Home homebuyer april04

homebuyer april04

April, 2004 Newsletter

+++++++++++ April 1, 2004 +++++++++++++++++++

Introduction: The Resilient Market
Mortgage Rate Update: Rates Remain Attractive
This Month’s Tip: Don’t Mortgage Your Life Away

Introduction: Welcome to the April edition of the Home Buyer’s Newsletter, brought to you by the Home Buyer’s Information Center.           The Home Buyer’s Information Center

The resiliency of home sales continues to amaze virtually everyone, including most analysts who called for a dip in activity in 2004. So far, though, this is anything but the case as both existing home sales and new home sales showed increases in the month of February.

Existing-home sales increased 2.0 percent in February to a  seasonally adjusted annual rate of 6.12 million units from a  down wardly revised pace of 6.00 million units in January.  Last month’s sales activity was 5.7 percent above the  5.79-million unit pace in February 2003.

David Lereah, NAR’s chief economist, said the housing  market could defy expectations this year. “Currently, we are  projecting that home sales will decline slightly, but they  remain at exceptionally high levels,” Lereah said. “With a  strong underlying demand for housing from a growing  population in a recovering economy, we could be flirting  with another record this year.”

Sales of new one-family houses in February 2004 were at a seasonally adjusted annual rate of 1,163,000, according to estimates released jointly on March 24 by the U.S. Census Bureau  and the U.S. Department of Housing and Urban Development. This is 5.8 percent (±13.5%) above the revised January rate of  1,099,000 and is 24.4 percent (±13.4%) above the February 2003 estimate of 935,000.

The median sales price of new houses sold in February 2004  was $205,500; the average sales price was $257,200. The seasonally adjusted estimate of new houses for sale at the  end of February was 373,000. This represents a supply of 3.8 months at the current sales rate.

Will this trend continue? Obviously, the major influence here will be mortgage rate levels, which remain, as of this writing, extremely attractive. See the next story on current mortgage rates (and March’s trend) in the following section.

Mortgage Rate Update: Rates Remain Attractive

Although we saw a slight increase in mortgage rates at the end of March, rates remain very near historic low levels. According to mortgage company Freddie Mac, 30-year fixed-rate mortgages averaged 5.52% as of the period ending April 1. 15-year fixed-rate mortgages averaged 4.84% for the same period. Both of these average rates are just slightly above the decades low levels we saw last summer. These average rates do not include interest paid up-front as points.

March rates ended up very close to where they began. The 30-year fixed average began averaging 5.59% and ended averaging 5.52%. The 15-year fixed started at an average of 4.88% and ended at 4.84%.

For current average mortgage rates, see:  Mortgage RatesFor more information on mortgages, visit the Mortgage  Section at:  Mortgages

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This Month’s Tip: Don’t Mortgage Your Life Away

Long time readers of this newsletter may be familiar with the theme of this month’s newsletter: keeping a close watch on the level of the mortgage on your home. As we have noted many times in then past, overextending yourself in a mortgage can be a recipe for financial disaster. The last 5 years have been excellent for the  real estate market (rising prices, increasing number of properties sold) but, unfortunately these good years have blinded too many into the assumption (in some cases, the insistence) that real estate values only go one way: UP. As long as the market remains strong, there is less reason for concern about the size of the mortgage on your home. Should the market stagnate, or worse, go down, then your mortgage amount becomes a big factor in your financial health or lack of it.

Maximize Your Down payment

There have been numerous changes in the mortgage industry (and, as a result, in the home buying process) in the last few years. Where it was once common to make at least a 20% down payment on a home, today it is far more common to make a 10%, 5% or even no down payment at all on the purchase of a house. This radically changes the home buying landscape for several reasons. First, it allows those without substantial savings to enter the home buying market, a positive. Second, it means the majority of today’s buyers are subject to PMI–Private Mortgage Insurance–an extra monthly cost, since they have less than 20% down payment. Third, it  leaves these low or no-down payment buyers exposed to variations in the prices of homes. Should those prices stagnate or fall and there is a need to sell the home within the first five years or so,  the buyer will get stuck holding the bag…meaning they will not have enough equity in their home and will to reach into their pocket to sell their home and pay off their mortgage.

Be Careful with Adjustable Mortgages (ARMs)

An Adjustable Rate Mortgage (where your rate of interest can move up or down with market conditions, rather than be set as in a fixed-rate mortgage) can be a real boon for a couple of types of buyers–those who will be in the home that they are purchasing for only a short amount of time (usually 3-5 years at most) and those who are absolutely certain that their income will be increasing dramatically in the future (like a physician currently in residency).

Taking an ARM when you can barely qualify at the low “teaser” rate, though, can be very dangerous financially, especially in this time of historically low interest rates. Not only will rates rise from the teaser rate, they most likely will rise a good bit as the overall rate climate moves upward. You could very easily find yourself having difficulty making a mortgage payment that becomes 125% higher than the one you started out with (and was barely affordable at that). If the rate rises substantially, then you may be at risk of losing the home.

A better way? Unless you are going to be in the home for a  short amount of time (and will take advantage of the low initial rate and not be too affected by the increase) or are guaranteed a big jump in income, stick with a fixed-rate, fixed-term mortgage. Payments too high? Look at lower priced homes.

Tailor Your Mortgage to Your Situation

We see nothing wrong with a couple in their 30s securing a 30-year mortgage. If they stay in the home it will be paid off some time in their 60s, perhaps right before retirement time. They will then have the luxury of staying in the home at a much reduced cost, or selling the home and recouping all of their equity. The same 30-year mortgage for a couple in their early 50s though, is highly questionable if they want to make their home a part of their overall retirement planning. Not only will the home not be paid off (and not have the advantages above) until they are in their 80s, the time up until their retirement will be a slow road to equity, since the early years of a mortgage are virtually all interest.

A better way is to tailor the mortgage to what makes sense in your financial planning rather than just concentrating on what makes sense today. Talk to a financial planner and see what type of mortgage would best be in sync with your plans.

Be Wary of Interest Only Mortgages

In a never ending effort to match affordable mortgage payments with soaring home prices, the mortgage industry hasa introduced the “interest only” mortgage. Your payments are kept lower because you pay nothing against the principal–your whole house payment is devoted to interest. When house prices are rising steadily and predictably, you gain equity in the home simply by price appreciation. You have done nothing to reduce the balance owed. If prices go flat or reverse, though, a buyer would have absolutely no equity in the home or, worse even, owe more than it is worth. Either way, it makes the home very difficult to sell at best or absolutely impossible to sell at worst.

A better way? Start on a firm financial footing by building almost guaranteed equity in your home with a mortgage that addresses both interest AND principal.

Next Month’s Topic: Should We Build?

The Home Buying Checklist

Many of our visitors have said that one of the most valuable aspects of the Home Buyer’s Information Center is the Buying Checklist, where they can make sure that all the bases have been touched. You can find the checklist here:Home Buyer’s Checklist

As always, if you have suggestions for improving the  site, or topics you would like to see addressed in  this newsletter (or, if you have used the Home Buyer’s  Information Center to successfully purchase a home),  drop us a quick line here:  Home Buyers Information Center Feedback

A special thanks to all those who have written to let us know  that they have found the Home Buyer’s Information Center a  helpful resource in their buying process.  Have a great month and good luck in your home buying process!

The Team at the Home Buyer’s Information Center