Guide Me Home to North Jersey

Last year at this time I wrote a blog about interest rates and home prices and the effect on monthly payments. At that time, it was projected that interest rates would rise. That projection appears to be taking hold. According to Freddie Mac’s website, the Weekly Primary Mortgage Market Survey indicates that interest rates for February 10, 2011 are now at 5.05%! The following chart is from the Wall Street Journal February 10, 2011.

It’s time to revisit this subject.

Home prices have not risen and may fall further, so the buyer who feels that waiting was a wise financial decision may want to rethink the decision to buy (or not to buy). Why? The key issue when buying a home for most people is how much it will cost them on a monthly basis. Home prices are not projected to rise until mid-2011 (according to Macro Market Home Price Expectations Survey 12/20/2010). But the rise in interest rates will negate the good news for buyers, not sellers, about stagnant prices this spring. Recently the Wall Street Journal said, “If prices come down another 10% but interest rates increase by 1 percentage point, that would mean the same monthly payment today vs. waiting.”

There is a definite relationship between mortgage rates and home price fluctuations. For every point the mortgage rates increase, the value of the house you can buy is reduced 10% if the buyer wants to stick with a predetermined monthly payment. According to Keeping Current Matters, the difference in monthly payments on a $360,000 loan with a 5.0% interest rate ($1932) vs. a 6.0% interest rate ($2158) is $226.00. That works out to an annual difference of $2712! For the full term of the 30 year mortgage, that’s $81,360 more. If you only want to spend $1932 per month that means that you must reduce the value of the home you are buying by 10%.

As with all future financial trends, no one can accurately predict what will happen over the next 6-12 months. However, based on trends as noted above, it would certainly make sense to take a long, hard look at buying now while the monthly financial outlay remains low.

  

Posted by:  Mary Jane Benedetto

In spite of all the forecasts about higher mortgage rates happening in the latter part of 2010 (up to 6%), the unexpected strengthening of the dollar against the Euro has pushed rates down to a new low as investors are now investing in US bonds. Once yields on treasury bonds lowered, this triggered a decline in mortgage rates.

According to the Wall Street Journal article by Nick Timiraos on May 24, 2010, rates averaged 4.84% last week ending May 20, 2010. Rates were around 5.27% in April.
 

Why is this important?

Remember my previous blogs? I explained that for every one point in increase or decline of a mortgage rate, there is a corresponding 10% increase or decline in the cost of the home. If you are a seller, you may not be forced to lower the price of your home as the monthly cost to the buyer will be less with a lower rate. (This assumes, of course, that you priced the house properly at the outset of the listing.) If you are a buyer, you can buy more house for the same monthly cost!
 

So, if you are in the real estate market either as a buyer or seller (or know someone who is), timing is of the essence! Lock in a low rate and let’s start looking at houses!

Posted by:  Mary Jane Benedetto

It’s true- many potential home buyers are questioning if they buy now, will it be a mistake? The truth is, no one has that proverbial crystal ball, but there are a few reasons that point towards buying now instead of waiting. Waiting for what? Higher prices and higher mortgage rates?

Let’s look at the price of stocks vs. homes and their Return on Investment (ROI) over the past 8 years beginning 1/1/2000. Steve Harney of Keeping Current Matters has analyzed a $100 investment made 8 years ago and compared its value as of 12/31/2008. His research shows that an investment of $100 in the Dow would be down 19%, the same investment in the S & P would be down 35%, and the NASDAQ would be down 59.9%. However, real estate showed a positive 69.8% ROI over the same time period.

Now, let’s look at prices of homes in five year periods beginning in 1980. The average increase was @ 26-27% per five year period up to 2000. But, from 2000 to 2006, prices showed an 89% increase! Of course we are experiencing a correction- the rate of appreciation was unsustainable and buyers refused to pay those prices. The correction began in late 2005 and will cumulatively correct as much as 24% by 2010 nationally according to Jeff Otteau of The Otteau Report. Assuming that is true, we are close to the bottom.

You ask- when is the bottom? That is impossible to say, but history shows us we will not know when we have hit bottom until the prices start to rise, and by that time, it will be too late. Make an offer- you may hit bottom! However, if you don’t buy at the lowest of the low, take a moment to look back at the 8 year ROI. A strong case could be made that a 69.8% ROI on real estate, plus or minus a few percentage points is acceptable.

Now, let’s look at mortgage rates. Currently we are looking at between 4.5 and 5%. This is because the bailouts are keeping the mortgage rates low, according to Steve Harney. But this can’t continue based on history. Since 2003, the rates have gone under 5.7% only 5 times (source: Federal Reserve and Steve Harney). Again you ask, when is the bottom? It’s impossible to say exactly, but, we do know that after those 5 lows, the rate at which the rates went back up was steep and sharp!

These statistics point in the direction of “Buy Now”. At Turpin Realtors, we are seeing bright spots where well-priced homes are on the market for a very short amount of time. Low interest rates and properly priced homes combined with a savvy buyer and a motivated seller equals a winning formula!

Posted by: Mary Jane Benedetto

While the real estate market is slow, there are three bright spots that are working in a buyer’s favor. Lower prices and lower mortgage rates are two well-known factors. But the tax credit that is available for first-time home buyers is not as well-known or understood. This law is far more advantageous to first-time home buyers than the first law that was passed in 2008 since it doesn’t require the credit to be paid back if you keep the home for three years.

Following is a brief summary and explanation of this positive factor. This writing does not pretend to discuss all qualifications, specifics, and provisions of the law and should not be used as any type of legal or tax advice. (As with all legal and tax related issues, you should consult your tax preparer or lawyer before doing anything).

Congress passed an $8,000 maximum tax credit in February in The American Recovery and Reinvestment Act of 2009. The credit is equal to 10% of the purchase price of the home up to $8,000. If you buy a home over $80,000, you can still qualify, but partially. This Act applies to purchases (transfers of title) of a home (primary residence) from 1/1/09 to 11/30/09 for all first-time home buyers as identified in the law.

Qualified buyers must meet income restrictions. Single buyers can earn up to $75,000 annually and joint tax-return couples can earn up to $150,000 annually. Buyers earning over that may qualify for a partial credit. Your tax preparer can give you specific information.

This is the time to buy!

Posted by: Mary Jane Benedetto

Everywhere I go, people ask, “How’s the market?” I’m glad they ask. I’m happy for the opportunity to spread the good news that buyers are buying, houses are selling... if they are priced right. Quite simply put... if your house is the most attractively priced house for your market you win the buyer.

Sometimes buyers are competitively bidding with each other on those right-priced houses. This should not be surprising to hear. It makes sense that if something is well-priced, the knowledgeable buyer will recognize it and go after it. Many buyers have been in the market for a long time now. They will recognize a good value when they see it.

First-time buyers are particularly active right now. This is more good news. The first-time buyer market is extremely important to the real estate market. They are the engine that moves the train of recovery. When a first-time buyer buys a home, he allows that homeowner to then move up…moving that train.

If you’re a first-time buyer…or want to be... take heart. First-time buyers by definition have nothing to sell in order to buy, making them particularly attractive buyers for sellers. And there are mortgage products available that make it possible for a buyer to buy with as little as 3 ½% down. A first-time buyer with little cash but good credit can secure a loan in this strict mortgage climate.

Good news: Prices are down, mortgage rates are down... and NOW is a great time to buy.

Posted by: Alaina May Pyontek

Go to any social event – yesterday mine was the Peapack Gladstone 10 & 11 year old basketball scrimmage- and you will hear what’s on the minds of your friends and neighbors. In the top 3 is probably the real estate market.

So what are the latest housing statistics? The S&P/Case-Shiller Index reports that the annual change in the home pricing for the 20 metropolitan areas it tracks is down 18% through October 2008. The biggest losses were in the Sunbelt – Las Vegas and Phoenix down over 30%. The NY Metro area is faring better at -7.5%.

The Otteau Valuation group reports that NJ Contract Sales in November ran at 30% below November 2007. On the bright side, mortgage rates have recently come down substantially, with 30 year fixed loans running at just over 5%.

Some creampuff homes are out there for sale, with pricing not seen in the last few years. Once first time homebuyers jump in, the domino effect will work its way up the price curve. And whatever 2009 brings, I will enjoy the many pleasures of living in this area, including kids’ basketball games. Final score 24/24.

Click here for more on the S&P/Case Shiller index.

For more on the Otteau Valuation Group click on: www.otteau.com

Posted by: Susan Wagner