Dean's Blog

The 5th Annual SICBA Home Tour presented by the Skagit/Island Counties Builders Association (SICBA) is this weekend – September 11th, 12th, & 13th, 2009.

I’m proud to have been the chair for this tour for the past 4 years, and this year’s event is going to be nothing less than spectacular. 14 homes throughout Skagit and Island Counties for you to tour and inspect, and you get to meet the builders in person. The tour features:

• Custom construction – thanks goes to the homeowners for opening up their homes to us
• Newly constructed homes available for sale
• A remodeled home
• A 4500 sq. ft. beach home in Freeland

And this year, we’ve added a great feature – comfort stations! Yes, these are port-a-potties conveniently located along the route between homes so you don’t have to figure out where to stop…

A map of the homes (and the comfort stations) is available for you to preview online. To participate in the tour, just go to any of the houses and buy a ticket. Your $7 ticket will get you into all the homes throughout the three day weekend, so there’s no reason to rush. The weather is supposed to be great, so it should be a great weekend to get out, drive around, and learn more about the homes available in our community.

Incidentally, I was just interviewed by both KISM and KAFE radio stations about the tour – you can hear those interviews this Thursday: Listen to KISM 92.9 FM on Thursday before 8am and KAFE 104.3 FM on Thursday at 8:15am

For more information on the SICBA Home Tour, please call 360-757-6916 or email info@sicba.org.

The Fed's been at it again, offering words that sound encouraging at first blush, confirming that their buying program of Mortgage Backed Securities is in full swing and will continue through Q1 2010. Of course, the media will pick this up and offer their own interpretation, saying "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the winter..." But is this really what that means? Not so.

Here's the truth.

Yes, the Fed has continued to buy Mortgage Bonds; but if you look at what they are purchasing, they are buying a lot of FNMA 30-yr 5.5% and 5.0% Bonds...which won't have much of an impact on present interest rates. Why? First, see the Fed's purchases for yourself by hitting this link: Direct Link to View Fed Mortgage Bond Buying.

So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6.00% - 6.50%, which are precisely the loans being refinanced at today's great interest rates.

Stay with me here...

With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program into 2010. However, once they have reached their maximum purchase of $1.25 trillion, they are done. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates. And once they are done buying, rates will most likely move up since there will be a lack of purchasing support on the bonds – some experts are calling for rates to move above 6% by next spring.

Here's the most important part.

Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.

The clincher is this:

Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.

I don't want anyone to miss an opportunity by either waiting, or not understanding what is at stake. Let's talk further on this - call or email me and let's discuss what this might mean for you.

The Commerce Department reported last week that Housing Starts broke free to come in at their highest level since November 2008. Building Permits were a bit lower than expectations, but the overall report suggests that the worst in the housing market may have passed and that the industry may be on its way to stabilizing.

The Consumer Price Index (CPI), an important measurement of inflation, also came in just slightly higher than expectations last week.

Now, inflation is the archenemy of Bonds and home loan rates, meaning when inflation rises, home loan rates will move higher as well. With the recession appearing to be bottoming out and with an unprecedented amount of government spending over the past year, there are fears that inflation – and therefore home loan rates – may be on the rise soon. If you are in the market to purchase or refinance, this is an important aspect to keep an eye on. Call me if you want to discuss presently low rates and how they might fit into your plans.

Finally, the $8,000 tax credit for First Time Home Buyers was also in the news again last week. White House Spokesman Robert Gibbs said that the administration is evaluating the program and the effect it has had on home sales and will soon make a recommendation to the President. Although there's been talk and speculation regarding the expansion of this program, as of now, potential buyers must complete their first-time home purchases before December 1, 2009 to qualify for the special credit.

How smart do you think you are? Do you think you can outsmart people, just because you read some good advice, yet it failed to share with you the opposite side of things. That has been one of my biggest fears and pet peeves when it comes to blogging. And another? That many blogs are opinions, not facts, yet they sound like facts. (There's a YouTube video below explaining the $8,000 tax credit).

Janet Guilbault wrote this interesting post that makes a good point :

Outsmart the crowd : Skip the $8,000 tax credit & wait to buy

She talks about skipping the first time homebuyers tax credit in hopes that you could get the house of your choice for $20,000 less. She adds that winter is around the corner and the market should be slower, which could get you that price reduction. Again, some good food for thought, yet forgetting some very key points to her opinion. And just for the fact, in my opinion, this is a risk. Are you willing to chance your $8,000 tax credit? Let's look at this further....

RISK – CHANCE – HOPE – LUCK – FALSE HOPE

Again, Janet states that you should skip the $8,000 tax credit, because you could get a better deal on a house in the winter months. And because there wouldn't be as many buyers in the market, because of the first time homebuyers tax credit of $8,000 would not be available. Overall, I feel really strongly against this kind of advice.

Here are my thoughts on why you should be careful of such advice:

• Reduced property values - You got the house for $20,000 cheaper, and based on a $250,000 mortgage, that would save you $120 a month. So you didn't get the $8,000 tax credit. It would take you 5.5 years to save that tax credit with your monthly savings. 
  
• Interest Rates - Do you have a crystal ball? Do you know where mortgage rates will be in December? You get that new house for $230,000, yet the rate increased .375 of a percent. Your new savings will now only be $64 a month. That means that it would take you 10.4 years to save that $8,000. 
  
• Real Estate Market - Do you know how appraisals truly work? Do you understand that an appraisal is an opinion from a certified appraiser? Not one house is the same and in many cases, not all appraisals of that same house are the same. I could give you many examples of specific homes in recent months, having a few different appraisals that could vary from $3,000 to $20,000 in value. 
  
• $8,000 tax credit in your pocket - You now have the $8,000 in your pocket 2 months after settlement. What could you do with those monies?
  
• Use the money to fix up the house.
• Use the money to pay off some credit cards, which could save you more money in the long run.
• Possibly pay back some debt to those that helped you get into your new home.
• Save for any housing emergencies that could happen at any moment.
• Another blogger states that you could use the tax credit to pay for 12 months of your mortgage payments. Imagine that, no mortgage payments for a year.
  
• Waiting for a possible increase to the tax credit, possibly a $15,000 tax credit - So you take Janet's advice and say to yourself, maybe they will extend the tax credit or raise it to $15,000. Ouch, in my opinion, that is a huge risk. If you are actually in the market now, why play the market? If you come across your home now, buy it now, don't roll the dice.
  
• Real Estate Market - Each real estate market is different. In my opinion, even the experts can't truly predict what the housing market will do. Some have said that we have hit bottom. Some say it could be a year. But then again, in some markets, prices have increased already. In Janet's post and in a few of the comments, some people have stated that there will be a correction to this. Again, it's an opinion, not a fact.
  
• $20,000 reduced value - You don't physically see this money. You don't get 20k in hand. And what happens if the house was over-priced to begin with? What happens if values don't increase in 5 years? The only equity is that equity that you build yourself. In 5 years, you knocked your principal balance down by $16,000.

Conclusion : Janet ended her post with this ... "If you save $20,000 on your house, do you care if you sacrifice an $8000 tax credit? Probably not. (But don't expect anyone in the real estate industry to talk about this until AFTER the rebate ends)."

Well, I will still be talking about it, no matter if the tax credit continues or ends. I am all about educating the consumer on real estate issues. And yes, I would care if I sacrificed the tax credit, especially based on what I stated above. Especially if interest rates went up a half of a percent by December. In my opinion, I can go to Vegas and or Atlantic City to gamble. But why gamble on free money, money that you don't have to pay back. We are in a very tight economy now. I don't think many of you have money to gamble with as you did several years ago. (I don't want to get into the statement of free money, because yes, as tax payers, we are paying for that)

Thanks goes to Joe for his thoughts.