Mortgage Pro

2007-02-02

As Spring Home-Shopping Season Looms, Supply Mounts and Prices Fall in Some Areas; Builders See Slow Recovery Amid a continuing glut of homes for sale in most of the country, buyers should have plenty of choices and lots of bargaining power in the spring selling season -- typically the busiest time of the year. Many builders and real-estate brokers, for their part, hope the housing market will start recovering this year as buyers respond to price cuts and other sweeteners offered by increasingly nervous sellers. In some markets, agents say, buyer traffic has picked up in the last month or two. But any recovery is likely to be gradual. Donald Tomnitz, chief executive officer of D.R. Horton Inc., a home builder, told investors this week that the market, which began slumping in 2005, may bottom out by mid-2007, but that "we don't see any rapid improvement thereafter." More from The Wall Street Journal Online: • The Chill at Luxury's Low End • States Seek to Rein in Home Insurers • The Year of Listing Homes Patiently Given all that, sellers should expect buyers to take their time and be tougher negotiators. David Lee, who recently moved to Wenham, Mass., to take up a post as an associate professor of physics at Gordon College, has rented a home for his family and says they plan to be "quite picky and choosy" as they look for a home to buy. Dr. Lee doesn't feel any pressure to decide quickly because he figures prices won't rise in the near term and could fall further. A quarterly survey of housing conditions in 28 major metropolitan areas by The Wall Street Journal showed that the inventory of unsold homes at the end of 2006 was up substantially in nearly all of the markets from the already plentiful level of a year earlier. The biggest increases were in the metro areas of Miami-Fort Lauderdale, Orlando, Tampa and Jacksonville, Fla.; Phoenix; and Portland, Ore. (Unlike the other cities, Portland had a lean supply of homes a year before.) The survey also includes recent pricing trends -- nearly all negative -- based on surveys of real-estate agents by Banc of America Securities in New York, a unit of Bank of America Corp., as well as data on late mortgage payments and job-creation prospects from Moody's Economy.com, a research firm in West Chester, Pa. Employment figures have a huge effect on housing demand. Home-price trends vary greatly from one region to another and even within metro areas. For instance, housing demand remains weak in the Detroit area, sapped by auto-related job losses, while the chic urban zones of San Francisco and Manhattan -- where space for new construction is extremely limited -- generally have stayed firm, though price appreciation is far slower than a year or two ago. The good news for home sellers is that unemployment remains low in most areas, wages are growing and energy prices have fallen from their recent peaks. What's more, mortgage interest rates are still low, allowing people with good credit records to obtain 30-year fixed-rate loans at around 6.2%. But many lenders are growing more cautious about how much debt home buyers should be allowed to take on and more inclined to ask for proof of income. This tougher attitude will exclude some marginal buyers from the market, hurting demand, even as a rising number of foreclosures throws more supply on the market. DataQuick Information Systems, a research firm in La Jolla, Calif., said yesterday that mortgage lenders sent 37,273 default notices to California homeowners in the fourth quarter, up 145% from a year earlier and the highest in more than eight years. Meanwhile, home builders still have lots of unsold homes that they will unload by further cutting prices and dangling such incentives as help with closing costs or kitchen upgrades. Discounts on new houses, in turn, will make it harder for some sellers of previously occupied homes to attract buyers. Some of the biggest gluts of new homes are in Florida, Phoenix and the outer suburbs of Washington, D.C., says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse Group. Many of the gluts are due to frantic building of condominiums over the past few years. The supply of condos listed by real-estate agents is up 86% from a year earlier in the Las Vegas metro area, 43% in Washington, D.C., and 21% in the Northern Virginia suburbs of Washington. In Florida's Miami-Dade and Broward counties, the listed condo supply has more than doubled from a year earlier. In Miami-Dade, the number of existing condos on the market is enough to last 27 months at the current sales rate, says Jack McCabe, a real-estate consultant in Deerfield Beach, Fla. The oversupply will grow, he says, as about 8,000 condos are expected to be completed this year and 12,000 in 2008. "It's going to get bloody down here," Mr. McCabe says. He estimates that condo prices in Miami-Dade fell between 8% and 10% last year and will drop 20% in 2007. Eventually, he predicts, hedge funds and other investors will step in to buy surplus condos in bulk at huge discounts. 10,000 Condos for Sale In California's San Diego County, developers have more than 10,000 condos available for sale in new buildings, projects under construction or properties being converted from rentals, says Peter Dennehy, a senior vice president at Sullivan Group Real Estate Advisors, a consulting firm based there. He says that supply is enough to last more than 20 months at the current sales rate. That number excludes several thousand condos being offered for resale by speculators and others. Mr. Dennehy estimates that condo prices have fallen at least 15% to 20% in the county over the past year, though it's hard to measure price changes because sellers often give incentives such as free upgrades or help with closing costs that aren't reflected in the price. In the Boston area, lower-priced homes in blue-chip neighborhoods are moving pretty quickly. But ones that are overpriced or located on main streets are languishing, says Sam Schneiderman, broker-owner of Greater Boston Home Team. "It's got to be a really good deal," he says. "An OK deal doesn't quite cut it. Buyers are holding out." The glut in inventories is likely to increase in some markets as sellers try to take advantage of what they hope will be a stronger selling season. Some sellers pulled their homes off the market late last year, intending to relist them in the spring. At the Coldwell Banker Residential Brokerage office in Scottsdale, Ariz., near Phoenix, listings are up roughly 30% since the end of December. The office expects listings to increase further in late February and early March as sellers who pulled their homes off the market before the holidays relist them. Some of last year's strongest housing markets now are showing signs of cooling a bit. In the San Francisco Bay area, the median price paid for new and resale homes in December was $612,000, up just 0.5% from a year earlier, according to DataQuick. But prices fell in parts of the Bay Area; they were down 6.3% from a year earlier in Sonoma County and down 5.1% in Solano County, DataQuick says. One of California's weakest markets last year was the Sacramento area. Anthony Graham, an analyst at Trendgraphix Inc., a provider of housing data, says sellers of previously occupied homes there have had trouble competing with the huge discounts and incentives offered by builders. Mr. Graham expects average home prices in the Sacramento metro area to fall between 6% and 8% this year, but believes the market will begin to recover modestly by the fourth quarter, assuming that home builders continue to cut their production. Greg Paquin, president of Gregory Group in Folsom, Calif., which gathers data on new home construction throughout the state, also thinks Sacramento is stabilizing after last year's price cuts. "Buyers who were on the fence are starting to say, 'Hey, this is a pretty good deal,' " Mr. Paquin says. California's Central Valley, which includes such cities as Bakersfield, Fresno, Merced and Stockton, may take longer to absorb excess new-home inventory and bring prices down to more affordable levels, Mr. Paquin said. He said that area may not bounce back until next year. In Manhattan, big bonuses recently doled out by Wall Street firms will help support the market in this year's first half, says Jonathan Miller, chief executive officer of Miller Samuel Real Estate Appraisers in New York. But a rash of new condo developments will help moderate prices. He expects price increases this year to average 5% to 6% in Manhattan. On Long Island, he believes prices are likely to be flat to slightly higher this year. In New Jersey, "I'm optimistic that home sales will begin to rebound in the spring," says Jeffrey Otteau, president of Otteau Valuation Group Inc., an appraisal and research firm in East Brunswick, N.J. "However, that would signal the end of the decline -- not a return to higher prices." Mr. Otteau figures home prices fell an average of about 10% in New Jersey last year. For 2007, he believes homes costing less than about $600,000 are likely to rise modestly, around 3%, while homes above that level are about flat. In the luxury end of the market, prices may edge down again this year, Mr. Otteau says. In the Chicago area, some homes that have sat on the market are finally moving, says Barbara O'Connor, an agent with Baird & Warner. But some sellers have had to accept far less than they had hoped for. Jody Andre, a restaurateur, put her three-story Victorian-style home in the Edgewater neighborhood on the market in August at $679,000. She later lowered the price to $634,900 but still got no offers. "This is a hot neighborhood and a lot of people couldn't understand why the house didn't sell," says Ms. Andre, who accepted a $605,000 offer last week. "I waited too long to put it on the market," she says. Buyer Traffic Picks Up The end of the year is normally a slow time, but in some parts of the country traffic has increased in the last month or two, helped by unseasonably warm weather. In Philadelphia's Center City, buyer traffic began to pick up in November and has continued to climb over the last two months, says Mike McCann, an associate broker with Prudential Fox & Roach, Realtors. A recent open house for a three-bedroom home priced at $469,000 drew 17 parties, Mr. McCann reports. In the summer and early fall, he says, "we didn't want to do open houses because it was a wasted day." Sales are also increasing, but negotiations are taking longer and many offers are contingent on the buyers selling their current homes, Mr. McCann adds. Prudential Fox & Roach is also seeing more people asking to get pre-approved for a mortgage, a sign that they may be ready to buy. In Atlanta, where the housing market began to soften in August, business started picking up again in December, says Lewis Glenn, president and chief executive of Harry Norman, Realtors. "There's more negotiation," and builders are cutting prices and offering concessions, such as buying down the borrower's mortgage rate, he says. In Scottsdale, some sellers are cutting prices by 10% or more, says Dale Pavlicek, sales manager for the Coldwell Banker Residential office there. "There are a lot of vacant homes on the market," he says. Sellers who bought in the past year or two are barely breaking even or are coming to the closing table with money to pay off their mortgage and other costs, he adds. Houston remains one of the nation's more buoyant housing markets, supported by job growth in the energy industry. Rob Cook, chairman of the Houston Association of Realtors, says the supply of homes on the market is enough to last about six months at the current sales rate -- what he calls a "balanced" market. Prices are rising only modestly, though, because Texas has plenty of room for new construction. "We just keep expanding out farther and farther," Mr. Cook says.

2007-01-06
Never Refinance Your Mortgage

If you're a conventional thinker, you might be one of those people who feels the only mortgage for you is a traditional 30-year fixed-rate mortgage. Fine. But you may also think once the loan has been closed, you shouldn't have to think--or worry--about it ever again. But, like everything, times change, and if you're still treating your mortgage the old-school way, then you're probably in for a big surprise. MYTH: YOU SHOULD NEVER REFINANCE YOUR MORTGAGE FALSE! Sure, there are times when you should leave your mortgage alone, but there are also times when refinancing could reap lots of rewards. Managing your mortgage wisely should be a part of how you manage your assets. Lowering Your Monthly Payment One of the biggest reasons many people refinance is to lower their interest rate which, subsequently, lowers their monthly payment. Let's say you got a loan with an interest rate at 7.5 percent; your loan amount was $100,000; and it's a traditional 30-year fixed. Your payment (without taxes and insurance) would be just under $700. Now, let's say rates have dropped down to 6.5 percent. If you were to refinance, your payment would drop to about $632. Now that you've refinanced, you're keeping nearly $70 more in your pocket a month that you could use toward other bills or just extra spending money. Over a year, that adds up to $840! Perhaps you can finally take that vacation to the Bahamas after all. Refinancing from a Fixed to an ARM Not interested in lowering your rate and payment? Fine. Let's say you have a home that you bought with a 30-year fixed-rate mortgage. But what if you have to move a lot? Many people in the military have to relocate themselves and their families quite often. This also goes for some people in sales where they get transferred often. Even if you don't have to move a lot, the average American family moves every seven to nine years. Keeping a 30-year fixed rate mortgage doesn't make as much sense in these types of situations as having a shorter-term adjustable rate mortgage (ARM) because the rates for a 30-year fixed are often higher which means you're paying more. Why pay more when you don't have to? Refinancing from an ARM to a Fixed Let's say you do have an ARM. Why would you need to refinance to a fixed-rate mortgage? Well, if rates are continually rising, as they were between 2004 and 2006, you'd want to keep your rate from increasing too high. Otherwise, you face increases in your monthly payment. In this case, you'd want to refinance to a fixed rate to avoid rising rates and payments. Getting Cash from your Home Whether you have a fixed or adjustable rate mortgage, there are times when it's prudent to refinance your mortgage. You might need to make home improvements or consolidate high-interest debt. Let's say there was a big storm that ripped through your neighborhood and now your roof is leaking. You realize you need to have the entire thing replaced. What do you do? Don't reach for that credit card, if you want to fix it. Credit cards carry higher interest rates than do mortgages and, unlike mortgage interest, you can't deduct credit card interest from your taxes. (Always check with your tax advisor.) Or what if you went through a financially hard time and now you have thousands of dollars of debt racked up on your credit cards. How are you going to pay off those bills? The better solution is to refinance your mortgage to get cash out of your home using your home equity. Essentially, you get a new mortgage to pay off your old mortgage and you have extra money (taken from your home equity) to pay for home repairs or improvements or to pay off your debt. Making home improvements has the added benefit of increasing your home value so that when you sell it, you can make a bigger profit. And paying off your debt can improve your credit so that when you need another loan, you can get better loan terms and lower interest rates. In fact, you could even use the money you get from your home equity to make a down payment on an investment home, thereby increasing your cash flow. The truth is that everyone's situation is different and you have to judge whether or not it's right for you to refinance your mortgage. There are times it makes sense and times it doesn't. Even if you don't think you should refinance, it's wise to contact an experienced mortgage banker to find out for sure.

2007-01-06
Avoiding Dirty Mortgage Tricks

How to protect yourself from industry's shady salesmen. Brian Diez, a former military man, entered the mortgage business after a career as a stockbroker, figuring the field would offer him an altruistic benefit -- helping families buy their first homes. He learned quickly, however, that not every one of his fellow brokers had their clients' best interests at heart. "What became clear to me is every company was really interested in selling as many loans as they can, and not really helping clients," said Diez, sales manager for First Class Equities in Oceanside, N.Y. His quest to inform consumers recently prompted him to create a blog on the topic, http://briandiez.blogspot.com/. See blog. The "dirty tricks" he has seen and heard of range from brokers steering clients into products clearly unsuited for them to shady switcheroos at the closing table. Consumers can protect themselves by doing some research online before talking to a broker or banker, in order to have an idea of their mortgage options before they're ever presented, Diez said. They should also request copies of and review their credit reports to know what their credit looks like before the discussion begins. You may never find that altruistic mortgage lender: It's rare when commission-earning individuals -- whether the product is a mortgage, stocks or an automobile -- can completely divorce their self interests from a sale, said Joseph Badal, senior executive vice president at Santa Fe, N.M.-based Thornburg Mortgage. But there are ways you can shop more wisely for a mortgage so as not to get fooled by sales people who are more concerned about commissions than clients: Beware of Products That Seem Too Good to Be True Watch out for low-payment advertisements, said Kate Crawford, chairwoman for the consumer protection committee of the National Association of Mortgage Brokers. "What it is, it's a teaser ad ... that could lead to negative amortization," she said. In a negative amortizing loan, borrowers aren't paying the full amount of interest accrued each month and the unpaid amount gets added to the principal, thus increasing the balance. Homeowners with this type of loan can find themselves owing more than they bought the house for -- a scenario especially important to remember in a softening housing market. Although certain exotic loans make sense for some borrowers, they're not for everyone, Badal said. To find the best rates and terms, compare estimates from a few lenders, he added. Ask About Prepayment Penalties Mortgages with prepayment penalties are those which charge a borrower fees for paying off the entire mortgage or a large portion of the principal during a certain period of time. Penalties can also apply should the borrower choose to refinance. Terms of the penalties can be found in the Truth in Lending statement given to borrowers. But if the loan has a penalty for prepayment, it may be best to keep shopping, Diez said. "There are so many out there that don't have them," Diez said. "There's no need to put a client into a mortgage that has a prepayment penalty." Don't Cave to Pressure, and Protect Your Identity If terms change at the closing table, don't sign the contract, Crawford said. "A borrower can walk away at any time. That's their right," she said. And never sign a contract stating an origination fee must be paid if the loan isn't closed, she added. She also recommends following common-sense measures: Don't ever sign a blank form, and get a copy of every paper that is signed. Don't give out a Social Security number before it's time to actually apply. For paperwork that is required by the lender, make a copy and always keep the original. And while at your lender's office, take a glance around to see how paperwork is handled -- it may be one indication of how careful a company is with sensitive information, Crawford said.

2006-12-01
The Value of Business Planning

The Value of Business Planning Business planning can be defined as the strategy one uses to increase market share by identifying measurable goals and creating implementable strategies to achieve these goals using specific tools and ongoing assessment. Here are some tips for creating your business plan: 1. Determine and set your goals. Think about what you would like to achieve this month, during each quarter and by year-end. 2. Create action items that will help you move toward your goals. Make your list manageable by separating action items into long-term and short-term items, to match the goals you've set. 3. Prioritize. Review your weekly action item list regularly, and choose which action items you will complete in the coming week. Make a commitment to tackling high-priority items first. 4. Set a schedule for completion of three action items each week. Schedule those items in your calendar. When a task is completed, cross it off of your business plan, so you can see and track your progress. 5. Make time to review. Each week, schedule at least a half hour to review your goals and action items. Set up a weekly reminder on your calendar. Staying on track and measuring your results will help you reach your goals and make adjustments to your plan, when necessary. Remember, even the greatest athletes have coaches. If you find yourself struggling and need assistance to execute your business plan, ask for help. I can help you create your business plan and put your best ideas into action using our wide range of broker resources for business planning!