Is Now the Time to Buy Your First House? .
May 14, 2012
We are asked “Is now the time to buy” by clients daily. The Wall Street Journal took a look at this question and answered it both ways; yes and no. What do you think?
“It’s been a scary few years for the housing market. But at some point, the nightmare has to end (please?). Is now the time? Should first-time home buyers consider jumping into the market?
After all, home prices have fallen 34% from their 2006 peak and mortgage rates are hovering at or near record lows.
On one side are those who argue that homes are more affordable than they have been in decades, based on how much monthly income a mortgage consumes and whether owning is less costly than renting.
An uptick in home buying by investors already is under way, they say—an indication that those who wait may miss out on a good buying opportunity.
On the other side, pessimists insist that the housing slump is far from over, and that prices will continue falling—perhaps as much as 20% or more.
Excess inventories, they say, are the problem, and some estimate it could be four years before the market absorbs all of that extra supply.
Eric Lascelles, the chief economist at money-management firm RBC Global Asset Management Inc., says this is a remarkable time to be a first-time home buyer. A. Gary Shilling, president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J., says buying now is a terrible idea.
Yes: It’s a Rare Opportunity
By Eric Lascelles
This could be the best time in a generation to be a first-time home buyer.
Cheery views such as this are out of vogue and easy enough to dismiss as the ravings of a serial optimist. And yet this opinion isn’t based on any heroic economic assumptions. To the contrary, it is constructed upon a more curmudgeonly foundation: In my estimation, the stock market probably underestimates Europe’s woes, U.S. economic growth may fall short of expectations, and—of greatest relevance—the overall housing market is likely still several years from normality.
Nevertheless, this is still a remarkable time to be a first-time home buyer. Affordability is the best it has been in 30 years, thanks to the combination of a 34% decline in prices since the 2006 peak and a historically low 4% average rate for a 30-year, fixed-rate mortgage.
The two affordability metrics that truly matter are how much monthly income a mortgage consumes, and whether this is less costly than renting. On the first count, I calculate that home prices are now an astonishing one-third cheaper than the historical norm. On the second, real-estate website Trulia figures that buying is cheaper than renting in 98 out of America’s 100 major markets. That is practically a clean sweep.
Rock-Bottom Rates
Investors get this. While households dither, investors ramped up their home buying by 64% across 2011. They understand that this is the mother of all buyer’s markets, and won’t last forever. The prospect of making a profit by flipping these properties is still rather distant, so they lay in wait for an eventual rebound and in the meantime make money by renting out their properties for more than the monthly mortgage payment.
Yet most people are sitting on their hands, frozen not by the fundamentals but by psychology. For those able to overcome their phobias, a blazing contrarian opportunity exists.
Here’s a dirty little secret about recessions: They aren’t bad for everyone. They can even be downright beneficial if played right. Roughly one in 30 Americans is unemployed as a result of the financial crisis. The rest have sidestepped this blow, and what’s more have been given the gift of extraordinarily low interest rates.
The long arc of history reveals no other sustained period of real interest rates this low. It is mind-bending that American home buyers can now borrow for 30 years at a cheaper rate than either General Electric Co. or the Australian government. And unlike their counterparts in most other countries, Americans can lock in today’s borrowing costs for the full life of their mortgage, enjoying perfect certainty about future payments.
The finances of most households have had a rough go over the past several years. Many were ravaged by financial markets. Others are trapped beneath an illiquid and possibly underwater home.
However, the situation for first-time home buyers is different. They largely skated through the past few years. They weren’t yet in the housing market, and so escaped that devastating hit. And with an average age of 30, they hadn’t yet accumulated sufficient assets to truly suffer when markets fell.
A significant part of this cohort’s savings has been generated in just the past five years, and while markets have been enormously volatile over that period, a monthly savings plan would have generated a 26% return in equities and 22% in bonds. First-time home buyers may not be so hard up for their down payment after all.
Heck of a Deal
But is it wise to take the plunge in this era of economic uncertainty? While the economy remains very fragile, it has become less so since the fall. Still, say the worst happens—you buy a home and then immediately lose your job: The foreclosure backlog provides breathing room, and there is ample evidence that the newly unemployed are regarded preferentially by employers over the poor souls in long-term unemployment purgatory.
Do home prices still have room to fall? Or is now the time to buy?
Could home prices fall further? Yes they could. The home-inventory overhang is still quite large and credit availability remains poor. Home prices are unlikely to bloom in earnest for quite some time. But inventories are finally shrinking and mortgage availability has at least stabilized, and if you wind up buying a house on sale for one-third off its fair value instead of discounted by 40%, you still got one heck of a deal.
Arguably, the bigger risk is rising interest rates, which could erode affordability and snuff out this buying opportunity.
What if you are presently unemployed, or a grim-faced banker has rejected your mortgage application? Alas, your decision has been made for you. But for viable first-time home buyers—those with a stable job and a preapproved mortgage—this opportunity is ripe for the picking. Investors are already eating your lunch.
Mr. Lascelles is the chief economist at money-management firm RBC Global Asset Management Inc. He can be reached at reports@wsj.com.
No: The Fall Isn’t Over
By A. Gary Shilling
Don’t buy your first house now unless you’re willing to lose 20% of its market value in the next several years. Maybe more.
It will take a 22% drop to return median single-family house prices to the trend identified by Robert Shiller of Yale University that stretches back to the 1890s and prevailed until the housing bubble began. (It adjusts for inflation and the tendency of houses to get bigger over time.) And corrections usually overshoot on the downside just as bubbles do on the upside.
The problem is excess inventories. They are the mortal enemy of prices, and we’ve calculated an excess of two million housing units, over and above normal working levels of inventories of new and existing homes. That is huge, considering that before the housing market collapsed, about 1.5 million new homes were being built annually, a figure that shrank to 568,000 in February. At current rates of housing starts and household formation, it will take four years to work off the excess inventory, plenty of time for those surplus houses to drag down prices.
Excess inventories, of course, were spawned by the earlier housing boom, which was driven by a host of factors—including low interest rates, almost nonexistent lending standards and government attempts to put even those who couldn’t afford chicken coops into four-bedroom houses. But most of all, the housing bubble was driven by the conviction that home prices never fall—they hadn’t on a nationwide basis since the 1930s—so any bad purchase would eventually be reversed.
As such, the homeownership rate expanded to 69.3% by late 2004, from the earlier norm of 64%. But now, homeownership has retreated to 66% as foreclosures mount, lending standards stay tight and many worry about their jobs and/or the responsibilities of homeownership. Everyone knows that house prices can and do fall.
Pushing Up Inventories
The optimists will tell you that home inventories have stabilized, but their thinking is flawed.
Our estimate of two million excess homes takes into account those on the market as well as hidden inventories, such as foreclosed homes not yet listed for sale and those withdrawn from the market because owners couldn’t stomach the bids they received. A U.S. Census Bureau category that measures such hidden inventories has leapt by one million units since 2006.
Additionally, our inventory estimate doesn’t even include future foreclosures, some five million of which are waiting in the wings. The 49% drop in new foreclosures since the second quarter of 2009 is a mirage, and was partly due to the Obama administration pressuring mortgage lenders to try to modify troubled mortgages to keep people in their homes. (They were largely unsuccessful.) Then lenders refrained from foreclosing to avoid even more bad PR during the robo-signing flap that highlighted inadequate foreclosure procedures.
Now that mortgage servicers have reached a $25 billion settlement with Washington and state attorneys general, foreclosures are likely to roar back. That likely will trigger the additional price decline, since the National Association of Realtors says foreclosed houses sell at a 19% discount to other listings, and sizable sales of real estate owned by lenders drag down the entire market. The total peak-to-trough decline in single-family house prices then would be more than 50%.
If those foreclosed out of their abodes move to rentals, they’re occupying other housing units, so there is no change in overall inventories. But if they double up or move in with their parents—as statistics show they have been doing—even more excess inventory results.
A Disastrous Investment?
Sure, the always optimistic National Association of Realtors tells you that based on mortgage rates, incomes and house prices, single-family houses have never been more affordable. But according to their index, that was also true in December 2008, and prices have fallen 9.2% since then. Ugh! Home prices may have dropped 34% since the peak in early 2006, but that doesn’t make them cheap if prices continue to decline.
Many have realized that an abode and a great investment are no longer combined in a single-family house. Instead of straining to buy a house, young families should rent until their kids are old enough to really need a single-family home.
Yes, apartment rental rates are rising and vacancies are falling, but by past standards, house prices remain high relative to rents. But even if homeownership was cheaper than renting, as some claim, buying a house now would be a disastrous investment if prices fall another 20% or more.
The homeownership dream of an appreciating asset and huge ATM has been replaced by the nightmare of a liability that is expensive to own and falling in value. Act accordingly.
Mr. Shilling is president of A. Gary Shilling & Co., an economic consulting firm in Springfield, N.J. He can be reached at reports@wsj.com.”
Full article: http://online.wsj.com/article/SB10001424052702304299304577348083297932466.html#mjDropdown
Construction Loans
April 18, 2011
Sequoia Pacific Mortgage Company offers interim construction loans for residential dwellings, apartments, commercial buildings, and spec homes. The term of a construction
loan can be anywhere between 9–12 months with permanent financing available after the construction loan period. Typically the construction period will be a fixed rate
mortgage. The permanent loan can be any one of the loan types referred to to in the RESIDENTIAL LOANS section of our web page. These loans are considered specialty
loans.
For more information about construction financing contact Dennis Harter at 707-575-3220 or email him at Dennis@sequoiapacificmortgage.com
Reverse Mortgage at Sequoia Pacific
April 18, 2011
Sequoia Pacific Mortgage Company has provided the Reverse Mortgage loan products to Seniors in the Northern California area since 1996. Reverse Mortgages allow Seniors to convert part of the equity in their home into cash without having to sell, move, give up title, or make a monthly mortgage payment*. Borrowers can choose to receive Reverse Mortgage funds as a lump sum, fixed monthly payments, line of credit, or as a combination of monthly income and line of credit. The loan is repaid when the last surviving borrower sells the home or permanently moves out. Reverse Mortgages funded today are loans insured by the Federal Housing Administration (FHA).
For information about Reverse Mortgages please feel free to contact one of our Reverse Mortgage specialists. Tracy Kline or Dennis Harter today 707-575-3220
*Homeowner must still pay their homeowners insurance and property tax bill.
Residential Loans
April 18, 2011
FIXED RATE MORTGAGES:
Sequoia Pacific Mortgage Company offers fixed rate mortgages with a range of periods that you can select to pay off your loan balance. The periods offered are 40, 30, 20, 15 and 10 years. The fixed rate mortgage is the traditional method for borrowers since the
principal and interest payments are amortized over the term of the loan so that each monthly payment is equal. The advantage of a fixed rate mortgage is that your monthly payment on the loan will be the same for the life of the loan. Eligible properties include single family residences, 2 to 4 units, PUD’s and condos, second homes and investor properties.
ADJUSTABLE RATE MORTGAGES:
Sequoia Pacific Mortgage Company offers adjustable rate mortgages for a 30 year term. With an adjustable rate mortgage (ARM), the interest rate and payment amount can increase or decrease only at pre-determined intervals. The interest rates for adjustable rate mortgages are tied to indexes plus a margin. Currently the 1-Year LIBOR index is the commonly used index. In general, adjustable rate mortgages (ARM’S) tend to be less expensive over the life of the loan than fixed rate loan, especially in the first years, this is because the lender is willing to charge lower initial interest rates for the ARM’s because the borrower is sharing part of the risk should interest rates rise. Eligible properties include single family residences, 2 to 4 units, PUD’s and condos, second homes and investor properties.
INTERMEDIATE FIXED RATE ADJUSTABLE RATE LOANS:
Sequoia Pacific Mortgage Company offers an adjustable rate mortgage in which there is an initial period that the interest rate and payment is fixed. After the initial fixed period, the loan has the same features as an adjustable rate loan with annual interest rate and payment adjustments for the remaining life of the loan. This loan product can offer lower initial fixed interest rates for borrowers that intend to move, sell or payoff their loan within the initial fixed period. The fixed period offered are 3, 5, 7 and 10 years. Eligible properties include single family residences, 2 to 4 units, PUD’s and condo, second homes and investor properties.
FHA & VA Loans »
Sequoia Pacific Mortgage Company is pleased to provide for you the below resources to assist in you in the process of purchasing your home using government means.
FEDERAL HOUSING ADMINISTRATION (FHA)
FHA began in 1936 as part of President Roosevelt’s effort to jump start the economy during the Great Depression. FHA mortgages has provided low cost housing financing over the years and continues to provide access for first time Home-buyers by requiring a down payments as low as 3.5% of the purchase price. In addition, the down payment can be provided by a Gift from a family member. FHA mortgages are offered in a variety of loan products such as a Fixed Rate, Intermediate Fixed Adjustable Rate Mortgage.
VETERANS ADMINISTRATION LOANS (VA)
The Veterans Administration is neither the lender nor investor in the granting of VA loans. The Veterans Administration only insures the loans based on the guideline’s of both the VA and Congress. For a qualifying Veteran, a VA loan can be a great benefit for it allows the Veteran to purchase an owner occupied home with as little as $1 down!
For more information contact one of our finance specialists today 707-575-3220
What Sequoia Pacific has to offer you!!
April 18, 2011
Residential Loans
FIXED RATE MORTGAGES:
Sequoia Pacific Mortgage Company offers fixed rate mortgages with a range of periods that you can select to pay off your loan balance. The periods offered are 40, 30, 20, 15 and 10 years. The fixed rate mortgage is the traditional method for borrowers since the
principal and interest payments are amortized over the term of the loan so that each monthly payment is equal. The advantage of a fixed rate mortgage is that your monthly payment on the loan will be the same for the life of the loan. Eligible properties include single family residences, 2 to 4 units, PUD’s and condos, second homes and investor properties.
ADJUSTABLE RATE MORTGAGES:
Sequoia Pacific Mortgage Company offers adjustable rate mortgages for a 30 year term. With an adjustable rate mortgage (ARM), the interest rate and payment amount can increase or decrease only at pre-determined intervals. The interest rates for adjustable rate mortgages are tied to indexes plus a margin. Currently the 1-Year LIBOR index is the commonly used index. In general, adjustable rate mortgages (ARM’S) tend to be less expensive over the life of the loan than fixed rate loan, especially in the first years, this is because the lender is willing to charge lower initial interest rates for the ARM’s because the borrower is sharing part of the risk should interest rates rise. Eligible properties include single family residences, 2 to 4 units, PUD’s and condos, second homes and investor properties.
INTERMEDIATE FIXED RATE ADJUSTABLE RATE LOANS:
Sequoia Pacific Mortgage Company offers an adjustable rate mortgage in which there is an initial period that the interest rate and payment is fixed. After the initial fixed period, the loan has the same features as an adjustable rate loan with annual interest rate and payment adjustments for the remaining life of the loan. This loan product can offer lower initial fixed interest rates for borrowers that intend to move, sell or payoff their loan within the initial fixed period. The fixed period offered are 3, 5, 7 and 10 years. Eligible properties include single family residences, 2 to 4 units, PUD’s and condo, second homes and investor properties.
FHA & VA Loans »
Sequoia Pacific Mortgage Company is pleased to provide for you the below resources to assist in you in the process of purchasing your home using government means.
FEDERAL HOUSING ADMINISTRATION (FHA)
FHA began in 1936 as part of President Roosevelt’s effort to jump start the economy during the Great Depression. FHA mortgages has provided low cost housing financing over the years and continues to provide access for first time Home-buyers by requiring a down payments as low as 3.5% of the purchase price. In addition, the down payment can be provided by a Gift from a family member. FHA mortgages are offered in a variety of loan products such as a Fixed Rate, Intermediate Fixed Adjustable Rate Mortgage.
VETERANS ADMINISTRATION LOANS (VA)
The Veterans Administration is neither the lender nor investor in the granting of VA loans. The Veterans Administration only insures the loans based on the guideline’s of both the VA and Congress. For a qualifying Veteran, a VA loan can be a great benefit for it allows the Veteran to purchase an owner occupied home with as little as $1 down!
REVERSE MORTGAGE >>
Sequoia Pacific Mortgage Company has provided the Reverse Mortgage loan products to Seniors in the Northern California area since 1996. Reverse Mortgages allow Seniors to convert part of the equity in their home into cash without having to sell, move, give up title, or make a monthly mortgage payment*. Borrowers can choose to receive Reverse Mortgage funds as a lump sum, fixed monthly payments, line of credit, or as a combination of monthly income and line of credit. The loan is repaid when the last surviving borrower sells the home or permanently moves out. Reverse Mortgages funded today are loans insured by the Federal Housing Administration (FHA).
*Homeowners are still responsible for paying their homeowners insurance and property tax bill
Construction Loans »
Sequoia Pacific Mortgage Company offers interim construction loans for residential dwellings, apartments, commercial buildings, and spec homes. The term of a construction
loan can be anywhere between 9–12 months with permanent financing available after the construction loan period. Typically the construction period will be a fixed rate
mortgage. The permanent loan can be any one of the loan types referred to to in the RESIDENTIAL LOANS section of our web page. These loans are considered specialty
loans.
Commercial/Income Property Loans »
We offer fixed and adjustable rate programs for the acquisition, construction, renovation, and refinance of commercial and/or income property Loans. These loans are specific
in nature to each transaction. Loan amounts can range from $300,000 up to $4,000,000 to qualified applicants. These loans are underwriting based on the type of property securing the loan and the Net Operating Income that the property generates.
What you Need to Know about Reverse Mortgages for Purchases
April 18, 2011
DOWNPAYMENT AND ALLOWABLE COSTS
Who can pay for what?
- Senior borrowers must make a down payment sufficient to satisfy the difference between the amount of money they are eligible for with the Reverse Mortgage and the sales price for the purchased property, plus any HECM loan related fees that are not financed or otherwise offset by allowable funding sources.
- Seniors obtaining a HECM for purchase may not obtain a bridge loan (or so-called gap financing) or employ other interim financing techniques to meet down payment requirements and/or pay for closing costs.
- This restriction includes subordinate liens, personal loans, cash withdrawals from credit cards, seller financing and any other lending commitments that cannot be satisfied at closing. The source of all funds must be verified prior to closing.
- While it is not unusual to see a seller credit towards non-reoccurring closing costs in a forward mortgage purchase transaction, a HECM for Purchase transaction do not allow for any non-reoccurring closing costs!
- Any contract or addendum received containing any type of seller concession or seller credit must be renegotiated and the concession or credit eliminated. All changes made to the purchase contract must be initialed by all parties of the contract and any changes or addendums must be reviewed and approved by an Underwriter prior to closing.
It is our goal to make the process of assisting your clients with a Reverse Mortgage as trouble free as possible. If you have any questions or need more clarification please do not hesitate contacting Tracy Kline one of our Reverse Mortgage Speacialist for more details! Tracy@sequoiapacificmortgage.com or Call 707-575-3220 Ext. 203
Sequoia Pacific Mortgage Company 