Sep
8
Want to ride a roller coaster?
Filed Under denver, foreclosure, mortgage, real estate | Leave a Comment
For the past couple of months, I’ve devoted a good chunk of my mornings reading the Denver Post and Rocky Mountain News. Occassionally I’ll blog about the articles. Most of the time, I’ll pass and blog about something else.
A friend of mine in Las Vegas noted that the Las Vegas real estate market was bad but nothing compared to the Denver roller coaster. He said that everytime he reads anything related to Denver real estate it’s about “foreclosures, high inventory, and lenders getting caught with their pants down.”
Based on two articles in the Denver Post and Rocky Mountain News, my friend in Las Vegas was right. The Denver real estate market was going through a roller coaster ride during the months of July and August.
The Denver Post view of this roller coaster:
Metro home sales up; prices dip
The median price of condos and town homes sold during the month fell to $160,000, down from $163,000 in July and $164,000 in August 2005.
The median price of single-family homes sold during the month fell to $252,900, down from $259,500 in July and $255,000 a year earlier.
Compared with August 2005, single-family home prices were down 0.8 percent, while condo prices were down 2.4 percent.
The Rocky Mountain News view of this roller coaster:
August home sales drop 11% from year ago
August home sales activity in the Denver area dropped by almost 11 percent from a year ago but showed a 2.4 percent increase from July, according to studies released Thursday.
There were 5,673 previously owned homes placed under contract in August, down from the 6,351 a year earlier, when mortgage rates were lower. But the August number was up from 5,538 in July.
Nov
10
8.5% or 6.6% in Two Years
Filed Under mortgage | Leave a Comment
Here’s an article from the Rocky Mountain News discussing Rates, Home Sales and Housing Bubbles.
Rising rates won’t stunt home sales, builder says
By John Rebchook, Rocky Mountain News
November 10, 2005Mortgage rates will rise to 8.5 percent in two years but won’t trigger a massive slowdown in Denver-area home sales or a housing bubble, Pat Hamill, CEO and president of Oakwood Homes, said Wednesday.
Hamill said rates were that high in 1995 and 1998, which were good years for home sales in the Denver area. But Hamill also pointed out that rates actually were falling during those years. Thirty-year, fixed- rate mortgages now are hovering around 6.5 percent.
Economic growth and job creation are far more important than higher rates, Hamill said.
Hamill was among the speakers at the 2005 Rocky Mountain Commercial Real Estate Expo Fall Forecast, held by the University of Denver’s Franklin L. Burns School of Real Estate and Construction Management.
Other speakers gave mostly rosy outlooks for the office, industrial, apartment, retail and land markets.
“We’re finally clawing our way out of the trough,” said Natasha Felten, president of Colorado Commercial Cos.
Hamill said one reason there won’t be a housing bubble is that homes aren’t as liquid as stocks. Even if home values fall, most people won’t be forced to sell, which is what often happens when stock prices drop, he said.
Also, speculators - who are artificially driving up home prices in other markets, such as California and Las Vegas - no longer are a factor in Denver, he said.
And home buyers in the U.S., on average, pay a smaller portion of their salaries to buy homes than do homeowners in other parts of the world, making them less vulnerable to falling values, Hamill said.
In the U.S., a typical buyer spends the equivalent of 3 1/2 times their annual income to buy a home, while in England, an average buyer spends seven times their income, he said.
People stretching to buy homes in hot markets such as California and Las Vegas, though, may be getting close to what U.K. homeowners pay, he said.
“We’re going to see that in our lifetime,” Hamill said.
rebchookj@RockyMountainNews.com or 303-892-5207
Copyright 2005, Rocky Mountain News. All Rights Reserved.
However, according to the National Association of Home Builder’s website, they predict rates to be 6.6% in 2007.
Oct
19
There is a great debate within the inner-mortgage circles these days. Should we, as loan professionals, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let’s examine the pros and cons of both strategies.
Leveraging Your Property. In order to understand why you’d want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here’s an example:
If Consumer “A” buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer “A” now has $160,000 in equity.
Consumer “B” buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer “B” has $100,000 in equity, which is the same appreciation as Consumer “A”, a net $100,000.
As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn’t use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.
However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, “Buy term and invest the rest.” The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.
Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.
It’s important, however, to understand that regardless of how rapidly you pay your home off, you’re not getting any greater rate of return on your investment than if you paid it off slowly.
Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it’s been proven that your rate of return over the long-haul will be far greater than the rate you’d pay for a mortgage in today’s rate environment. It’s important to seek the advice of a skilled investment advisor to ensure success with this strategy.
The second scenario is best for those who have a difficult time managing their money or who’ll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers “bite off more than they can chew” with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.
If you find this subject intriguing and would like to know more, I recommend that you read a book titled, Missed Fortune 101, by Douglas Andrew. It’s an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.