Dale's Real Estate and More Report -- Dale Schmidt, Real Estate Blogger

How Job Losses In The Economy Are Helping Home Affordability

Thu, 03 Jul 2008 09:58:25 -0700

On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.

More commonly, it's called the "jobs report".

The jobs reportis a sector-by-sector look into the U.S. economy and whether businesses are hiring -- or firing -- workers. This is one of the reasons why its release is so hotly anticipated each month -- the jobs report can reveal a lot about the state of the U.S. economy.

Last month, the economy shed 62,000 jobs.

Now, many people will assume that job losses like this are terrible for the U.S. economy. Sometimes, that's true.

This month, it's not.

Given the ongoing tug-o-war between inflation and recession, markets are somewhat pleased with the June job loss figures becausejob losses reduce the likelihood of inflation in the U.S. economy.

Inflation isconsidered by many -- Ben Bernanke included -- to be among the top threats to the U.S. economy -- it devalues thedollar andleads to increases in the Cost of Living.

Inflation also threatens home affordability because mortgage rates tend to rise when inflation is present.

June's job losses -- while bad for those impacted -- is helping to relieve inflationary pressures on the economy and that is boosting markets performance this morning. Stocks are slightly up, and mortgage rates are slightly down.

(Image courtesy: The Wall Street Journal)

Are Sub-Prime Mortgage Problems Finally A Thing Of The Past?

Wed, 02 Jul 2008 07:36:00 -0700

In the summer of 2005, sub-prime mortgage lending was at its peak. Rates were relatively low and lending guidelines were relatively loose.

At the time, the "standard" sub-prime mortgage product was the 3/27 ARM.

The 3/27 had a few basic traits:

A fixed, 3-year "starter rate"
Every six months thereafter, the mortgage rate changed
The formula by which it changed was (4.999 percent + 6-month LIBOR rate)

If the loan was interest only, it usually converted to principal + interest at the first adjustment, too.

Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.

For homeowners with adjustingsub-prime loans, there is some (relative) good news out there.

Today, the 6-month LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 percent.

This is versus the rate of 10.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.

Adjustments of any size canstrain a household budget, though,so if you're a sub-prime borrower and your pending adjustment will cause financial strife, be proactive -- talk to your lender before you miss a payment.

Lenders are often more willing to talk with "current" borrowers than with delinquent ones.

(Image courtesy: Washington Post)

Why National Housing Could Benefit Because Of Midwestern Farmers

Tue, 01 Jul 2008 08:11:00 -0700

As flood waters ran through Iowa and other Midwestern states, the nation's corn supply was thought to be in danger.

Prices spiked in the wake of the floods, adding to the already-peaking grocery billsthat many Americans are now bearing.

But yesterday, in a surprise report, the Agriculture Department said that many farmers had over-planted corn earlier in the season in order to cash in on corn's rising market value.

The abundance of planting is offsetting a portion of the flood damage and this year's harvest is now predicted to be the second highest on record.

For Americans in need of a home loan, this is terrific newsbecause more corn supply means lower food prices and that puts a hold on at least one source of inflation.

Inflation is the enemy of mortgage rates.

The revised outlook for this year's corn supply is now so much better than it was yesterday that the price of a corn bushel fell by 30 cents at the Chicago Board of Trade -- the maximum allowable amount by rule.

Now, rapid movements in the price of corn may not seem relevant to everyday life, but even the smallest of details about the economy can trickle down and impact you as a homeowner.

The strength of the housing market may be correlatedto consumer confidence and consumer confidence is definitely tied to the Cost of Living. And the same goes for the mortgage market -- it's all related to inflation.

With a surprise crop of extra corn, things may look just a little bit better.

Source
Corn Crop Largely Intact, Despite Floods
Scott Kilman
The Wall Street Journal, July 1, 2008

Listing Your Home? Get The Smells Out With Deep-Fried Apples.

Mon, 30 Jun 2008 09:00:00 -0700

Neutralizing home odors is an important part of preparing a home for sale but it's not always so easy. Every home has a unique odor that's ground into carpets, walls, fabrics. Cooking at home plays a big role, too.

But just because a home is listed for sale doesn't mean that the kitchen is off-limits.

This 2-minute video from About.com offers a bunch of smell-related kitchen tips, including:

Removing "the fish smell"
Fighting the aroma from deep-fried foods
Getting stubborn smells from hands

When your home for sale, the last thing you want buyers paying attention to is your dinner from the night before. Watch the video, read the transcript, and cook fear-free in yourownhome -- listed for sale or just planning on company.

What To Do When The Bank Reduces Your HELOC

Fri, 27 Jun 2008 08:22:55 -0700

A Home Equity Line of Credit is bank product that grants homeowners access to the equity in their home at anytime, usually using checks.

Oftencalled a HELOC, these equity-based credit lines function very much like credit cards:

The rate is adjustable, tied to Prime Rate
There is a minimum monthly payment
There is a pre-set spending/credit limit

But different from credit cards is that a HELOC is "guaranteed"by real estate and with real estate values in question nationwide, many banks are exercising a little-known clause in the HELOC contract.

With alarmingfrequently, banks are reducing the pre-set spending limits on their active equity lines.Via USPS, lenders are notifying homeowner with $100,000 HELOCs that their new HELOC limit is $25,000, for example.

And the banks aren't being discriminate based on payment history or local real estate conditions, either -- it's happening everywhere with equal force.

The good news is that banks will accept appeals on HELOC reductions on a case-by-case basis.

One way to appeal a HELOC reduction is:

Call your lender's Customer Service line. Do not send an email.
Politely ask why the HELOC limit was reduced. Listen carefully to explanation.
Explain why you would like your HELOC reinstated. Acceptable reasons may include home improvement projects orimproper home valuation by the lender.
Be prepared to write a formal letter, if asked. Address the issues explained in #2.

Banks will typically not reinstate a HELOC if a borrower has been delinquent on payments, or lives in a severely depressed neighborhood. However, because lenders rely on computer models to assess risk,it's always a good idea to ask.

Sometimes theHuman Element of an appeal can work in your favor.

Making English Out Of Fed-Speak (June 2008 Edition)

Wed, 25 Jun 2008 15:13:59 -0700

The Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent this afternoon, as expected.

In its press release, the Federal Reserve noted the co-existence of inflation and recession.

On inflation, the Fed said that energy and food prices are contributing to an "elevated state" of inflation, but that it expects price pressures to ease "later this year and next year".

On the topic of recession, the Fed seemeda bit more concerned.

Overall, markets reacted favorably to the press release; both stocks and mortgage rates showed signs of improvement in the statement's wake.

Source
Parsing the Fed Statement
The Wall Street Journal Online
June 25,2008
http://online.wsj.com/internal/mdc/info-fedparse0806.html

How Your Home Payment Is Tied To The Federal Reserve's Press Release Today

Wed, 25 Jun 2008 09:01:00 -0700

The Federal Open Market Committee adjourns from its 2-day meeting at 2:15 P.M. ET today. It's widely expected that the group will leave the Fed Funds Rate unchanged at 2.000 percent.

However, it's not what the Fed does today that has markets so interested. It's what the Fed will say.

One of the Federal Reserve's rolesis to promote stability in the U.S. economy by protecting it from two major threats:

Inflation
Recession

The Federal Reserve's primary weapon against both of these hazards, though, is the same -- the Fed Funds Rate. To combat inflation, the Fed raises the Fed Funds rate. To fight recession, it lowers the Fed Funds Rate.

But in today's economy, there is evidence of both inflation and recession meaning that the Federal Reserve is likely to leave the Fed Funds Rate unchanged for fear of setting the economy too far towards either threat.

Therefore, markets will be left looking for clues in the carefully-worded press release signed by Federal Reserve Chairman Ben Bernanke and the other voting membersof the FOMC.

If the Fed admits added vigilance against inflation, it's expected that mortgage rates will fall because inflation causes rates to rise. By contrast, if the Fed harps on the downside risks in the economy, it's expected that mortgage rates will increase.

Either way, today's press release should be a market-mover.

If you're currently floating your mortgage rate or are deciding between different lenders, be aware that mortgage rates will enter a period of extreme volatility this afternoon.

It may be prudent to complete your rate shopping before 2:00 P.M. ET.

Simple Real Estate Definitions : PITI

Tue, 24 Jun 2008 05:00:00 -0700

Most homeowners make fourhousing-related payments each month:

Principal on a mortgage
Interest on a mortgage
Taxes on the real estate owned
Insurance for the real estate owned

Collectively, these payments are known by the acronym PITI but don't let it fool you -- a homeowner's monthly expenses are still called PITI even if one or more of the elements doesn't apply.

For example, a homeowner with an interest only mortgage does not pay principal each month.

Additionally, condo owners typically don't pay homeowners insurance -- they pay a monthly assessment and/or maintenance fees to an association instead.

But regardless for what it stands, determining a comfortable PITI should be every homeowner's starting point when looking for a new home. PITI is the monthly housing cost, after all, and by knowing what fits in your budget, it's a lot easier to compare homes and their related expenses.

It's certainly better than asking the bank "how much home can I afford" -- all that's going to tell you is the P and the I. As a homeowner, you need to know all four.

PITI is most commonly pronounced pee-eye-tee-eye.

(Image courtesy: Contractor-Books.com)

The Surprising Truth About How Buyers View Your Linen Closets

Mon, 23 Jun 2008 05:00:00 -0700

In this 4-minute video, real estate maven Barbara Corcoran reminds us that homes are bought and sold within 8 seconds.

And, although the clip features a suburban home in New York, the Lessons of Good Presentation apply to every home looking for a buyer.

Some of the video's key take-aways include:

Let your home's natural light shine in
Your home's hardware reflect the home's condition
Don't replace your kitchen -- clean it up instead
Linen closets can sway a buyer's attitude about your home

With excess supply in the market, making a positive first impression on home buyers can mean all the difference.

Preparing a home the right way can be the difference between getting an offer, or just getting lots of traffic.

The Midwest Flooding And Its Impact On Your Home Mortgage

Fri, 20 Jun 2008 07:35:00 -0700

Flooding in the Midwest has displaced thousands of families and caused billions of dollars in damages.

It may also causemortgage rates to rise.

As the extent of the damage becomes more clear, prices for grain and livestock are soaring. For example, a host of dietary staples are suddenly more expensive at the supermarket, including:

Meat
Pork
Chicken
Dairy
Eggs

Rising food prices are considered inflationary and inflation tends to make mortgage rates rise.

But of all the foods that are increasing in price, it's corn whose price is rising the most -- up 70 percent so far since January. This is mostly because flood waters damaged up to 3 million acresof harvest in Iowa, our top-producing state.

Corn, of course, is a primary feed for livestock,so rising prices make it more expensive for farmers to raise hogs, cows and chickens. These higher costs get passed along to consumers and contribute to a higher Cost of Living around the country.

After facing (and adjusting) to rising gasoline prices, Americans are facing higher costs again -- this time at the supermarket. And if food prices don't recede with the flood waters, Americans may find that they're getting hit in a third place -- right in their mortgage rates.

Source
Hog Farmers Face a Perfect Storm
Ilan Brandt, Joe Barrett
The Wall Street Journal, June 20, 2008

(Image courtesy: The Wall Street Journal Online)

What You Need To Know About Mortgage Rate Quotes

Thu, 19 Jun 2008 09:13:00 -0700

Home buyers are often surprised when a "rate quote" from the morning won't be honored in the afternoon. Sometimes, the assumption is that the loan officer is just being sneaky.

This couldn't be less true.

Rate quotes change in the middle of the daybecause mortgage markets are in constant flux. All day, every day -- just like stocks.

And like stocks, a mortgage bond's morning price will likely "expire" before the day ends.

One way to visualize this is to look at today'sMicrosoft's stock price:

At 9:30 A.M. ET, theprice was$28.46
At 9:38 A.M. ET, the price was $28.72

Over the course of 8 minutes, the stock rose by 26 cents and the "9:30 A.M. quote" was no longer available. For example, you couldn't call your stock broker at 9:38 A.M. and place an order for the 9:30 A.M. price because the price had changed.

Mortgage rates behave the same way.

Throughout 2008, mortgage rates have changed mid-day more frequently than in the past. On more than half the days, morning rate quotes were no longer valid in the afternoon. And, on at least 5 separate occasions, rates changed 4 times in just one day.

It's not typical, but it does happen.

So, if you're talking with your loan officer in the morning about a rate quote, be prepared to do all of your shopping in a compacted amount of time, and then be ready to make a decision.

By the time the afternoon rolls around, after all, that rate quote may well be expired.

Why Home Values May Rise When Home Building Falls To A 17-Year Low

Wed, 18 Jun 2008 07:31:32 -0700

A "Housing Start" is a new home on which construction has commenced and in May, Housing Starts fell to a 17-year low nationally.

At first glance, this may seem like a negative for the already-battered U.S. housing market.

It's not.

Falling Housing Starts reflects the broader real estate market and shows us thatbuilders are working hard to get their already-built homes "off the books".

It would be foolish for them tobuild new homes now -- each new unit makes selling the existing ones tougher.

So, when we look at the figure objectively, we can see that Housing Starts reaching a 17-year low is actually good news -- real estate prices are based on Supply and Demand, after all.

With Housing Starts touching new lows, we can infer that there will be fewer new homes coming on the market in the coming months and that should help support higher home values nationwide for everyone.

(Image courtesy: The Wall Street Journal Online)

Do-It-Yourself : Garbage Disposal Repair

Tue, 17 Jun 2008 06:53:00 -0700

A jammed garbage disposal is one of the most common household plumbing issues and, despite its mechanical simplicity, fixing one can cost up to $300 in labor and parts.

Try saving some money next time by doing it yourself.

Courtesy of Expert Village, this short, 2-minute video walks you through the steps in troubleshooting your own in-sink disposal system, complete with safety steps.

Repairing most garbage disposal problems is as simple as turning a wrench, pushing a button, or both. There's no"technical skills" or elbow grease required and you may save yourself a few hundred bucks.

Why You Should Price Your Home Like Target

Mon, 16 Jun 2008 05:57:14 -0700

Each month, researchers at The University of Michigan survey a small sample of the U.S. population about their thoughts on the economy -- is it improving, it is worsening, is it staying the same.

May's consumer confidence survey registered it's lowest reading since 1980 -- and for good reason:

Unemployment is spiking
Gas prices are at an all-time high
Housing markets keep getting bad press

But despite all of that, it appears that the American Consumer is taking the economy's hiccups in stride.

Last month, retailers around the country reported rising sales levels that doubled economists expectations. This isn't supposed to happen when consumer confidence is falling so fast.

But, a closer look shows thatthe retail sales data was led by discount retailers such as Target and Wal-Mart. In other words, consumers feel worse about the economy,so when they choose to spend money, they spend it on value items.

For home buyers, this should sound familiar because it's every real estate agent's mantraright now -- "there's a lot of good values to be had." It's why some homes are getting multiple offers within days while other languish on the market for months.

The housing market is showing signs of strength across the country, low consumer confidence notwithstanding. Every buyer is looking for a "good buy" and there's plenty of places to find them.

(Image Courtesy: Wall Street Journal Online)

Guess Which 4 States Accounted For More Than 50 Percent Of May 2008 Foreclosures

Fri, 13 Jun 2008 07:13:21 -0700

RealtyTrac released its most recent foreclosure statistics and if you only read the headlines, you think the entire country was on the verge of losing its homes.

The underlying data tells a different story, however.

More than half of the country's foreclosure activity in May 2008was tied to just4 states in the union:

California (28 percent)
Florida (14 percent)
Arizona (5 percent)
Michigan (5 percent)

In other words, the majority of mortgage defaults are coming from a small minority of states.

See, between 2002 and 2006, California, Florida and Arizona were very popular with real estate speculators, many of whom over-extended themselves on real estate; andMichigan's economy has been decimated by job losses in the auto and manufacturing industries.

In addition, these 4 states are among the nation's most populous. It makes sense that they are distorting the national statistics.

On a local level, the news is not so grim. Not only did 20 states show a reduction in monthly foreclosure activity, but many more fell below the national foreclosure average. That type of story, though, doesn't make for good headlines, is all.

Search the full May 2008 foreclosure report for yourself on RealtyTrac's Web site.

Cancel Your PMI Before It's Too Late To Cancel

Thu, 12 Jun 2008 05:00:00 -0700

When homeowners borrow more than 80 percent of a home's value, mortgage lenders often require acorresponding insurance policy called Private Mortgage Insurance.

PMI provides a cash payment to lenders in the event of a homeowner defaults.

But because PMI policies are designed forhigh LTV loansonly, they usually contain cancellation options for when home equity percentages reach 20 percent or more.

In other words, PMI can be temporary.

There is a caveat, however: Lenders will not automatically remove mortgage insurance when LTV falls below 80 percent -- the onus is on the homeowner to initiate a formal request.

Earlier this decade -- when home values were soaring -- many PMI-paying homeowners recognized their equity growth and successfully petitioned out from PMI.

Many other homeowners, however, forgot.

So today, as home values stagnate or depress in different U.S. markets, homeowners eligible for cancellation may find that both their home equity and their right to cancel have vanished.

PMI helps makes high LTV loans possible, but there's no reason to pay it longer than necessary. If yourcurrent mortgage requires PMI payments and your loan-to-value lurks below 80 percent, contact your mortgage lender to start the PMI cancellation process.

Or, if you're unsure about your home's value and the80 percent threshold, call or email me anytime for a home value analysis and we work on your research together.

The Counter-Intuitive Reason Why The Fed May Boost Interest Rates

Wed, 11 Jun 2008 05:00:00 -0700

The Federal Reserve is stumping hard on inflation this week, creating speculation that Fed Funds Rate hikes may be in store for later this month.

This is a counter-intuitive development becauseincreases to the Fed Funds Rate are typically associated with periods of rapid economic expansion.

Lately, we've seen anything but.

Witness:

High levels of unemployment
Reducedconsumer spending
Fallingconsumer confidence

Despite the downbeat news, though, multiple Fed members are taking a hard line on inflation, adding that a strong dollar support the economy and help to offset high oil prices.

A rate hike could help accomplish that goal.

If the Federal Reserve votes to raise the Fed Funds Rate, Prime Rate will rise in tandem. Prime Rate is the basis of interest rates for credit cards and home equity credit lines.Holders of each debt type, therefore, wouldface higher monthly payments.

Mortgage rates, by contrast, would be expected to fall, but how the market would actually react to a rate hike is anyone's guess.

The Federal Reserve meets 8 times annually. Its next meeting is a two-day affair beginning June 24.

(Image courtesy: The New York Times)

Why Your "Dear Seller" Letter May Be Met With A "Dear John"

Tue, 10 Jun 2008 05:00:00 -0700

Several years ago, when homes sometimes sold within hours, prospective buyers often drafted "Dear Seller" letters, an accompanying personal note to help purchase offers stand out in a multiple-bid situation.

Today, some buyers are writing a different kind of letter to win a seller's favor -- a letter explaining why the buyer's offer is so far below the seller's asking price.

You can't blame buyers for trying to explain themselves, but after reading this tongue-in-cheek piecefrom The New York Times, it's clear that real estate negotiations between a buyer and a seller are simply a matter of perspective.

Whereasa buyer may use Fear to get his price, a seller may counter with Hope.

Thearticledrafts a buyer letter and a suggested seller response. Both letters are powerful and persuasive, and hint at the real truth in real estate -- that reaching a purchase price agreement is only as difficult as finding a buyer and a seller that are committed to working together.

And that match happens every day in every city in America -- even the ones in which the housing market is reeling the most.

It's been said that a listing price is justa starting point for conversation, but if that conversation starts with"Dear Seller" and the seller is feeling hopeful, don't be surprised if you get a Dear John in response.

(Image source: The New York Times)

June Is The Best Month To Buy Off-Campus Housing For Your College Student

Mon, 09 Jun 2008 05:00:00 -0700

For parents withcollege-age children, thisNBC Today Show clip is worth watching. It discusses the "hows" and the "whys" of buying off-campus housing for your kids.

Real estate analyst Barbara Corcoran makes a few terrific points about:

Why June is the best time to look for off-campus housing
Why you should hire a professional property manager
Why parents should co-sign the mortgage with the child

Investing in collegiate housing is not for everyone, but everyone that does should purchase an accompanying insurance policy for injuries that may occur on-site.

If you'd like a referral to a strong real estate agent in your child's college town, call or email me anytime -- I'll be happy to help you.

Why It's Good News For Home Buyers When Unemployment Rates Surge

Fri, 06 Jun 2008 08:54:00 -0700

On the first Friday of every month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.

More commonly called the "jobs report", today's 2-page analysisof May 2008shows that the economy shed jobs and that unemployment surged.

This is terrific news for home affordability.

That may sound counter-intuitive, so let's dig deeper into the jobs report and what it really tells us about the U.S. economy.

Over the last year, rising food and energy costs have chipped away at household budgets, leaving Americans with two basic choices:

Spend less on discretionary items like vacations and dining out
Demand more pay at work so they can vacation and dine out

If Americans choose to spend less, the economy eventually slows down becausetwo-thirds of it is tied to Consumer Spending. This is anti-inflationary.

But, if Americans demand pay raises instead, businesses eventually pass those higher wage costs back to consumers in the form of higher prices.

This is called a "wage-price spiral" and it's very inflationary.

So, because today's jobs report showed unemployment surging by a half-percent to 5.5%, Americans really have no choice but to follow the "Spend Less" path -- they're not in a position to demand more pay at work.

Today's jobs data is good for home affordability because it relieves inflationary pressures in theeconomy and when inflation is falling, mortgage rates tend to do the same.

Better mortgage rates mean less expensive housing payments.

Source
Employment Situation Summary
BLS.gov, June 6, 2008

(Image courtesy: Wall Street Journal)