03 Apr 08 A Changing Market

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Real estate experts are suggesting that the housing market around the country is less than two years away from a turnaround. Now I know that everyone has heard this before, but the statistics now show that this may be true. Recently released from the California Association of Realtors, are some facts that I think everyone should know about Orange County real estate buyers and sellers. With the current changes to the lending practices and available jobs continuing to increase, it is believed that the mortgage crisis may be coming to an end or at least beginning to stabilize in Orange County and the rest of the United States real estate market.

• The Federal Reserve has reduced its lending rate six times since September, and did so twice in January by 1.25 percentage points. On March 18 the Fed made another cut of three-quarters of a point.
• With more homes on the market for longer periods of time, buyers have more choices and leverage when choosing a home in today’s market.
• The foreclosure crisis has motivated the government to create more consumer protections against predatory lenders. This led to the drafting of several bills in the works that will make a significant difference in future lending.
• A temporary increase in the conforming loan limit means consumers will be able to borrow money at lower interest rates even for higher priced homes. Prior to the increase, the conforming loan limit was $417,000.

Tags: california association of realtors, California Real Estate, federal reserve, foreclosure, housing market, interest rate cut, Orange County real estate

23 Jan 08 Another Rate Cut Might Not Be Enough

I might be a little off here but I think we need to stop announcing that there will be further interest rate cuts every time we cut rates. This keeps people on the sidelines and away from buying or refinancing their homes. I like that we have low interest rates but am not convinced that continually trying to boost demand is the best and only solution available to us. I think we need to implement a plan to decrease the supply of homes on the market. I’ll vote for something that helps everyone out; not just new home buyers and a few home owners with enough equity in their homes to refinance.

We need a solution that decreases a home owner’s monthly bills and encourages monthly savings. I think we can do well by proposing something like a 5-year, fixed rate interest only loan that is designed to be refinanced again after 5 years. I’m not sure if this will leave banks high and dry and hurting for repayment on the principal balance but I do know that if it worked out well, we could prevent thousands of foreclosures. Decreasing foreclosures would ultimately save banks hundreds of millions of dollars and a fixed interest only loan would take investment properties off the market because investors could then hold longer.

A good way to set this loan up so that it helps homeowners out in the long run is to make the payments gradually increase starting after the first year. The payment increase can’t be drastic, something like a 1% increase per year in which the extra money each month will go into a high interest savings account. This program gives homeowners an incentive to save, and pay on time. One incentive could be an option to add more years of interest only financing; the borrower is rewarded if all payments, including the payments to a savings account, were paid on time. For example, if all payments are made on time the homeowner would qualify for 5 more years of interest only financing and if they were late on one payment they would only qualify for 4 years. Ideally, the savings account would be used to pay down the principal or could be used as a down payment on a refinance or the purchase of a new home.

There are several ways to make this work for homeowners and investors we just need banks to get creative again without getting crazy. Maybe the government could apply more tax savings for investors? Anything we do needs address both supply and demand as well as promote long term stability for the real estate market and the economy.

Tags: adjustable rate loan, arm, federal reserve, fixed rates, Home Loans, interest only loan, interest rate cuts, mortgage loans, Real Estate, refinancing