Continue reading »]]> Let me answer this question with another question: Would you like to pay more money or less money to buy a house?  Most people would like to pay less money.  And that’s why a 15-year mortgage is usually a better choice.

There are two factors that make a 15-year mortgage cheaper than a 30-year mortgage.  First, interest rates on 15-year mortgages tend to be lower than rates on 30-year mortgages.  As I write this on May 10, 2011, bankrate.com reports that the average rate on 15-year fixed-rate mortgage is 3.83%, while the average rate on a 30-year fixed-rate mortgage is 4.59%.  That’s a difference of 0.76%.  On a $200,000 mortgage, this saves you $31,953.70 over the life of the loan.

But the bigger savings is due to the fact that you have to pay interest for only 15 years instead of 30 years.  Because you the money back faster, this further reduces the amount of interest you pay over the life of the loan.  This faster payback saves you another $73,488.90 in interest over the life of the loan.

Add these two savings together and you end up saving a total of $105,442.60 with a 15-year mortgage.  Over the course of a 15-year mortgage at 3.83%, you will pay a total of $63,231.19 in interest, while you will pay $136,720.10 over the life of a 30-year mortgage at 4.59%.

But there is one trade-off.  Because you will pay off your mortgage in half the time, your monthly payment on a 15-year mortgage will always be higher than your monthly payment on a 30-year mortgage.  The monthly payment on 15-year mortgage at 3.83% is $1,462.40, while the monthly payment on a 30-year mortgage at 4.59% is $935.33.  This is a difference of $527.06.

The paradox is that the 30-year mortgage makes a home more “affordable” because it reduces your monthly payment, but at the same time it makes the home more expensive because the increased interest charges that you will pay over a 30-year period.

Continue reading »]]> Good question, with lots of answers.  The fact is that—aside from the price of a home—owning a home comes with a number of responsibilities and choices, all of which have price tags associated with them.

Most people know the about the obvious costs: the cost of purchasing the home and the cost of financing the mortgage (if you have to use a mortgage to buy a home).  The cost of purchasing the home includes your down payment and your monthly principal payments.  The cost of financing includes any upfront fees your lender charges when you buy the home, plus the interest payments you make over the life of the mortgage.

In addition to principal and interest, most monthly mortgage payments include escrow payments for one or more of the following items:

• Property taxes
• Homeowners insurance
• Mortgage insurance
• Homeowners dues

All of these are additional costs of home ownership.

But there are more:

1. Utilities, including electricity, water, sewer, natural gas, garbage collection, telephone, cable television, and security system monitoring.
2. Maintenance, repairs, and replacements.  This is a big category that includes small things (lawn mowing) and big things (air conditioning maintenance). Plus, in the time you own a house, you may replace many things, both big and small.  A new faucet for your kitchen sink might cost $100, while a new roof might cost $10,000.  Everything else is in between: carpet, appliances, the water heater, and more.  The more time and money you spend on maintaining these things and repairing them as needed, the less money you will spend on replacing them.  In the nine years that I’ve owned my current house, here’s a sample—not by any means the complete list—of repairs and replacements we made:
   • Full kitchen remodel, including flooring, cabinets, counters, and appliances – $19,974.12
   • New gutters and downspouts – $1,120
   • New windows – $5,894.94
   • New fence – $6,995.24
   • New gas line – $1,850
   • Air conditioning maintenance and repairs – $1,885
   • Miscellaneous plumbing – $3,588.21
   • We’ve also paid to have our fireplace chimney cleaned occasionally; our lawn mowed; the insurance deductible associated with replacing our roof; occasional pest control services; and much more.
3. Decorating.  This includes truly discretionary items like paint, window treatments, artwork, and furnishings.

Continue reading »]]> Brokers Add Mobile Apps to Meet Buyer Needs

Brokers are using applications for iPhones, iPads, and other smart phones and tablet computers. These apps allow interested buyers to get immediate information about homes for sale and the areas that surround them.  Read more here.

Short Sales Not Easy, But Can Pay Off

And though they can take a long time to complete, short sales have become more common.  As everyone involved in short sales–the banks, the real estate agents, the lawyers, the title companies–gets more experience with them, the odds of having a smooth transaction are getting better. Read more here.

Continue reading »]]> The National Association of Realtors (NAR) publishes the monthly Pending Home Sales Index (PHSI).  It is a measure of how many contracts to sell homes have been executed but not yet closed. 

Because the closing of a real estate transaction typically occurs one to two months after the contract is signed, this index is generally viewed as a leading indicator of home sales.  For example, if the PHSI falls one month, then it is likely that the number of sales reported in the next 60 days will also fall.

The NAR collects data from MLS‘s and large brokers based on the number of contracts that have been signed in the past month.

The index was first created in 2001.  When the index has a value of 100, it means that the number of pending home sales is the same as it was when the index was created.  If the index value is less than 100, then it means there are fewer pending home sales than in 2001; if it is greater than 100, then there are more pending home sales.  As of the date of this post, the March 2011 PHSI value is 94.1; it has been as high as 111.5 and as low as 75.9 in the past year.

Continue reading »]]> Massachusetts Sales and Prices Down

The number of home sales in Massachusetts was down 14% versus March 2010, and the median price declined 2.8%.  Read more here.

San Diego to Lead the Way in Housing Recovery?

The National Association of Realtors released a report saying that San Diego may be the area most poised for a real estate rebound in the near term.  Other cities on the list include Dallas, Los Angeles, Boston, and Colorado Springs.  Read more here.

Continue reading »]]> Case-Shiller Index Reports Price Decline for February

Standard & Poor’s Case-Shiller Home Price Index for 20 metropolitan areas in the United States reported a 1.1% price decline from January to February 2011.  After increasing for nearly two year, the index measured by S&P is now nearly as low as it was in April 2009.  Read more here.

Study Finds Distressed Sales are Nearly Half of Housing Market

The HousingPulse Distressed Property Index (DPI), rose to 48.6 percent in March – the second highest level seen in the past 12 months.  At the same time, the HousingPulse Homebuyer Traffic Index (HTI) registered a slowdown for owner-occupant activity during March.  Both of the indexes are generated by the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, a monthly measure of housing and mortgage usage patterns. Read more here.

New York Real Estate May Take 10 Years to Recover

A report by S&P says that with the large number of homes available, it may take as long as 10 years for the overhang of properties in New York State to clear.  Read more here.

Continue reading »]]> Las Vegas Prices Continue Decline; Median Price Near $100,000

At the peak of the real estate market in 2006, the median price for an existing home in Las Vegas was $285,000. In March 2011 the median price was $108,000. Condominiums originally sold for $399,000 are now on the resale market for $39,900. Read more here.

New York Rental Activity Picks Up

In a time of economic uncertainty, rental activity is picking up as both the supply of homes available for rent and the number of people who specifically want to be renters–not buyers–increases.  Read more here.

Research Shows Strategic Defaulters Plan Ahead

“Strategic defaulters” are borrowers who, even though they could continue to make their mortgage payments, choose instead to stop making payments and default on their mortgage.  This phenomenon has grown as home values in some areas have declined so that they are well below the the outstanding mortgage balances owed on those homes.  Research is showing that people who choose a strategic default plan ahead to do so, rather than doing so impulsively.  Read more here.

Continue reading »]]> The federal government’s intervention in the housing market is about to show its face again.

Much of the housing market has been more or less stuck in neutral–or even reverse–since the federal income tax credits of 2o10 expired.  They caused a home buying frenzy in early 2010, as many buyers bought homes sooner than they originally planned in order to take advantage of the credits.  With all of that buying activity pulled forward to early 2010, buying activity–and therefore selling activity–has been sluggish since then.  Instead of providing a lasting boost to the housing market, the government’s intervention just moved things around a bit.  Such are the unintended–though foreseen–consequences of the government trying to “fix” things.

One of the other things the government did to “help” was to increase the maximum dollar limit for mortgage loans insured by Freddie Mac and Fannie Mae.  Mortgages that are at or below the dollar limit are known as “conforming loans” and mortgages over the limit are known as “jumbo loans”.  Until 2008, this limit was $418,000.  Congress then raised this limit to $625,500 and then temporarily raised the limit again to $729,750.  This temporary limit is set to expire at the end of September 2011 and the cap will revert to $625,500.  This limit applies only to certain “high-priced” areas like San Francisco and New York.  For a great information about this, see Linda Stern’s excellent article on Reuters.com.

To understand why this is important, you first have to understand what Fannie Mae and Freddie Mac do.  Among other things, they buy mortgages from lenders.  For example, your buy a house using a mortgage.  By taking out the mortgage, you promise to repay your lender over the course of the next 30 years.  Instead of waiting 30 years to be repaid, your lender sells the mortgage to Fannie Mae.  That way, the lender get their money back more quickly, and they can use it to make other mortgage loans.  Instead of paying your lender for the next 30 years, you pay Fannie Mae (or someone else they sell the mortgage to).

Not all mortgages are sold to Fannie Mae and Freddie Mac.  Some lenders hold the mortgages they originate and they collect payments over the term of the mortgage.  Some lenders sell their mortgages to other private (non-governmental) investors.  But still, if Fannie Mae and Freddie Mac stop serving a segment of the market that they currently serve (the segment for loans between $625,500 and $729,750), then lenders will have to respond.

Private investors may step in to buy loans.  If not–or if they are not willing to buy as many loans as Fannie Mae and Freddie Mac do–then lenders are going to require higher interest rates and/or higher down payments.  This may limit the number of buyers who can qualify for mortgages for relatively high-priced homes, which may depress prices for these homes.

This segment of the housing market has performed well in recent years, especially relative to more moderately priced homes.  Fannie Mae and Freddie Mac’s involvement in this segment likely is one factor that has helped–because they have been involved, mortgages have been easier to come by.

You may not care because you are not–and never will be–in the market for such a pricey home.  But you may need to care after all.  Consider this:

If a buyer can no longer afford a $700,000 home because he can’t get a mortgage for it, maybe he’ll begin looking at $600,000 homes.  This increases the number of people looking to buy $600,000 homes, which will push up prices for these homes.  Another buyer was looking in the $600,000 price range, but with all these new buyers looking in that same range and pushing up prices, he can’t afford a $600,000 home.  So he starts looking at $500,000 homes.

This market pressure from additional buyers may be good for sellers, but it won’t help buyers.   More unintended consequences of government intervention.