with a Good Faith Estimate within three days of the submission of your loan application.
RESPA also states that as a home buyer, you have the legal right to request a copy of the HUD-1 Settlement Statement 24 hours before your closing is scheduled. The HUD-1 clearly defines all closing costs, including those that are to be paid by the buyer and the seller. It's a good idea to have both of these forms before your closing transaction.
What Constitutes Closing Costs?
Closing costs are expenses that cover fees associated with the transfer of property ownership, fees paid to state and local governments, and the costs of obtaining a mortgage loan. Some of these fees are negotiable, and could be paid by either the buyer or the seller. Some costs are one-time fees (non-recurring closing costs, such as title search, termite inspection, appraisal, etc.); while other fees such as homeowner's insurance or property taxes are things you will expect to continue to pay on a regular basis as a homeowner.
As part of the loan selection process, your mortgage consultant should be giving you some idea of how much money you should have in reserve to cover your end of these costs. The Real Estate Settlement Procedures Act (RESPA) requires the lender to provide you with a Good Faith Estimate within three days of the submission of your loan application.
RESPA also states that as a home buyer, you have the legal right to request a copy of the HUD-1 Settlement Statement 24 hours before your closing is scheduled. The HUD-1 clearly defines all closing costs, including those that are to be paid by the buyer and the seller. It's a good idea to have both of these forms before your closing transaction.
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