An Interest in Interest Rates

As I sit by the Christmas tree, now bare of the annual gift giving, I ponder what the coming year of 2011 will bring. More importantly, what advice can I impart to the buyers who will be active in this market? If you are still on the fence about making your purchase in 2011, I have one word for you: interest rates. Ok, that is two words. But the rates will continue to creep up, as they already have. If you have a favorite house in mind and are sitting back, waiting for the price to drop, you may want to act before the rates rise significantly more. A ½-point increase in your interest rate could make the house much more expensive over the term of the loan than the potentially small price drop. In addition, a rise in the interest rates might not allow you to qualify for the home purchase at all. Be mindful of the interest rates and discuss how the change in the rate might impact your buying power with your lender.

I found this article on the KCW blog spot and, at the risk of plagiarizing, I find that this article explains the pitfalls in plain English. Do yourself a favor and read the entire article; it might save you a lot of money over the next 30 years.

How Do Rising Interest Rates Affect Affordability?
by The KCM Crew on April 8, 2010 • ( excerpts only)

“Let’s say we have a couple making $10,000 a month. Let’s also say, they are comfortable paying (and qualify for) a mortgage payment of $3,500. From that $3,500 payment, we would deduct an estimated $750/mo. for real estate taxes, $100/mo. for homeowners’ insurance, and approximately $200/mo. for mortgage insurance (assuming an FHA loan). That would leave approximately $2450/mo. for Principal & Interest.

At 5% mortgage rates, our hypothetical borrowers would qualify for (and be comfortable paying) a $446,000 base loan amount. At 6%, the same total mortgage payment of $3,500 can only give our borrowers a base loan amount of $399,000!!! A 1% increase in rates, can reduce buying power 10%!!!

What are the implications and possible outcomes of this mathematical certainty?

1. Buyers may wind up with a higher mortgage payment than they are comfortable with and their lifestyles will suffer (in our example, the payment would escalate $280/mo.)…..or worse, they may no longer qualify for their loan and deals could collapse.
2. 
   Buyers will have to “lower their sights” on lesser homes in lesser neighborhoods because their monthly carrying costs are the true determinant to buying a home.
3. 
   Buyers may choose to “wait it out”, hoping that rates will come back down (much in the same way sellers held on to the belief that prices would rebound). There is no logic behind that hope, but that won’t stop buyers from getting on the sidelines.

Forget about looking backwards. To do what’s best for your family, know this;
For Buyers, TODAY may be the lowest interest rate you will be able to get for the REST OF YOUR LIFETIME.

Remember, Buyers and Lenders want the same thing….an affordable payment. The price of the home is secondary to the monthly cost of the home. ACT QUICKLY, if you are looking to buy to get the home you want, in the neighborhood you want, for a payment you want... TIME IS NOT ON YOUR SIDE.”

'Tis the Season to Sell!

The Real Estate market enters an awkward period between Thanksgiving and New Years, and it affects Sellers and Buyers in different ways.

Prospective buyers who have not yet made their anticipated move for the year fall into one of two categories. One set of buyers must sell their current home before buying the next. This group tends to get caught up in the holiday cheer and/or chaos, and will postpone their search until the New Year. After all, they still have a place to rest their heads.

The other group of buyers is renting either an apartment or an extended-stay suite in a local motel. This group has the flexibility to move with 30 days notice and, although they too are caught up in the holiday revelry, will often still sneak in some house viewing, especially if something new comes on the market.

Consequently, the sellers are caught in this sales process. As Thanksgiving approaches each year, I hear the same question from my current listing clients: “Should I take my house off the market during the holidays???” When asked why, the response I most often get is that they will be very busy and do not want to take on the additional hassle. This question always sets me back a bit because, not a month before, these same sellers tallied the number of showings at their home and anxiously awaited feedback. Funny thing is, if a home is not under deposit by Thanksgiving, any subsequent offers will not schedule to close until after the New Year. With the contract-to-closing timeframe of 45 to 60 days (mostly due to financing) if your home has not sold by Thanksgiving, you will not be moving until the next calendar year. So would I recommend taking your house off of the market?? The only thing I can guarantee if you take your house off the market is that it definitely will NOT sell!!

Conversely, when do most homes in Vermont look and show their best?? When they are decorated for the holidays, a fresh blanket of pure white snow coats the landscape and everything is clean and crisp. And by the way, all the wonderful, warm, holiday smells from the kitchen eliminate the need to create those great aromas artificially. Chestnuts roasting on an open fire? Perfect.

And the last reason you should not take your home off the market during the holiday season is the aforementioned buyers. There is no one more motivated than a relocating buyer who is facing the prospect of spending Christmas morning in a cramped motel room by the interstate, convincing their kids that Santa’s sleighbells sound strangely like a Mack truck this year. This group of buyers remains relatively active in the market, anything to get their minds off the not-so-sweet suite. And the sooner they are settled, the better. What better gift to give your relocating spouse but a new home??

So to the sellers: string the lights, turn up the Christmas Carols and bake the sugar cookies you were going to make anyway. It is all good and you may be surprised what Santa leaves under your tree. Nothing like a freshly written offer from a Comfy Suite Christmas Client!

‘Tis the season of giving and with all this discussion about folks between homes, please consider the following. One of my favorite organizations in the Burlington area that I choose to support every year is the Committee for Temporary Shelter (COTS). COTS has a number of locations in the Burlington area that provide shelter and services to singles and families 24 hours a day 365 days a year.

MISSION STATEMENT AND CORE VALUES

The Committee on Temporary Shelter provides emergency shelter, services, and housing for people who are homeless or marginally housed in Vermont. COTS advocates for long-term solutions to end homelessness.

We believe:

• in the value and dignity of every human life.
• that housing is a fundamental human right.
• that emergency shelter is not the solution to homelessness

If you are looking for a worthy charity and have just a little more to give during the holidays, consider making a donation of your time or resources. You never know whose head you will be providing a safe place to lay for the night. Visit http://www.cotsonline.org/ for more information.

Happy Holidays!

Vermont's Not-So Buyers Market and How a Realtor Can Help

As we approach the end of the 2010 sales year, I would like to share some interesting observations from the past year. The Burlington Vt Real Estate market continues to exhibit many differences as compared to the supposed “National Real Estate Market” (which, by the way, is a media myth). I have noticed that while the market conditions in general are those of a buyer’s market, homes in the lower, more affordable price range, as well as those in a desirable location, are receiving multiple offers from more than one buyer. Not exactly a buyer’s market.

One of the reasons for this is that there is limited inventory offered at any one time in the Burlington Area. Most towns in Chittenden County will have 40-60 homes available to choose from across all price ranges. I find that when working with an active buyer, once they plug in all of their criteria in a local Burlington area search, the number of homes that fit their specific criteria is rarely more than 10-12. This handful of homes can be easily seen over the course of two days and, once viewed, most buyers wonder where the plethora of homes that they read about in the news has gone. The fact is that Vermont has never had an over-abundance of housing inventory; the existing permitting and land development regulations that are in place do not allow for the rapid development that occurs in other parts of the country, like Las Vegas, Florida or southern California. That fact alone also means that there will not be an over-abundance of homes in the future, either. With a shortage of existing inventory and the inability of the local building community to quickly create new homes, a slight increase in buyer activity in 2011 will use up the existing homes on the market and result in a shortage. This shortage will drive prices up from current levels, depending upon the strength of the sales. You heard it here first so stay tuned in 2011.

Another point of interest is the trend in buyer activity and behavior. It is no secret that 90% of active buyers in the real estate market begin their search on the internet. So, real estate professionals who list property will put all the info and pictures of their listed home on the various real estate websites to satisfy the buyers’ need to have all of the listing information at their finger tips. It is a great sales tool for listing agents and their selling clients. The funny thing is, buyers have totally changed how they interact with the real estate world. Back before the internet (I am talking 1995, not the stone age), buyers began their search with print ads and glossy real estate magazines from the supermarket, and would call a listed realtor. The agent would set up showings of as many properties that would meet the buyers’ need, as the buyers themselves had no reasonable access to the homes available in the area they were interested in. They relied on “their” real estate agent to “find” them a house. In essence, the buyers engaged real estate agents because we and we alone held all of the information. Now that the information is readily available to the buying public, buyers have forgotten how a knowledgeable and experienced agent, who has been hired to represent them in their purchase, can add valuable market information and experience to the buying process. While identifying the home the buyer wants to purchase is often seen as the main function of a realtor, it is the negotiation and management through the due diligence process to the final closing where a lot of the heavy lifting is done; having someone experienced can sure help smooth out the speed bumps. Remember, buying a home is not an “Easter Egg Hunt”. The job is not finished once a house is identified or “found.” The job is just the beginning. So if you are a buyer, consider engaging the services of realtor. Interview a few that are recommended by your friends and family and pick one with experience, who can add value to the process.