Saturday, September 29, 2007
Wednesday, September 26, 2007
Looking over the list, California has 8 of the top 10 most expensive towns for the average home which is not a surprise with the fantastic run up in property values in the last decade and the largest percentage of wealthy citizens per capita of any state according to Forbes. Also on the list are Greenwich, Connecticut and Boston, Massachusetts in the northeast.
This accounts for the attention placed on housing out in California. When the working rich(doctors, lawyers, small business owners) have to dig up nearly a million to get into an "appropriate" home, housing becomes the leading discussion in the household. And if you held onto a home during the run-up you have a great deal of your wealth tied up in your primary residence. Consideration should be given to repositioning equity into other properties or markets.
Beverly Hills, Calif. $2,206,883
Greenwich, Conn. $2,018,750
La Jolla, Calif. $1,800,000
Santa Monica, Calif. $1,785,000
Palo Alto, Calif. $1,677,000
Newport Beach, Calif. $1,617,500
Santa Barbara, Calif. $1,599,667
San Mateo, Calif. $1,498,023
San Francisco, Calif. $1,451,250
Boston, Mass. $1,381,250
Tuesday, September 25, 2007
Do you want to fight a war on poverty? A war on terror? A war on the senseless waste of the sole source of capital, the human mind? Here’s your chance. For two weeks in November, you’ll be able to buy two XO laptops, the One-Laptop-Per-Child computer, with one coming to you and the other going to a hungry young mind overseas.
With orders for its rugged XO laptop falling short of its initial goal, the One Laptop Per Child project announced today that it would let consumers in the United States and Canada buy the cute computer for a limited time.
In an interview last week, Nicholas Negroponte, the former MIT Media Lab director and founder of the so-called $100 laptop initiative, conceded that he had not locked in the 3 million orders that he once said were necessary to trigger mass production.
The new “Give 1, Get 1″ initiative could be the antidote, he said, by helping to spread the project.
For a limited two-week span in November, people will be able to buy two laptops for $399, one for the buyer and one for a child in a developing country.
My take: Donate both, perhaps with one going to a child in your own town. Even better:
Starting today, people who simply want to donate a laptop to a child in a developing country for $200 can do so online at XOgiving.org.
I think there must be three billion candidates for this machine, so I can’t imagine how most of them will get one before they are no longer children. But the bounty of the harvest is planted one seed at a time. Click the laptop picture to do your part.
Saturday, September 22, 2007
Friday, September 21, 2007
Federal Reserve Chair Ben Bernanke probably has the same frustrated shoulder sag that we do: he played this thing exactly right, and has gotten nothing for his trouble but a run on the dollar.
The Fed's 0.5 percent was actually two quarters: the federal funds rate had been trading near 5 percent, 0.25 percent off-peg, for a few weeks. That was an inter meeting ease not formalized, a deft piece of central banking: if formalized, and then the crunch dissolved by itself, the Fed would have had to execute an embarrassing formal reversal. Instead, Sept. 7 news of sinking payrolls (an economic fade additional to and independent of housing and the crunch) made it easy to cut. At this moment the economy receives some dinky benefit from the cut (Construction money is 0.5 percent cheaper -- wanna build a house? Short-term rates are down -- how about a nice new neg-am pre-pay-penalty ARM? No?), but the crunch is still in place, especially in Mortgageland.
Other benefits have been cancelled as well. The 10-year T-note, driver for all long-term credit, has soared from 4.35 percent to 4.62 percent. The dollar run has been to the euro (now all-time high vs the dollar at $1.41) and to hard assets: gold at a 27-year high $744 and oil at one moment yesterday $84.
A great deal of domestic money has joined the run, buying into the fingernail-on-blackboard theorizing: there was no reason for Fed action; it guarantees a resurgence of inflation; it's just Bernanke's Put; and all bailouts all the time are bad.
This run has foreign fingerprints as well; Asia's currencies are dollar-pegged, but a race to hard assets is typical of our Persian Gulf friends and their several-trillion-dollar-hoard. Big currency moves often involve confidence, and it is disturbing in a time of financial crisis to find money running away from the dollar, the historical safe-haven. Confidence has aspects beyond interest rates and inflation: at some point, the average Persian Gulf observer of U.S. leadership, present and forthcoming, might well conclude that we don't have the good sense that Allah gave to the camel.
Thursday, September 20, 2007
Mortgage Rates are trading higher again this morning. The euphoria has worn off from Tuesday's rally following the interest rate cut. Traders have now assessed the long-term negative effects of the sinking Dollar and have begun selling into the market.The US Dollar has been falling against foreign currencies. This is inflationary because it takes more Dollars to buy foreign imports, which is effectively the same thing as a price increase.Bond prices may continue to drift lower throughout the day, pressuring home loan rates higher. For today, I would advise sticking with a locking bias.
Wednesday, September 19, 2007
Tuesday, September 18, 2007
What does the Fed cut mean? Rates on consumer debt, car loans, and Home Equity lines will all benefit. But because Home Loan rates are tied more closely to inflation, it is not uncommon to see less of a reaction...or even an opposite reaction in mortgage rates.
The Fed cut also hurts rates of return on investments, which gives foreign investors less incentive to invest in US securities. This has sent the Dollar much lower against the currency of most major foreign countries. This makes foreign goods more expensive for us to buy, which adds to inflation pressures.
Overall, the Fed cut is good news for the economy, but may nudge inflation a bit higher long term. In the short run, we have seen an improvement in mortgage rates for prime credit borrowers especially within the jumbo and super jumbo market.
Monday, September 17, 2007
The Federal Reserve Board controls the federal funds rate. The Federal Reserve Board (Fed) has the power to raise or lower the federal funds target rate (Fed funds rate), which in turn influences the market for shorter-term securities. The Fed funds rate is the rate banks charge other banks for overnight loans. The Fed may raise the rate to keep inflation in check or lower it to stimulate the economy.
Long-term rates are market driven. Long-term interest rates, as represented by yields of the 10-year or 30-year Treasury bond, tend to move in anticipation of changes in the economy and inflation.
What causes interest rates to rise and fall?
Economic factors influence interest rates. Both short- and long-term interest rates are affected by economic factors such as inflation, the strength of the U.S. dollar and the pace of economic growth.
For example, strong economic growth can lead to inflation. If the Fed becomes concerned about inflation, it may attempt to cool the economy by raising the Fed funds rate, as it did in 2004 and 2005.
On the other hand, if the economy slows down, the Fed may lower the Fed funds rate to stimulate economic growth, as we witnessed in 2001-2003. Similarly, economic factors also affect long-term interest rates. For example, over the summer of 2003 and then again in the spring of 2004, long-term interest rates rose from historic lows as the economy showed signs of strength.
It should be noted that short- and long-term interest rates don't necessarily move in tandem. While short-term rates rose in 2004 and 2005, long-term rates remained relatively low.
Friday, September 14, 2007
Well, yeah... resets weren't an issue as long as home prices kept going up -- you just refinanced into another loan. Hopefully, NMN asked Mozilo why Countrywide cutback ARM production from $19.3 billion in August 2006 to $8.3 billion last month. (Turn sarcasm on.) The resets can't possibly be a problem. Investors love a solid reset from 5% to 7% on their loan portfolio, nothing lines the pockets better. The real problem is these borrowers. They can't pay the higher rates. In the 2-3 years their loan was fixed, all was well. Then property started to decline and many of these folks can't refinance or haven't boosted their 'stated income' the 20-40k to handle the payment increase.(Sarcasm off) If they can the rates are between 6-8% depending on FICO, loan to value, document type, their preference in music, etc To break it down in real terms, clients resetting are moving from 4-5% for prime clients to 6-7%. The annual cap on increases is 2%. Most folks mortgages are based on a 2 or 2.5% spread against LIBOR. LIBOR stands at 5.275% today. On a 500k mortgage loan amount the payment increase is about $800 a month in interest. Here is a chart of LIBOR the last few years:
Tuesday, September 11, 2007
The poll of 1,744 brokers in the last week of August found that subprime borrowers had trouble refinancing mortgages because loan programs were no longer available, according to a statement from Campbell Communications, the Washington-based research firm that conducted the survey. Prime borrowers were impeded by appraisals and high loan-to-value ratios, it said. Original Article
The fear within the industry has risen dramatically. Many banks and lenders have resorted to cutting appraisal reports from reputable firms 50-100k to deny loans or to limit their risk. This is happening especially in CA. The lenders that are standing have tightened guidelines and leaned on the appraisal review department to knock down values. I have seen appraisals with 5-6 comparables from sales in the last 45 days cut down in value because the lenders appraisal review department thinks values aren't there anymore. The comments note that it is a soft market and they point to the amount of inventory in the area.
These are not high risk refinances. They are 75-80% loan to value refinances for home owners with perfect credit. Appraisal review has often been a mechanism that lenders use to limit risk. World Savings is notorious for having very low appraised value reports from their in house group, which is all they allow under their loan products. They are owned by Wachovia and the CEO commented recently that their pay option arm(read:NEGAM) loans are fine and the business is working well for them. Well, of course it is, they only loan to 80% of their fire sale appraised value number to prime credit levels. We would have to have a depression for Wachovia to worry about their loans.
The practice of having standard prime lenders cut appraisals as a protection method is creating a vicious loop. I would strongly advise anyone that has an adjustable loan to seriously review their financial situation and loan terms.
If values are falling in your neighborhood and you have a large balance vs your CURRENT home value you need to evaluate if you can handle your current loan and any future adjustments throughout the credit storm which could last for several years. Most adjustables are made with a margin against the 1Y LIBOR index(definition below). Which as of today was 5.23%. Most loans max at a 2% adjustment per year. They usually cap at 9.95%. The majority of folks that purchased or refinanced with an adjustable in 02-05 will start to adjust this year and into 2010. For a view of the reset please review older posts.
If adjustments would make things difficult in a year or two. I would advise looking at your refinance options now or consider selling your home. It should be a home not a modern debtors prison.
What it means: LIBOR stands for London Interbank Offered Rate. It's the rate of interest at which banks offer to lend money to one another in the wholesale money markets in London. It is a standard financial index used in U.S. capital markets and can be found in the Wall Street Journal. In general, its changes have been smaller than changes in the prime rate.
How it's used: It's an index that is used to set the cost of various variable-rate loans. Lenders use such an index, which varies, to adjust interest rates as economic conditions change. They then add a certain number of percentage points called a margin, which doesn't vary, to the index to establish the interest rate you must pay. When this index goes up, interest rates on any loans tied to it also go up. Although it is increasingly used for consumer loans, it has traditionally been a reference figure for corporate financial transactions.
Monday, September 10, 2007
Thursday, September 6, 2007
In addition, the first notion of "back to school" already has hit many second-home owners who are beginning to schedule the "winterization" of the family cabin. Instead of going through another off-season with little use and significant maintenance, some owners will use the last few weeks of the summer season to show -- and hopefully sell -- the family getaway, raising for-sale real estate inventory levels in popular areas.
If your house or cabin already has been sitting for sale long enough to bite into your comfort and affordability zones, you might want to consider a lease-option.
A lease with an option to buy often can solve a two-mortgage problem for a seller, and provide a cash-poor buyer with an opportunity to "try out" a house while getting a portion on the monthly rent credited toward a down payment.
Many sellers make a commitment to purchase another house contingent on selling the one they're already in. But when it comes time to purchase the second house, or lose it, the prospective buyer can be faced with making payments on two homes if the first one has not sold.
A 12- to 18-month lease agreement, with an option to buy within the lease period, can solve problems. Here's how a typical lease-option works:
1. The buyer and seller agree on a purchase price, usually a figure somewhere between today's market value and the anticipated market value 12 months down the road.
2. The seller gives up tomorrow's presumably higher value for money in hand today. The buyer pays a bit more than today's value in exchange for very little cash down. Let's say buyer and seller agree the price will be $335,000.
3. The seller charges the buyer a nonrefundable fee for agreeing to this option. The amount can vary depending on factors such as how eager the seller is to move and the size and quality of the house. Typically, the higher the fee, the better the buyer maintains the property.
4. Let's use $3,000 for the fee in our hypothetical transaction. The fee is in addition to the monthly lease payments. And we'll have the seller give the buyer the right to purchase the property for $335,000 at any time within the 12-month lease period. If the option is exercised, the fee could be considered part of the down payment.
5. The lessee has made no down payment, hence the monthly option fee is typically higher than rental market rates. The two parties agree on what portion of the rent will be applied to the down payment. Any amount can be credited. For example, if the monthly fee is $2,000, $800 could be credited to the down payment. (If the seller really is not eager to sell, he may not agree to a higher rent credit.)
6. Buyer and seller must be sure to specify both lease and sale terms in the agreement. For example, when the time comes for the buyer to exercise the option, if the interest rates are at 8 percent, the buyer may not be able to qualify for a loan. It's a good idea to set an interest-rate ceiling in the agreement, or ask the seller to finance the home when conventional rates hit a certain level.
Sellers should read their mortgage agreements carefully before entering a lease-option agreement. Some lenders may activate a "due-on-sale" clause if the seller enters into a lease-option with another party. Many times, lenders will permit a specific lease-option period if notified in advance. And, lenders usually are more willing to participate when they are assured of future business -- like the seller's or buyer's new mortgage loan.
Some realty agents have been reluctant to seek lease-options for clients because they have been unwilling to gamble their commissions on whether the option would be exercised. Others are skittish about deferring their commission until a deal is solidified. However, when open-minded agents understand a lease-option could keep a deal together and result in future business, the concept is readily accepted. A small piece of something is better than a large piece of nothing?
Wednesday, September 5, 2007
What's the trickle down from these job cuts? Many of these have occured in the hottest job areas. Have you heard any stories or any anecdotial evidence of this affecting your local economy?