Thinking of buying a new home in Charlotte?  A new survey reports that most home owners still think home ownership is still a good investment and most home owners made a profit on their long-term homes.  Key points:

• 8,449 home buyers from July 2009 to July 2010 responded to this survey – that seems like a large enough number to be meaningful.
• Long Term – sellers were in houses for 8 years, buyers expect to stay in house for 10 years
• 24% increase - The mean gain for sellers who sold after 8 years was a 24% gain on the sale ($33,000)
• First Time Home Buyers bought 50% of the homes purchased

New Orleans, November 05, 2010:

Home buyers today have affirmed a long-term view of home ownership, the typical seller is experiencing positive returns and the vast majority of home owners see their property as a good investment, according to the latest consumer survey of home buyers and sellers. The study was released here today at the 2010 REALTORS® Conference & Expo.

The 2010 National Association of REALTORS® Profile of Home Buyers and Sellers is the latest in a series of large national NAR surveys evaluating demographics, preferences, marketing and experiences of recent home buyers and sellers.

Although typical sellers had been in their previous home for eight years, up from seven years in the 2009 study, first-time buyers plan to stay for 10 years and repeat buyers plan to hold their property for 15 years.

… “This underscores two simple facts – home ownership encourages stability, and the longer you own, the better your investment.”

Even with several years of price declines, the typical seller who purchased a home eight years ago experienced a median equity gain of $33,000, a 24 percent increase, while sellers who were in their homes for 11 to 15 years saw a median gain of 40 percent.

“Sellers who purchased at the top of the market and had to sell in a short time frame were hurt by the price correction, but the vast majority who are able to stay for a normal period of home ownership generally built enough equity to make a trade-up purchase,”

… “Eighty-five percent of recent home buyers see their home as a good investment, and nearly half think that investment is better than stocks,” he said. “Even with the turmoil created by the housing boom and bust, this indicates the long-term view of home ownership as a fundamental goal and value remains sound. In fact, the single biggest reason most people buy a home is the simple desire to own a home of their own, cited by 31 percent of respondents, including 53 percent of first-time buyers.”

…The number of first-time home buyers rose to a record high 50 percent of all home sales from 47 percent in the 2009 study, building on success of the home buyer tax credit which began in 2009. The previous cyclical high for first-time buyers was 44 percent in 1991; records date back to 1981.

Fifty-six percent of entry level buyers financed their purchase with an FHA loan, while another 7 percent used the VA loan program.

Forty-four percent of sellers offered incentives to attract buyers, such as home warranties or assistance with closing costs. The typical home sold for 96 percent of the listing price, compared with 95 percent in the 2009 profile.

Buyers use a wide variety of resources in searching for a home: 89 percent surf the Internet, 88 percent use real estate agents, 57 percent yard signs, 45 percent attend open houses and 36 percent look at print or newspaper ads. Although buyers also use other resources, they generally start the search process online and then contact an agent.

Not surprisingly, for-sale-by-owner transactions reached a record low, accounting for 9 percent of sales in the 2010 study, down from 11 percent in 2009. The share of homes sold without professional representation has trended down since reaching a cyclical peak of 18 percent in 1997. “In a market as challenging as today, it’s clear most home sellers need professional assistance,” Bishop said.

The 2010 National Association of REALTORS® Profile of Home Buyers and Sellers can be ordered by calling 800-874-6500, or online at www.realtor.org/prodser.nsf/Research.

The National Association of REALTORS®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

If you are thinking of buying  a home in Charlotte, NC, consider the following:

• Interest rates are making house payments more affordable than ever
• Home Prices are lower than in years past
• If you are going to stay in one place for more than a few years, the pride of ownership and the equity buildup are worth the risk of ownership

Most people think Inflation means that things get more expensive.  They also think “Deflation’ means that prices are dropping.

Peter Schiff, a former US Senate candidate and President of Euro-Pacific Capital, famously called the housing bubble explosion before it happened.  He recently wrote a good article responding to NY Fed President William Dudley’s recent speech. 

By: Peter Schiff

NY Fed President William Dudley’s outrageous statements today closely conform to recent pronouncements from other Fed officials and confirm that a massive round of dollar devaluation is poised to begin.

Seemingly overnight, the Fed appears to have altered its mandate, ditching its former goal of “price stability” in favor of “moderate price inflation.” While no one is under the illusion that the Fed has kept prices stable over the last century, it used to be that the governors would at least pretend to fight inflation. Low inflation used to be the aim, now it’s the enemy.  

Although the inflation being created by the Fed may not be showing up immediately in rising rents or auto prices, it is nevertheless pushing up asset prices in other areas.  

Could it be that the Dow isn’t rising, but the dollar falling?

Dudley says it may take “several years” before inflation returns to levels consistent with the Fed’s mandate. Exactly when did the Fed establish a floor for “acceptable inflation?” Where is that floor, 2%? (The core PCE index is currently up 1.4% for the year) If we are below the floor, where’s the ceiling- 3%? 4%? In 1971, President Nixon imposed price controls when inflation averaged 4%. That rate was considered so high that emergency measures were needed. Is that still the case? How much higher do costs have to go for cash-strapped Americans before the Fed can be expected to take its foot off the gas?

Without better understanding of where these parameters lie for the Fed, the markets will be flying blind through an impenetrable fog.

If the Fed were serious about maintaining long-term price stability, which is its actual mandate, it would need to allow prices to fall after the speculative booms that it helped create. As we saw in the 1980s, unemployment resolves itself when the monetary system is sound, but no one will hire under the uncertainty of a rogue, inflationary Federal Reserve.

Mr. Dudley said, among other things, “Given the outlook that the upturn appears likely to strengthen only gradually, it will likely be several years before employment and inflation return to levels consistent with the Federal Reserve’s dual mandate“.

This tells me that the Fed thinks that we are going to see high unemployment and low inflation, or even deflation for a while. 

What should you expect as a homeowner in this environment?  

• If inflation is making the dollar buy less, then mortgage debt at low, fixed, rates isn’t too bad – you will pay back the loan with inflated dollars that aren’t worth as much as you borrowed.
• House prices aren’t likely to increase when other prices are falling – so, if you aren’t living where you want to live, it’s better to sell your house now at today’s prices – it may be harder to sell it in the future.
• If house prices will decline due to deflation, pay as little principle as possible – store your money in a place where it can grow, or at least maintain it’s value, rather than inside your house.
• Today’s low inflation is resulting in really low interest rates, so, if you aren’t in the home you want to be in, it’s still a great time to buy a home.
• Recognize the difference between your house (The physical structure as an asset), and your home (The safe place you raise your family, celebrate holidays, and create memories).  It can be the right time to sell a house, and a great time to buy a home at the same time.

The 15 year mortgage has become more popular since mortgage interest rates dropped.  An article in the Wall Street Journal gave some reasons why this is happening.

With the low mortgage interest rates, many homeowners are finding that a 15 year mortgage is more affordable than previously.  In addition, for those homeowners that have been in their house for 5-7 years, the leap to a 15 year mortgage isn’t as big of a stretch as it was then they bought their house a few years ago.

Should you consider a 15 year mortgage?

The Benefits of a 15 year fixed rate mortgage:

• Build equity in your home faster
• pay less interest
• forced savings account
• Benefit with low interest rate refinance without stretching loan term back to 30 years

The Cons:

• You have to make that higher payment each month
• A house is  a terrible place to store your wealth – better than spending, but worse than most any savings vehicle
• Opportunity cost – money used to pay down principal is money that can’t be used elsewhere
• Loss of flexibility – a future job loss or financial challenge could be catastrophic because of the higher required payment on the 15 year fixed mortgage

In some areas, a 15 year mortgage is a disaster for people – for example, someone who took out a 15 year fixed mortgage in Florida or Las Vegas in 2007 is now seeing that they send in a payment and the house price drops by more than the principal paid in.  How would it feel to send $1000 to your savings account and the next day have $0 left?  That is what many people experienced with 15 year mortgages in rapidly declining markets.

Which loan is best for you?

On the other hand, if you are in a stable housing market like Charlotte or Raleigh, North Carolina, the 15 year mortgage may not be so dangerous.  You will spend less on interest, build equity faster, and protect yourself from spending the money elsewhere – the forced discipline of this mortgage is helpful to some people.

If you have pretty good assurance that your income is going to be stable or increasing for the next several years, if you are already saving for retirement, have an emergency fund, and don’t carry other debts such as credit cards, student loans, or car loans, then you may be ready for the larger payment of the 15 year fixed mortgage.

If you have some credit card balances, don’t have several months living expenses already saved in an emergency fund, and aren’t putting away money for retirement or kid’s education, don’t get a 15 year mortgage – there are more important things to do with your money.

Before you decide to take on a 15 year mortgage, consider the best uses of your money, and make sure your new mortgage won’t prevent you from doing something more important.

Since the Great Depression, conventional wisdom said you should buy a house for both shelter and investment and pay off your mortgage as fast as you can.  No wonder many Americans store a large portion of their wealth within the walls of their homes.

Unfortunately, many of those people have seen their wealth disappear.

It’s time to re-visit conventional wisdom. With the real estate-led recession, many Americans are finding that 80 year old financial advice may not be right for today.

I believe the right mortgage should help you:

• Build and conserve wealth
• Become debt free as quickly as possible
• Achieve financial freedom
• Succeed Financially

In North Carolina, we work with our clients to help them develop a mortgage strategy that will allow them to turn their home into a castle.

If your last mortgage lender, or the loan officer you may have talked to recently isn’t talking about more than just interest rates, he or she is missing the point, and you are missing a great opportunity.

Sure rates are important, and by working with multiple lenders, we ensure our rates are always competitive.  Be sure to go the extra step and develop a strategy for your mortgage that will help you succeed financially.

Thanks to Rick Melville, a Sr. Mortgage Planner at Fairway Independent Mortgage in Charlotte for this guest blog post:

Winston Churchill once said that “a pessimist sees the difficulties associated with every opportunity and that an optimist sees the opportunities associated with every difficulty.”

Just for fun I decided to do a little math problem this week. Rates actually hit 4.375% on some 30 year fixed rate programs last week (of course remember – rates are very situation-dependent, and subject to change with market conditions). Can you believe it?! There are people who are on the sidelines waiting for prices to fall further before they make the leap of faith that we have finally hit bottom.

Here’s what that looks like, if they wait for house prices to fall and stabilize while interest rates creep back to the level of just a few months ago (at 5.375%).

• $250,000 mortgage at current rates of 4.375% equals a Principal and Interest Payment of $1248.21.
• That same payment of $1248.21 at 5.375% would only get you a mortgage of $222,906.

In other words, the house they wanted at $250,000 would have to fall another $27,094 before the payment would just be the same as it is NOW at the higher price. Well, that’s another 11%! I’d say there is a greater risk of rates rising than prices falling that much further.

If affordability and payment are important to a buyer, then trying to time the low in house pricing could make for higher payments. For a family who plans to stay in their house for a long while, buying now is the opportunity being created by our current difficulties and WOW!

What an opportunity we have now.

Great points – today’s low rates could be better than a further 10% decline in home prices.  If you aren’t happy living where you are now – the low rates are making affordable homes even more affordable.

All day, every day, conforming and FHA mortgage rates in North Carolina are changing.  Rates move in response to hundreds of factors as mortgage backed bonds are traded on Wall Street.

Among the biggest influences on mortgage rates is the threat of inflation.  When traders expect future inflation, they will sell low yielding mortgage bonds in order to protect their investors.  If inflation is tame, like it is now, mortgage bond prices will rise, and interest rates will fall.

What is inflation, exactly?  Most people think inflation means ‘stuff’ costs more.

By definition, inflation is when a currency loses its value; when what used to cost $1.00 now costs $1.10. inflation really means that a dollar buys less.

As consumers, we recognize inflation by the items we buy on a daily basis becoming more expensive.  However, it’s not that goods are more expensive — it’s that the dollars we’re using to buy them have become worth less.

With mortgage bonds, the holder of that bond will get the principle and interest back with dollars that can’t buy as much anymore.  If an investor expects this, they would want more interest paid to compensate them.

Mortgage rates move opposite of bond prices, as inflation takes hold, mortgage rates rise as the bond prices fall.

Lately, inflation has been exceptionally low. The Federal Reserve acknowledged as much in its last statement to the markets, and available data backs that position.  This, after predictions that inflation would be “runaway” in 2010.

There is not much threat of inflation right now in the economy, so for a while at least, you can expect rates to stay lower, until the traders start to fear inflation in the future – when that happens, rates could shoot higher.

Many home owners in Charlotte and North Carolina are discovering it’s a great time to refinance their home loan.  With the unusually low rates of the past few weeks, we’ve helped homeowners:

• Shorten their mortgage term to 10 or 15 years without increasing their payment
• Save several hundred dollars each month in interest
• Convert from interest only loans to amortizing loans without increasing their payments
• Pay off credit cards, car loans, second mortgages and lower payments overall by several hundred dollars

Should you look into refinancing?  Yes, if:

• If you are employed, or have been self-employed for more than 2 years
• have an interest rate over 5.75% on any loan
• Have an Adjustable Rate or an interest only loan
• There is equity in your house and you have better uses for that wealth – like paying for education, paying off other debts, or re-building retirement accounts

What are the pitfalls?

Number one:  Appraisals. Since the HVCC, or Home Valuation Code of Conduct was forced on consumers last year, appraisers have been reducing home values across the country with impunity.  This ill-conceived regulation is the biggest roadblock – for some, just a speed bump, but for others, a dead end.  Unfortunately, the only way to find out a true appraisal value is with the actual appraisal that your lender orders for you.

As a safety valve, we recently started offering an AVM or Automated Valuation service on our branch website.  This $29.95 service will give you an educated guess if your house will appraise adequately for refinancing.  If you get an AVM here, and then refinance your mortgage with us, we will refund the cost of the AVM at closing.

Number Two: Credit Score. If you don’t have a 740 or higher middle credit score, you can expect to get a slightly higher rate than other with high scores.  Fannie Mae started charging borrowers higher fees for lower credit scores.  If you call, we can get you a free copy of your report and will tell you how much impact, if any, the score has on your rate.

If you don’t ask, the answer is no.  If you own a house, and have a rate higher than 5.5% right now, you owe it to yourself to look into refinancing now while rates are this low.