Mortgage Info & Housing Bill of 2009
03/08/10 MARKET UPDATE - 30 year mortgage is around 5.08%. Remember interest rates change daily like gas prices!
Fed Fund Rate is .0% to .25% and the Discount Rate is .75%
Interest rates will rise at some point during the economic recovery, the key is when! Please keep inflation in mind. Inflation may kick in sometime in the 2nd half of 2010 or in 2011.
Homebuyer Tax Credit is Extended to April 30th 2010 and MUST CLOSE BY JUne 30TH 2010!
American Recovery & Reinvestment Act of 2009:
The bill provides for an $8,000 tax credit that would be available to first-time home buyers that have not owned a residence in the last 3 years and expands the credit to grant current home owners who want to sell to purchase another a $6,500 tax credit (have to have lived in the residence 5 out of 8 years to qualify), dates are from November 6, 2009 and April 30, 2010. Income limits were also increased, single buyers that earn up to $125,000.00 and married couples that earn up to $225,000.00. Purchase price of the home can not exceed $800,000.00.
Contact our office for more details.
FHA, Fannie Mae and Freddie Mac Loan Limits -The bill reinstates last year's 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans. These limits were equal to the greater of 125% of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of $729,750. For the few areas where the 2009 limits were higher, the higher limits will apply. In addition, the bill includes language providing the HUD Secretary with the discretion, if warranted, to increase the loan limit for any “sub-area”, i.e.an area smaller than a county. The Secretary's discretion is again limited by the $729,750 cap. These 2009 limits will expire December 31, 2009.
Commercial Real Estate - Commercial real estate is impacted primarily through those provisions of the bill focused on green building and energy efficiency as well as business tax incentives. H.R. 1 provides significant funds for state energy programs, which could be used to support commerical property owners' investment in energy efficiency upgrades while commercial property owners seeking to invest in alternative energy systems for onsite power generation would benefit from the Department of Energy Renewable Energy Loan Guarantees Program. Of particular benefit to small businesses would be certain provisions of the bill that provide tax relief in the area of bonus depreciation and capital expenditures, as well as the 5-Year carryback of net operating losses for small businesses.
Rule of Thumb to Re-Finance
IF YOU RE-FINANCE, ASK ABOUT A MORTGAGE THAT HAS NO PRE-PAYMENT PENALTY SO YOU CAN RE-FINANCE AGAIN IF RATES DROP FURTHER.
IF YOUR INTEREST RATE ON YOUR MORTGAGE IS ONE PERCENTAGE POINT OR HIGHER THAN CURRENT INTEREST RATES, LOOK INTO RE-FINANCING!
Here again it's all about crunching the numbers. If it costs you $4000.00 to re-finance and your interest rate on your mortgage is 7.25%. If interest rates drop to 6.25%, then the savings on a $400,000 loan is $265.84 a month. It will take you about 15 to 16 months to re-coop the $4000.00 that you paid to re-finance. If you lived in your home for more than 16 months, then you will see the $265.84 savings. After you have covered your cost to re-finance, use this $265.84 a month and apply it towards your principal. This will help pay your home off faster.
A few things happen for interest rates to drop or rise. The 30 year mortgage interest rate is determined by what the 10-Year Treasury Note is trading (selling for) in Chicago. If the T-Note goes up in price, then interest rates go down. If the T-Note goes down in price, then interest rates go up. The T-Note has a yield also. When the yield goes up, interest rates go up. If the yield goes down, so do interest rates. This is what should happen fundamentally, but sometimes this does not happen.
The main role of the FED is to watch inflation & economic growth. About every six weeks the FED has its meeting and goes over all the economic data to see what direction they should go on cutting or raising rates.
The Fed Fund Rate is the rate that banks charge each other for overnight loans. “Why would one bank borrow cash from another?” you ask. The Fed can require banks to keep a certain percentage of assets in the form of cash on hand or deposited in one of the Federal Reserve banks. From time to time, it will establish a required ratio of reserves to deposits; when this ratio is increased, more cash must be kept in the vault at night, making it more difficult (and expensive) for funds to be acquired. When the reserve requirement is lowered, the money supply is loosened; because less cash has to be kept on hand it becomes easier to acquire capital.
The Discount Rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility.
Here in the Midwest we do not have huge market swings like they do in California, Arizona, Vegas and Florida. Please do not listen to the media.
Our area has about 4% to 6% average appreciation a year under normal market conditions which we have not had since 2001. Home values are based on economics but values were inflated due to above normal market activity that was created by non-traditional lending practices. We are in a deflationary period and will continue to be for a while. All of 2010 will be like 2009 unless interest rates stay below 4% for a fixed 30 year term, unemployment numbers really start declining but creating sustainable jobs were the average person is earning 75K to 100K, this will stabilize the market. These are the three main points but incomes have to keep up with the price of goods/services and inflation. It will continue to be a buyers market. Some areas have experienced an 8% to12% decline and others 12% to 20% decline. The 12% to 20% declines are homes in the 500K to 1 million and above price range. Why? because of wage earnings. Majority of the homes built were in this price range, hence deflation. The homes up to 400K are selling. We have to keep watching; commodities, interest rates, dollar, economic growth, GDP, employment numbers, wage numbers, how globalization is affecting our area, how many foreclosures in a subdivision and investor confidence.
The more homes that are for sale in a subdivision and no buyers, then that will lead to more deflation in home values. If one home in a subdivision is for sale we do not care what the market conditions are home values will stay high. Supply & Demand! There is always one family looking to live in that subdivision. It's when you have a lot of homes for sale in a subdivision that lead to falling prices because sellers keep lowering their price to sell. As a buyer even if prices come down another 3% to 5% you are still ahead of the game. Especially if you buy a foreclosure! You can not lose because of the equity you have made. But again it’s all about economics in an area!
Hopefully we gave you some points to think about please call us if you have any questions. We are here to help you succeed. We have only scratched the surface on information.
Contact Kuno Real Estate Today
If you need to sell your home to purchase another it can be a challenge but not impossible. Please do not listen to what you hear, every market is different. Dave has 14 years of market research experience. He will take the time to go over all your options in your market and the market you want to be in. This is what sets KUNO Real Estate apart from the rest, Market Research and presenting it to you were it makes sense. An educated consumer is our best customer!
You may lose equity in selling your home but you make it up in buying one. If you were to sell and not purchase anything then you will lose money (equity). Just like when it was a sellers market, you received top dollar when you sold and you paid top dollar when you purchased.
For example, we helped our client purchase a home 4 years ago for $585,000 at the time the market was peaking out. Now our client is married with a growing family and in need for a larger home. We sold their home for $500,000, an $85,000 loss.
As soon as we gathered all the information we needed on what type of home they were looking for we started searching the Multiple Listing Service (MLS) and found 3 different subdivisions with the school system they wanted to be in. Each subdivision homes were selling differently than the other based on age, square feet, beds, baths and so on. We compared all options and told them this particular subdivision will give them more dollar value with the criteria they were looking for plus the "function" they wanted. They purchased a home for $689,000 which sold for $825,000 four years ago.
Now you can see the $85,000 loss on their home gave a total gain of $51,000 on their new one ($825,000 minus $689,000 = $136,000 minus the $85,000 loss = $51,000). It’s researching different markets to get the best value for the dollar. Another example: a home that sold for $500,000 four years ago is still worth $500,000 today. Our clients upgraded to a $700,000 home which 4 years ago sold for $790,000. Our clients did not make any money on the home they sold but they made $90,000 in equity on their new purchase.
The key is when will prices bottom and which markets will bottom first! This is why Dave Kuno will break down everything you need to know. He is the best when it comes to researching markets!
Contact Kuno Real Estate Today