What Do Rising Mortgage Rates Mean To Buyers?

We've all been hearing about a slow, steady rise in mortgage rates over the late spring and early summer of this year.  Mortgage rates have been at historically low levels for a long time now, and smart buyers and investors have taken advantage of this situation spurring a growth in real estate sales activity throughout the Tampa Bay area and the nation.

But with changes in the Federal Reserve's stimulus plans, mortgage rates have been working their way up for several months.  Today, these rates have advanced to somewhere in the neighborhood of 4% for a 30-year fixed mortgage.  That's higher than they have been in the past, but hardly earth-shattering.  Of course, this story is being written by a fellow who felt like he got bargain rate of only 8.5% on his first home purchase in the mid-1970's and has seen commercial mortgages reach 17% or more during the presidency of Jimmy Carter -- ah, the good ol' days!

Still, what do rising interest rates mean to today's home buyer?

Well, let's take a look.

Assume you are buying a home that will carry a $200,000 mortgage.  If you could have gotten a mortgage of 3.5% a few months ago, your monthly payment would have been $898.

But if you waited until now to buy that same house with a 4% mortgage, you would likely be paying about $954 per month.  That's an increase of $56 monthly for the next 30 years.  If you were to keep that house and pay off that mortgage, that extra 1/2-percent in mortgage interest would mean you paid an additional $20,160 for the property.

If you keep waiting until mortgage rates are at 4-1/2%, the monthly payment will increase to $1,014.  That's a monthly difference of $116 higher than the 3-1/2% rate some of your friends may have.  In the life of the mortgage, it means you will have paid an additional $41,760 for the house.

So here's my advice.  If you are going to buy real estate, lock in your rate now and buy as soon as you can.  In both the short run and the long run, it will save you money.

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So, Where Are All The Bargains?

Like every real estate agent, I am lucky enough from time to time to receive a call from someone wanting to purchase a property.  Quite often, these people tell me they are "looking for a real bargain".

That's perfectly understandable.

I like finding and buying a bargain, too!

But the new question has become, "where is all the bargain real estate these days"?

The answer to that is simple: it is disappearing.

The inventory of bargain-priced listed homes, especially lower priced short sales and foreclosures, is gradually being reduced in the national and local marketplace.  This is causing prices to increase.  In fact, if you are just starting to look for bargain real estate as an investment, well, you may be a year or so too late.

Don't believe me?

Well, perhaps you will believe real estate data provider Core Logic.

Core Logic has just released info showing that home prices have increased for 13 consecutive months nationwide.  The reason?  It appears that more and more buyers are bidding up prices on the limited supply of homes available for sale.  In other words, we have a market with high demand combined with low supply.  The result?  Rising prices.  That's good ol' Economics 101, just in case you need a quick refresher on that course.

Apparently prices have moved up in 46 states across the country.  If you delete short sales and foreclosures from the list of sold properties, prices have moved up in every state.  Why? Steady job growth and record low mortgage rates ... plus, I like to factor in pent-up demand for housing as the reasons for these sales increases.  In addition, investors and these new investment companies have entered the marketplace and are gobbling up properties to use as rental units and for future capital appreciation.  Investment companies are taking a lot of property out of the current inventory. 

To give you an idea of how low the inventory of homes for sale has become, Core Logic says that the number of homes for sale has dropped 17 percent for the year ended March, 2013.  Man, that's a big drop in inventory nationwide in a year.  In fact, the number of homes currently for sale would be exhausted in only 4.7 months at the present rate of selling activity.  A six month supply is considered a healthy market, so obviously we are in a seller's market.  That's another reason why there are fewer and fewer "bargain" homes out there.

My advice?  If you are a buyer, act now.  Home prices are most likely going to continue to go up unless inventory greatly increases, mortgage rates suddenly skyrocket, or folks just stop buying real estate for some unknown reason.  Those are relatively unlikely scenarios, so I'd suggest buying now if you can find a suitable property.

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New Air Conditioning Rules

If  you are considering the purchase of a new air conditioning, you need to keep this new rule in mind ...

The Environmental Protection Agency (EPA) is phasing out production of R-22 refrigerant (AKA: Freon).  This will dramatically increase the cost of this refrigerant nationwide in the coming months.  It is estimated that Freon will increase in price from about $50 per pound today to over $100 per pound by the end of this summer.

So, instead of buying a new AC system with a Freon-based refrigerant, property owners today need to purchase systems that have R-410a (aka: Puron)  refrigeration systems.  Such systems are available now.

So, why am I bringing this up in a blog site that is usually only about real estate issues?  Because frankly, having the new kind of AC system is one of those items that will help increase the desirability of your property if you should decide to sell it.  It should help your property sell faster and for a higher price than a property with the old Freon-based cooling system.

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Maybe Section 8 Housing Assistance Should Not Be Cut So Deeply

I'm probably not going to spell this word correctly, but the federal government's sequestration program is going to deal a massive blow to the Section 8 rental assistance program.

This program allows low income tenants to receive federal financial help in making monthly rental payments.  For some people, Section 8 is the difference between living in an apartment with running water and heat or living on the street or your public park.  It's an important program, especially for families with children and those who are physically and mentally challenged. 

Section 8 also allows landlords to rent properties at current market rates even though the tenant may not otherwise be able to afford such rent.

So, Section 8 is good for both tenants and landlords.

If the program is cut as deeply as predicted, it is estimated that hundreds of thousands of people will likely lose their rental assistance and be out on the street by summer's end.  Particularly hard hit will be cities where the majority of residents are renters, like Los Angeles, New Orleans, New York City and Chicago.  In these cities, estimates are that upwards of 60% of current residents are renters and many of them rely on Section 8 assistance.  In the Tampa Bay area, many people receive help in the form of Section 8 rent subsidies; I don't know the exact number, but it is significant.

Should you be a landlord who participates in the Section 8 housing program, you may find yourself with an increase in vacancy rates, or you may be forced to accept less than current market rent from your existing tenants.  Either way, Section 8 landlords will  likely suffer some form of financial loss from the cuts in this national program.  The country is also likely to see an increase in homelessness and the resulting social and criminal unrest that such a situation seems to foster.

You know, just because the Federal government can cut a program doesn't mean it should cut a program.  Perhaps Section 8 is one of those programs that needs to maintain it's funding level.

Just a thought.

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Fewer Homes Underwater Nationwide, But Tampa Bay Still Is The National Leader

Real estate continues its comeback nationally with fewer and fewer home owners finding themselves underwater on their mortgage.  Of those that still are underwater, however, Tampa Bay leads the nation.

Of the 25 largest metro areas in the U.S., Tampa Bay maintains the highest percentage of mortgaged properties that have negative equity.  Some 44% of the mortgaged homes in Tampa/St. Petersburg/Clearwater and the surrounding area are still underwater.

Miami has the dubious distinction of being ranked second in negative equity with just over 40% of mortgaged homes underwater.  The Atlanta metroplex is third with just over 38%, followed closely by Phoenix at 36%, and Riverside/San Bernardina (CA) at 35%.

Data from Core Logic, who tracks all this kind of stuff, shows that homes at the higher end of the price/value spectrum are in the best financial shape, while those in the lower end of the value scale are most likely to be underwater.  According to Core Logic, 86% of homes valued at $200,000 or more have some amount of positive equity while only 72% of homes valued at less than $200,000 have positive equity.

Just so you know, it is estimated that some 200,000 mortgaged homes returned to positive equity in the 4th quarter of 2012.  This reflects the increase in value of real estate nationally ... that's a good thing!

What this all means is that things are improving ... even here in Tampa Bay.  So, if you are thinking about buying or selling a home, this is the time.

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Five Quick Tips For Selling Property For More Money

The real estate market seems to be coming back to life and prices are certainly rebounding here in Pinellas County and throughout Florida.

If you are thinking about selling, now is the time to maximize your opportunity to sell your property for the highest possible price.

So, what tricks can you use to separate your house from the competition and get the highest price for your real estate today?

Here are five time-tested ideas that I've seen work over and over and over and over ...

1. Photography.  We live in a highly visual age.  The better your house looks on-line or in printed materials, the more likely it is to sell faster and for a higher price.  So, you have to get high quality photos of it.  One way is to hire professional photographers to shoot your home inside and out.  But honestly, with today's foolproof cameras and digital technology, almost anybody can take great interior and exterior photos.  There is one trick to great photos: use a camera with a good flash.  When you use the flash inside, it eliminates shadows.  Shadows make your rooms look smaller because they are actually dark spots in the image.  Dark spots reduce detail and make rooms look smaller.  Also, flash allows you to shoot toward windows without causing backlighting and silhouettes that hide the lovely details of your rooms.  So, always use a camera with a flash.

2. Music.  If your property will be shown when you are not present, turn on some background music.  It creates a relaxed, easy-going mood that makes your property much more inviting.  Don't play it loud ... remember, it's background music.  Personally, I think easy listening jazz is the best kind of music, but classical is just about as good.  It's a matter of taste and the style of your home.  Stay away from hard rock and rap.  It's too distracting and sets the wrong tone for most home viewing.  If you have a computer with some good speakers, try Jazzradio.com and select something you enjoy from the various program options.  It's a can't miss approach that will bring extra money to your sale.  Why?  Because it helps people like your house even more ... and the more they like it, the more they may be willing to pay for it.

3. Entry.  This is really easy.  Back in the day, we used to call this "curb appeal".  Some of us old-time real estate agents still do.  All you have to do is dress up the front of your house.  I like to put a few flowering potted plants near the front door.  It gives the entry some color and makes things look fresh and fun.  You might want to add a nice new welcome mat while you're at it.  And if the front door needs painting, do it.  It will make a difference that will pay big dividends.

4. Closets.  There is an old saying in real estate: "Big closets sell little houses".  It's true!  In order to make your closets and pantries look larger, all you have to do is get rid of the clutter.  Away with all those old shoes on the floor of the bedroom closet.  Take all the old clothes that you'll never wear over to Goodwill or Salvation Army.  Spend a weekend cleaning out and straightening up the garage ... at least get it to the point where one car can be parked inside!  You will be surprised how de-cluttering your closets and storage areas will make them look larger.  Besides, you're going to have to pack all that stuff when you move, so why not get a leg up on that chore now.  This, folks, is a money maker.

5. Clean.  Nothing says "Yuckpooey" more than an unclean house.  When a buyer says "ugh", you can kiss the sale goodbye.  So, before you put the house on the market and every day thereafter, clean, clean, clean.  Get the whole family together and make things bright and sparkly.  Get rid of odors.  Bleach out stains.  Wash in corners.  Mop up everything.  Dust.  Dust.  And then, dust again.  Never leave a dish in the drainer.  Never leave a sock on the floor.  Hang all the towels.  You know the drill.  As an old real estate friend of mine used to say; "make it look like a model home everyday".   

Now, sure, there are probably fifty other things I could include as tips for getting a higher price for your home.  But I'll guarantee you this, if you do these five things religiously, your house will sell for the highest price, in the shortest time, and with the least inconvenience to you. 

Try it!  What have you got to lose, except your property!

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Why We Need FHA Mortgages Now More Than Ever

Once upon a time, years and years ago, at a condominium I can't remember very well, for a buyer who may not even live there anymore, I presented an offer on a property in which the buyer was going to obtain an FHA-insured mortgage.

The seller agreed to the offer, we put the unit under contract, and the buyer applied for his approval meeting with the condo board.  He never got the meeting.  Some weeks later I found out that the condo board looked at the offer and held their nose in disgust.  Later, I was told that the president said "we don't want those kind of people here."  He meant that they did not want lower income people who had to "hang on by their fingernails to an FHA loan."

Today, as a result of the bursting of the real estate bubble, the overall financial crisis, the bank bail-outs, stagnant incomes, unemployment and all the rest, those people make up roughly 50-percent of America's population.  They have an annual household income of less than $50,000.  The purchase of their first home represents their best -- and perhaps only -- chance to gain some kind of financial security to help support them in their old age.

For millions of these people over the years, FHA has been the lifeline for finding a way to obtain home ownership.

Given today's economic climate, there are those in Washington, DC and elsewhere who feel we should stop loaning money to these people.  They believe that low-to-moderate income families should qualify for a conventional mortgage rather than use an FHA program.  Right now, they are drafting rules -- known as the Risk Retention/Qualified Residential Mortgage (QRM) rule -- that make home ownership possible but extremely difficult for most people because they limit FHA and encourage conventional mortgages.

How difficult?  Try this on for size; the rule calls for people to make a minimum down payment of five, ten or even twenty percent of the purchase price. 

What does that mean in real terms for a moderate income family?

Simply this.  The Mortgage Bankers Association estimates that for a family earning the median income in this country, it will take up to five years to save the five percent down payment.  It will take up to nine years to save a ten percent down payment.  And if the rule calls for a twenty percent down payment, the middle class family will have to spend up to eighteen years saving to make a down payment.

Take a 28 year old couple who have just decided to start a family and buy a home of their own.  If they are required to get a conventional mortgage with a 20 percent down payment, the estimate is that they may be about 48 years of age before they can make their dream come true.

That really is not fair.

Home ownership remains the fast track to financial security in this country.  To make home ownership more difficult, or to force the delay of such a financial opportunity for so many of our fellow countrymen, is simply an outrage.  What is more, in the long run denying the opportunity to obtain some level of financial security means that an aging population will have fewer assets and be less able to care for itself with the passage of time.  Supporting this aging population in the future will put an even greater burden on future generations.

The QRM rules being considered now are unfair to the current population and will be even more unfair to the next generation who will have to support their seniors.  Before these rules are finalized, all Americans need to take a close look at what they mean and their impact on the financial future of all of us.

Frankly, I think we need to keep FHA around.  And VA, too!

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