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Thought I’d share this great article I read By Ilyce R. Glink and Samuel J. Tamkin
What does it say about our economy that mortgage interest rates are near their lowest point since 1971?
Do you remember where you were in 1971? That year, the U.S. had come off the highest inflationary year since the Korean War started, and as the year continued, inflation rose, taxes increased and so did the unemployment rate.
In August, then-President Richard Nixon announced a freeze on all prices and wages in the United States. “The time has come for decisive action, action that will break the vicious circle of spiraling prices and costs,” he said. “I am today ordering a freeze on all prices and wages throughout the United States for a period of 90 days. I am relying on the voluntary cooperation of all Americans, each one of you — workers, employers, consumers — to make this freeze work. Working together, we will break the back of inflation.”
President Nixon thought he had found a way out. But by 1973, thanks to the oil embargo, the U.S. was deep into a tough recession that lasted until 1975 and featured stagflation, a combination of high unemployment and high inflation.
This time, our economic malaise looks a lot different. We have had extremely high unemployment but low inflation. For a while, some economists were warning of possible deflation, when prices go down instead of up.
Our unemployment rate is dropping, but that seems to be because so many people have thrown up their hands and left the job market permanently. The labor participation rate is at the lowest point in several decades, with some 3 million fewer Americans employed than before the recession began in 2007. About 12 million Americans are out of work, nearly half for six months or longer.
Millions of Americans have refinanced their mortgages, freeing up anywhere from $200 to $750 per month. That money has gone back into the economy, and is quite possibly the only thing keeping the U.S. from slipping back into recession, even as the economies of Europe are seeing unemployment rates as high as 27 percent (Spain) and recessions that are now seven quarters long.
The Federal Reserve Bank announced it intends to keep buying mortgage backed securities at roughly $85 billion per month, and will increase that amount if inflation and unemployment rates do not hit their targets.
What does this mean to you? If you haven’t refinanced, go out and bag a great loan at a great price. If you’re thinking about moving and need a different or bigger home for your growing family, go for it because your dollars will go further. And if you want to buy investment property, we’re at the end of the best time in a generation, since the country’s bankers have now worked through more than half of all foreclosures and prices appear to be rising.
While mortgage rates may bounce along at the bottom, there’s an intention to keep them this low, or nearly this low, for an extended period of time — at least through 2013. What happens after that is anyone’s guess.
Full Article: WashingtonPost
A home is worth whatever a buyer is willing to pay and a seller is willing to accept. The best source to estimate the true market value of a property is an experienced, busy real estate agent, because they are working with buyers and sellers in the current real estate market, and they have access to the best data (from the MLS). They will also correctly adjust for quality and feature differences.
The second best valuation source is an experienced, busy appraiser. They have access to the same data, but they work for banks, not buyers and sellers. In addition, they are constrained by inflexible appraisal rules which do not allow them to consider some relevant information and comparable properties.
Inexperienced real estate brokers and appraisers can be wildly inaccurate. Web sites like Zillow.com calculate market values without the input from human experience or judgment and they use incomplete data from country and city tax records. The “value” found in the city tax records is not useful, because it is calculated for the purposes of property tax assessment. Further, in many municipalities, these numbers are infrequently updated. The market, then, can change much more quickly than the assessment do. For instance, before the current recession began, most properties sold for far above tax value. Since then I have seen properties sell for $100,000 above and below tax value.
My interview on WTOP this past week included discussion of the recent trend I’ve noticed where buyers are venting their frustration at this current seller’s market by being much more particular in their demands during the home inspection. Additionally the home inspection report is becoming more and more important in rectifying last minute final walk through issues. You can listen to the entire interview by clicking on the WTOP Logo at left.
A “short sale” is a situation in which the seller owes more on the home than it is worth, and does not have the funds to come up with the difference at closing. In Washington, D.C., the seller must disclose that it is a short sale, and when an offer is made, both buyer and seller must sign a “Short Sale Addendum.” Once an offer is accepted by the seller, the listing agent submits it to the seller’s lender for approval. In rare circumstances, this approval can happen quickly, but most often it takes several months, and even then the answer might be “NO.” So it is possible to get a good deal on a short sale, but the lower the offer, the less chance that the lender will approve it, because the bank wants to recover as much of their money as possible. If you want certainty about when (or if) you will be able to actually occupy the property, setting your heart on a short sale can be extremely frustrating. The listing agent will try to keep you waiting by giving you hopeful updates, but oftentimes the process drags on indefinitely. My advice is to make your offer on the short sale property, knowing the addendum allows you to withdraw it at any time before it is accepted, and keep looking for another property. If your original offer gets accepted, you can celebrate. If you find a better property in the meantime, withdraw your offer on the short sale property and buy the new one instead.
If a homeowner stops making mortgage payment, the bank will eventually foreclose on the property, taking ownership and listing it for sale with a real estate agent. At the beginning, the bank will price the property high, hoping to recover the amount owed. Then the bank will drop the price substantially every few months until it sells. The strategy is to understand the value of the property and make offers at or below that value regardless of the current list price. The bank will either accept the offer or say “NO” (they rarely counter). If they say “NO,” make another offer. Recently we submitted a $760,000 offer on a home listed at $850,000. The bank said “NO.” We made another offer at $768,000, and the bank accepted it. You just need to get lucky by making the offer at the right time, when the bank has just reduced the list price or is about to. Since you do not know when that will be, just keep making offers.