Flood insurance: Part One
A friend said to me recently: “why don’t you write an article about flood insurance?”
Ah, if it were only that simple.
I do plan to write regularly on flood insurance, so please regard this as the first in a series. It does not have all the answers because the story is still unfolding. Two things to bear in mind are that flood damage is not covered under a standard homeowner policy and that flooding occurs throughout the country, not just in coastal areas.
I do have an important message at the end of this article for anybody who is paying flood insurance. (more…)
Housing market recovery to last
This week Forbes published an article, link below, suggesting – with data to support the argument – ” that housing is finally shaking off both the Great Recession and the excesses of the preceding housing bubble.”
The article concludes: “we can expect to see more good news coming – most likely when the 2014 spring/summer selling season emerges. It looks as though 2013 could be the pivotal year needed to produce a bright future in housing.”
The housing recovery is a world-wide phenomenon, as I know from seeing daily reports from around the world.
Here is a summary of the article: (more…)
“Housing Market Bubble Deflating”: really?
OK Marbleheaders, confess: you didn’t know you just lived through a housing bubble.
Maybe you got confused by the facts: only one house has sold this year for more than $1.8 million while there are 29 for sale at that price or higher; the median price for the first 9 months of the year was up 5% from 2012, but down 2% from 2011 and is still down 9% from the peak in 2005; after sales of SFHs of 22-30 each month from April to September, sales in October are likely to be around 10.
Fact, facts. (more…)
Falling mortgage rates and other housing news
As suggested in last week’s blog, mortgage rates have fallen back with the national average for a 30 year fixed rate loan at 4.32%, a level last seen in July.
While the 30 year fixed rate mortgage is the benchmark normally quoted, note that the average 15 year rate is 3.37%, while the 5/1 ARM is just 3.07%. Freddie Mac weekly mortgage rates
For my comments on Adjustable Rate Mortgages (ARMs) read Is it time to consider an ARM?. (more…)
Have house prices gone up too far?
I read yet another “warning” this week of an impending housing bubble and so I decided to put together a very simple table showing what has happened in recent years in the stock market compared with the housing market. I have used the Dow Jones 30 share index and the Case-Shiller 20 city index (which reports in arrears).
Here are the results:
The dates chosen represent the peaks and troughs in these indices.
Any one see a housing bubble there?
If you are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 781.631.1223 or andrew@HarborsideRealty.com.
Andrew Oliver is a Realtor with Harborside Realty in Marblehead.
Mortgage rates drop as Fed blinks
On Wednesday, when it was widely expected that the Federal Reserve would announce plans to start reducing its purchases of mortgage backed securities (MBS)* this month, it surprised the market by announcing that the start of the slow down – the taper – would be delayed. The result was a drop of about 1/4% in mortgage rates. (more…)
Why Fannie Mae, the most profitable company in the world, should bail out Detroit
Ok that headline may take a minute or two to digest, so I am going to split this post into sections. (more…)
Is Detroit real estate a bargain?
Buying real estate in Detroit may not be an obvious investment idea, but Realtor.com included it in its Top Ten Turnaround Towns in a study of residential real estate markets in the second quarter.
“Most noteworthy is Detroit’s ranking at No. 7. Though the city recently filed bankruptcy, the market nonetheless posted strong improvement in the second quarter. Its median list prices on realtor.com® were 37.8 percent higher for the quarter than they were a year ago, while inventories were down 26.5 percent. The market’s median age of inventory is just 45 days, the second lowest in the nation.” (more…)
What do Government housing statistics and Zillow estimates have in common?
This week the Department of Commerce released its figures for new construction residential sales in June. Correction, make that its estimate of sales of new construction in June.
The headline news was that sales were up 8.3% to an annual rate (seasonally adjusted) of 497,000. Pretty good.
There is, however, a caveat: the 8.3% number is plus or minus 20.5%. In case we don’t know what that means there is a footnote to explain that, because these numbers are obtained from samples which may have errors, the range is actually from down 12.2% to up 28.8% above the May 2013 number. And the 38.1% increase above the June 2012 number was plus or minus 22.0%, meaning a range from up 16.1% to up 60.1%. (more…)
Non-distressed home sales jump while prices continue to rise
The National Association of Realtors (NAR) released its June report Sales slip but prices continue to roll on existing home sales this week.
Highlights are:
NAR reported that total existing home sales in June dipped 1% from May to a seasonally adjusted annual rate of 5.1 million, up 15% over the June 2012 number. Distressed sales – foreclosures and short sales – dropped from 18% of the total in May to 15% in June, and were sharply down from 26% a year ago.
As the following table shows, non-distressed sales, therefore, actually jumped by almost a third year over year:
Source: NAR, Oliver Reports
Are higher mortgage rates slowing the housing recovery?
July often sees a change in market tone. Those who have already sold their home know they need to find somewhere quickly, increasing their urgency. New buyers, however, are now quite likely to decide to wait until the Fall as the chances of being able to move in by Labor Day are diminishing. And sellers have to decide if they want to be on the market in the “dog days” of August, or wait until after Labor Day.
And then this year, of course, there has been the added factor of the jump in mortgage rates. To some extent it would appear that the Federal Reserve was surprised by the big jump in rates after what they thought was a simple statement of their intent to reduce their purchases of Treasuries and mortgage-backed securities as the economy improves. (more…)
The housing market in 3 pictures
Here’s a simple view of the housing market over the last couple of years.
This is what has happened to sales (demand):
Source: NAR;Oliver Reports
While this is what has happened to inventory (supply):
Source: National Association of Realtors; Oliver Reports
And, following the laws of supply and demand, this is what has happened to prices:
Source: NAR; Oliver Reports
Pretty simple, really.
My 100th blog post
This morning I published my 100th post since starting Oliver Reports last November.
Prior to starting OR I wrote very lengthy and detailed semi-annual reviews for the Marblehead Reporter and I remember wondering if I would find enough topics to write about on a weekly basis.Well I guess I have answered that question!
My goal remains to publish timely, short articles (and links to relevant articles written by others) in order to help you, the consumer, be better informed. These articles also appear on Facebook, while on OliverReports.com I publish additional information.
If you enjoy my articles please tell your friends!
Is it time to consider an Adjustable Rate Mortgage?
I have a confession to make: I have never used a 30 year fixed rate mortgage in 20 years of owning homes in the US. And my jumbo mortgage, which is based on 1 year LIBOR, has just reset to 3% and would be at the same rate today as the 1 year LIBOR rate has not moved over the last month.
Adjustable Rate Mortgages (ARMs) got a bad reputation because of the shenanigans of unscrupulous lenders and brokers in the boom/bubble. And I strongly believe that these people – starting at the top – should be incarcerated and the key thrown away. On an, of course, completely unrelated topic read this article alleging that Bank of America encouraged their employees to lie to home owners.
Conventional ARMs, however, for those who understand them, are a perfectly feasible financing option. Bear in mind that the average time that a mortgage is held before the house is sold or the loan refinanced is believed to be about 7 years.
According to Freddie Mac’s weekly survey, the average rate, nationally, on a 30 year fixed rate mortgage this week was 4.46%, while that on a 5/1 ARM (meaning that the rate is fixed for 5 years and then resets each year thereafter) was 3.08%.
Now I want to make this simple, so use these numbers as a rough basis on which to work.
Over 5 years, paying 4.46% p.a. makes cumulative payments of 22.3%. At 3.08% the total is 15.4%. So there is a “saving” of 6.9%. Now ARMs adjust based on a certain index but generally cannot increase by more than 2% each year. Let’s assume that the rate goes up the maximum 2% in each of years 6 and 7. The chart below shows the cumulative interest paid:
Source: Freddie Mac; Oliver Reports
What this means is that even if the rate in years 6 and 7 increased by the maximum each year, interest paid over the average 7 year mortgage life would still be significantly less on an ARM than on a 30 year fixed,.
Again, this is very simplistic, not taking into account matters like principal reduction and tax deduction, but it’s the way I start my analysis. And it’s the reason I have never taken a 30 year fixed loan.
You are the only person who knows your life plan and risk tolerance, but an ARM may be an option you want to discuss with your financial advisor.
Putting the recent mortgage rate increase into perspective
One week the headlines are shouting that the recent recovery in home prices is creating the possibility of a new bubble; the next that the spike in mortgage rates is going to kill the recovery in prices and sales.
So perhaps a little perspective is called for.
If you first thought of buying a house when the 30 year rate was 3.5% and you find it is now 4.5% then that is a sharp jump. But many of us have owned houses for much longer. This chart, from Freddie Mac, confirms that mortgage rates are still at historically low levels. What you will note is that mortgage rates were much higher when home prices wee soaring. Mortgage rates are but one factor in the home buying decision.
Source: Freddie Mac; Oliver Reports
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