By Dian Hymer

Anecdotal evidence suggests that in some markets investors are buying foreclosure properties at bargain prices. These properties are located in areas that appear to have good growth potential, and they generate enough rental income to at least offset the holding and maintenance costs. The deal needs to make sense financially regardless of whether there is a big run up in appreciation. The plan is to hold the property for the long term.

There was a time not long ago when investors bought condos and houses even if they didn’t produce enough cash flow to cover the carrying costs. Prices were rising so quickly, they could afford a little negative cash flow. The holding period was short and the appreciation payoff was big. According to Standard & Poor’s/Case-Shiller 20-city home-price index, prices increased almost 75 percent between February 2000 and February 2008.

In most housing markets, it’s not possible to count on appreciation now. The market could be bottoming out in some places, according to some economists. Or prices could move lower before leveling off. It could be years before significant appreciation is again part of the housing picture. With this in mind, is buying a home to live in still a good investment?

Just as the lenders are moving back to basics in terms of qualifying borrowers for mortgages, home buyers should examine the fundamentals of home ownership to determine if they are good candidates.

HOUSE HUNTING TIP: The equity in your personal residence shouldn’t be used to pay for vacations, education, new cars and credit-card debt. Many homeowners who participated in serial refinancing when rates were low and money was easy found they had no equity left when the credit crunch hit in August 2007. A good portion of these repeat refinancers now owe more than the current value of their home.

Along the same lines, it’s risky to look at your home as a retirement account. It’s not a good idea to rob your pension plans in order to purchase a home. This money should be kept for retirement. Some financial advisors suggest that you don’t consider the equity in your home as part of your financial portfolio. After all, you will always need to live somewhere. Most people will always need to budget part of their net worth for housing. Buying a residence hoping for appreciation to increase your net worth is dicey. You may earn appreciation. Nationally, home prices have tended to rise over the long term. But, this doesn’t mean that your home will appreciate during the time period you own it.

However, there are plenty of good reasons to buy your own home, if you can afford it. The government subsidizes the cost of home ownership by permitting taxpayers who itemize deductions to write off some or all of the mortgage interest and property taxes they pay. Restrictions do apply. So, check with your tax advisor before making a purchase.

Owning your own home gives you a sense of security. You can choose the community in which you live. You’re not at the mercy of a landlord who might issue an eviction notice. If you buy with a fixed-rate mortgage, you know how much you’ll be paying over time. Rents, in most places, are subject to increases. It doesn’t make sense to spend money fixing up someone else’s house so that it feels like yours. And, most landlords will have a say in what you can and can’t do — even down to paint colors.

THE CLOSING: But, if you own it, you can redecorate to your taste

By Dian Hymer

Borrowers assumed when the conforming loan limit increased from $417,000 to $729,750 in high-priced areas like New York City, Los Angeles and the San Francisco Bay Area that lower rates on jumbo financing would follow. Unfortunately, the conforming jumbos (also called jumbo lights) were initially priced considerably higher than the conventional conforming loans.

For example, on May 2, 2008, a $417,000 conforming loan was available with a 5.38 percent interest rate and one point. Points is the term lenders use for the loan origination fee. One point is equal to 1 percent of the loan amount. At the same time, a jumbo light was priced around 6.25 percent and one point.

Mortgages are offered with or without points. The mortgage interest rate will be about one quarter percent lower if borrowers pay one point than it would be if they paid no points.

On May 8, pricing on the jumbo light conforming mortgages was brought in line with the conventional conforming loans. This is good news for both home buyers and homeowners who need to refinance.

A 30-year jumbo light fixed mortgage was offered at 5.625 percent and one point and 5.875 percent with no points on May 9. Conforming loans in amounts to $417,000 were offered for the same interest rate, with a 1/4 or 3/8 percent discount on the origination fee.

Nonconforming jumbo financing is still running about 7 percent. With the recent rate reduction on conforming jumbos, borrowers searching for larger mortgages will be able to achieve a lower blended rate by combining a $729,750 conforming first mortgage with a home equity loan of up to $500,000 with an interest rate as low as 5 1/8 percent.

Homeowners who purchased four to five years ago using a fixed ARM mortgage product have been worried about refinancing in today’s difficult financing arena. It was anticipated that when the mortgage reset from fixed to adjustable, much higher mortgage payments would follow.

Fixed ARMs are mortgages that have a fixed interest rate for a period of time (often three, five, seven or 10 years). At the end of this period, the loan converts to an adjustable-rate mortgage (ARM) with an interest rate and monthly payments that fluctuate. ARMs are tied to an index, which is a cost of funds. A margin — usually in the 2-6 range — is added to the index rate to determine the current mortgage rate.

HOUSE HUNTING TIP: Many fixed ARMs are tied to either a Treasury or London Interbank (LIBOR) index. Thanks to the Fed’s rate-cutting campaign, these indices are relatively low today. You may find that it makes more sense financially to keep your mortgage for now even though it converts from fixed to adjustable, particularly if you plan to move soon.

On May 8, the 1-year LIBOR rate was 2.99 percent. If your mortgage reset on May 8 to an ARM that was tied to the 1-year LIBOR and had a 2 percent margin, your interest rate would have adjusted to 4.99 percent.

To find out if it makes sense to refinance or not, look at your note. It spells out the terms of the loan such as the interest-rate adjustable schedule, the index that your interest rate is tied to and the margin. Your lender can provide you with a copy of the note.

There are risks involved in waiting to refinance. If market values decline, your home might not appraise for enough at a later date to pay off your existing loan balance. Also, the Fed is watchful for any indication that inflation is getting out of hand.

THE CLOSING: If inflation fears rise, the Fed will stop lowering interest rates, and could start increasing them again.

Homes are selling in Palos Verdes and the South Bay.  Some are selling with multiple offers within the first week of being on the market.  However, some homes are not.  What is the difference?

Seller’s Motivation and Mind Set

In a buyer’s market, what does it take to get the highest price possible in the shortest amount of time?  First, it takes a seller who is motivated to sell.  Not a seller who wants to test the market, but one who is committed to sell.  Having the right mindset to sell is essential. It’s the most difficult aspect of selling for most sellers.  Detaching emotionally from your home is difficult.  A home is worth what a buyer is willing to pay, which may not be what the seller thinks it’s worth.

Preparing the Home for Sale to get the Best Price Possible:

Clearing out years of clutter, depersonalizing your home by removing personal memorabilia, and staging your home for sale can help you step back and view the home as a commodity that needs to be sold rather than as your personal possession.  I am a full service agent with a team of professionals who are quick, efficient and reasonably priced to assist with repairs, painting, cleaning, packing and staging. 

Pricing the Home Attractively from the Start:

Your home needs to be perceived as a good value to a buyer to sell in this market.  Your home is most marketable when it is newly on the market. Buyers wait anxiously for the new crop of listings. Listings that don’t sell relatively quickly often languish on the market.  Price reductions often follow as the sellers try to find market value.

How I help you price your home:  In order for you to get a clear picture of what your home is worth, I provide you with a report that shows the listings that are selling in your neighborhood and for how much.  The most recent sales — those that closed within the last three months — will be the most informative.  The report will also include the list prices of homes that are new on the market.

Are you considering selling your home?  Do you want to sell your home quickly and for the highest price possible?

Let’s work together to prepare your home attractively so you can obtain the best price possible.  Buyers are anxious and ready to buy!  If you would like my assistance on preparing and marketing your home to get the highest price and the quickest sale, contact me right away and let’s get started!  (310) 480-1167 or jstearns@pvexecs.com.

Is it possible to buy a home on the Palos Verdes Peninsula, with its award-winning schools, cool ocean breezes, rural landscape and safe community, for less than $1,000,000?  The answer is yes!  There are 57 homes and 56 townhomes/condominiums currently on the market for under a million dollars.  Many are not aware of the best kept secret of the value of the Peninsula.  In addition to its great value, the Peninsula is home to five golf courses, many hiking and horseback riding trails, the Point Vicente Interpretive Center, and the new Terranea Hotel.  I am fortunate to have been raised on the Peninsula and because of that, know it well.  For further information regarding real estate on the Palos Verdes Peninsula, contact me at (310) 480-1167 or email me at jstearns@pvexecs.com.