Monday, February 20, 2012

Give me Reasons to Buy Now

Just about everyday people ask me the age-old question: "How is the market doing, Jonathan?" My response always catches them off guard: "It's actually great!" Am I joking? No! Let me tell you why. The Denver market (I didn't say Detroit market) is doing GREAT right now. I've actually never been busier with buyers and sellers because everyone wants to buy. 

Here are 5 objective reasons why many people want to buy right now:

1) 3.75% fixed 30-year interest rates (!?). Lowest in recorded history!

2) Denver-area home prices have been stable and even going up over the last 12 months.

3) It's actually cheaper to buy then to rent right now! Rental rates have been skyrocketing because of the lowest vacancy rates in 12 years.  

4) Good economic signs and forecasts : As the market swings, prices will continue to go up, and so will interest rates. 

5) Denver is one of the most desirable and affordable cities to buy a house in the entire country. Compared to it's either more expensive or less desirable west coast competitors (San Diego, Los Angeles, Phoenix, Las Vegas, Salt Lake City, Seattle, etc) it has BOTH desirablility and affordability, which makes it one of the most popular cities for relocation in the nation!

If you have any questions or concerns you would like to discuss, let's talk about it!

Why Should I Sell Now?

Sellers are in the same boat as buyers right now. "Should I sell now? Should I wait? Should I downside?" 

To answer this question, let's check out objectively what is going on in the market from a seller's perspective:

1) The number of homes for sale are down 39% since last year, which means thoughdemand from buyers is UP, supply is DOWN

2) The absorption rate is at 4.4 months, which again means there is less inventory than demand. A balanced market is 6 months, anything below that means it is a seller's market.

3) With interest rates so low, many buyers are in the market right now, which means more competition, exposure and demand for your house. There are multiple offer wars ALL over the Denver-area right now. I know, I have been in 3 of them in the last 2 weeks!

4) Average "days on market" are also down 14% since last year, which means houses are selling faster. 

5) If you are selling in order to downsize (or upgrade), it is a perfect situation for you to buy (see all the "Reasons to Buy" above!).  

All these reasons are objective reasons from the market and what is actually going on in the field. Verdict is: It can't get much better to buy or sell right now!

Renting vs. Buying: 5 and 10 Year Case Studies

Many people today shy away from buying because they can't fathom spending so much money on one thing. But rarely do they think of how much they have to spend on rent (you have to live somewhere!).

The following case studies are 5 and 10 year case studies of the money you would spend renting, and the money you would spend buying:

Buying after 5 and 10 years:
Say you buy a $200,000 home with 3.5% down. Your monthly payment will be about $1100.

  • After 5 years your loan is down from $193,000 to $169,000.
  • After 10 years your loan is down to $145,000. 

Renting after 5 and 10 years:
Renting the same type of house that is worth $200,000 would cost you more as a renter, at least $1200 or $1300, not counting rent increases each year:

  • After 5 years, you will have spent $72,000 in rent.
  • After 10 years you will have spent $144,000
  • You also will have spent $1200 on the initial deposit, which you may or may not get back.

Your situation after renting: 

  • You still do not own the house.
  • You will never be able to recoup the rent money you spent: it paid someone else's loan, and you can't sell the house because it's not yours. 
  • Rent most likely went up over the years, which cost you even more money.
  • Your credit score will not have been improved whatsoever by all your on-time rental payments.

Your situation after buying:

  • You have $30,000 of equity in your home after 5 years.
  • You have $55,000 of equity in your home after 10 years.
  • You can rent it out, make about $200-$300/month on your renters after you pay the mortgage, and buy a bigger home.
  • You can sell the home, and even in the worst case scenario if you don't make any money, you will have lived for free for 5-10 years. 
  • If you do make a just made a profit!
  • If you stay in the house and keep paying your mortgage, you will keep paying your loan down.
  • If you make an extra $100 payment per month, your loan will drastically go down faster. 
  • If you rent it out, someone else will pay your loan for you, and after the loan is paid off, you can keep it as an investment property and make $1250/month, which is $15,000 per year. 

The moral of the story is that a buyer has PLENTY of great financial options when owning, but a renter has no options or benefit after renting for several years. Don't forget, renting costs you MORE MONEY!

Friday, February 17, 2012

What You Need to Know About the Mortgage Settlement

A settlement announced last week among state and federal officials and the nation’s five largest banks is the largest joint state-federal settlement in history against an industry. The settlement, which amounts to somewhere between $25 billion and $26 billion, is aimed at fixing some of the mortgage abuses over the last few years that caused people to lose their home.
So what does the settlement mean for home owners? 
Home owners underwater on their house or struggling to make payments may have something to gain from the deal. Home owners who are eligible for payments or principal write-downs on their mortgage from the settlement will be notified by mail within the next nine months. 
Those who may be eligible for aid under the settlement include home owners who are currently struggling to make their payments and need a loan modification; borrowers who are current on their payments but owe more on their house than it’s currently worth; or borrowers who may have already lost their home to foreclosure. 
In the settlement, banks have agreed to write off a sum of the mortgage principal in select cases where home owners are struggling to make payments. Home owners will then be able to refinance and lower their monthly payments. Underwater borrowers also may receive aid, such as being able to refinance so they also can lower their monthly payments.
Borrowers who have already lost their home to foreclosure may be eligible for payments. About $2,000 per person will be doled out to 750,000 borrowers found eligible. 
Payments will be paid over a three-year period.
The banks participating in the settlement are Bank of America, JPMorgan Chase, Wells Fargo, Citi, and Ally/GMAC. Fannie Mae and Freddie Mac-backed loans are not eligible for the benefits. 
You can learn more about the settlement at the just-launched “National Mortgage Settlement” Web site. 
Source: “What the Mortgage Settlement Means to You,” (Feb. 9, 2012)

Friday, February 10, 2012

How Low are Mortgage Rates Now?

How about....never been lower in U.S. history!

The 30-year fixed-rate mortgage averaged 3.87 percent this week, matching last week’s all-time record low. As for other rates, they ticked up slightly this week, but still hovered around record lows compared to historical standards, Freddie Mac reports in its weekly mortgage market survey. 
“A strong January employment report added upward pressure to most mortgage rates this week,” Frank Nothaft, Freddie Mac’s chief economist, said. The unemployment rate dropped to 8.3 percent as the economy gained 243,000 jobs last month, the largest gain since April 2011. 
Here’s a closer look at rates for the week ending Feb. 9: 
  • 30-year fixed-rate mortgages: averaged 3.87 percent, with an average 0.8 points. A year ago at this time, 30-year rates averaged 5.05 percent. 
  • 15-year fixed-rate mortgages: averaged 3.16 percent, with an average 0.7 point, rising slightly from last week’s record low of 3.14 percent. But 15-year rates were still far below what they averaged a year ago at this time — 4.29 percent.
  • 5-year adjustable-rate mortgages: averaged 2.83 percent, with an average 0.7 point, rising from last week’s 2.80 percent average. Last year at this time, 5-year ARMs averaged 3.92 percent. 
  • 1-year ARMs: averaged 2.78 percent, with an average 0.6 point, rising slightly from last week’s 2.76 percent average. A year ago, 1-year ARMs averaged 3.35 percent. 
Source: Freddie Mac