Category Archives: Finance and Taxes

Are we headed for real estate crash?

Buyer Information, Finance and Taxes, Seller Information

Every fall, when the housing market begins the annual slowdown, buyers and sellers begin to ask if we are destined for another crash like the country experienced in 2007.

The housing market crash 15 years ago was responsible for a worldwide recession. Millions of families lost their homes and housing values plummeted more than 30%. It took nearly a decade for the Lansing market to fully recover from that disaster.  While it’s true that the real estate market is experiencing surging prices and a housing shortage much like market environment prior to 2007, the conditions are different than those 15 years ago.

Uncontrolled Mortgage Financing.
Following a period of high interest rates approaching 18%, mortgage money became available for a new low of 7%. The market quickly became flooded with new buyers hoping to  qualify for a mortgage loan. However, there was no agency regulating the business of mortgage financing. It was easy for just about anyone  to set themselves up as a mortgage broker and make a fortune offering loans to unsuspecting buyers who didn’t know they were not financially capable of sustaining monthly mortgage payments.

“If they have a pulse, we’ll give them a loan.”
This was the joke in the mortgage business. It was possible for a buyer to secure mortgage financing for much as $750,000 on “stated income” without proof of employment.  Millions purchased their home with no out-of-pocket expense. Adjustable-rate loans, with closing costs and down payment built into the monthly payment, made it easy for anyone to obtain a mortgage and become a homeowner.

These buyers often had a first and second mortgage and no equity in the home. Initially, the monthly payment was lower than renting, so it seemed like a good idea. However, the adjustable-rate eventually raised the monthly payment to more than many could afford.

Mortgage defaults rapidly increased nationwide with the investors who held those loans unable to sustain the financial loss. Ultimately, some of this country’s largest banks and mortgage companies went out of business.

Mortgage Practices have Changed.
These near fraudulent practices forced the United States Congress and federal regulators to change how mortgage lending is regulated. The Consumer Financial Protection Bureau was created to enforce standardized mortgage practice so that the process of obtaining a mortgage is more transparent. Lenders who do not follow prescribed practices will loose their license and suffer huge penalties.

Many economists are confident that there will eventually be a change in the market. Population movement, interest rates, and consumer confidence all contribute to a shift from “seller’s market” to “buyer’s market”…but not a crash.

 

Home Values Increase 11.1% in 12 months

Current Lansing Area Sales Statistics, Finance and Taxes

Home prices have continued to rise as we’re half way through 2021.  Mortgage rates are currently at 2.78% making it easy for buyers to make extremely competitive offers for very few available home choices.  Through May, June and July, sellers have been receiving offers exceeding the listing price and are often given an “appraisal guarantee” assuring that the buyer will provide additional, out-of-pocket, funds for the closing of the purchase.

According to second quarter 2021 sales statistics,  the average sales price of Lansing area homes has increased from $188,150 at the end of June 2020 to $209,089 on June 31, 2021.  This is a 11.1% increase and represents an average home value increase of $20,939.  Average selling time for many homes is less than one month.  These figures include all sales through the Greater Lansing Association of Realtors.

 Check out our Second Quarter Sales Statistics Link (below) for an update of sales activity by community. (Please note that pending sales, properties under contract that have not yet closed, are not factored into these statistics.)

Second Quarter 2021 Sales Statistics


Market  View – July 29, 2021
• A strong seller’s market continued through the month of July.
• 688 homes listed for sale in the five county greater Lansing area.
• 355 homes have accepted offers, awaiting inspections .
• 599 home are listed as Pending. Have completed inspections and will soon close.

 

 

The Five-year Equity Rule

Buyer Information, Finance and Taxes

7118744.largeWhen you buy a home, plan on staying there for approximately five years. Why? You’ll need equity in order to sell the home without losing money.

Equity is your percentage of ownership VS how much the bank owns. With any mortgage loan, the first few years of payments go more toward paying interest than reducing your principal. To build enough equity to sell at break-even or a profit, you’ll have to recoup closing costs and fees as high as 14% in some areas. To build equity over time, do the following:

Put more money down. If you put 20 percent down, you’re in good shape, but if you put down 3.5%, 5% or 10%, it will take longer to build equity, so be patient.

Pay your mortgage on time and in full. Paying principal builds equity. The more months you pay, the more equity you’ll build.

Make additional mortgage payments. You can add an extra $50, $100, or any amount per mortgage payment. This will also help you get rid of private mortgage insurance or allow you to refinance to a PMI-free loan once you reach 22% equity.

Let time and the housing market work for you. The housing market typically rises one to two percentage points above inflation annually, but if you’re lucky, your home may gain much more value than that.

Building equity takes time, money and luck, which is why following the five-year equity rule will help you plan when to sell your home.

Interest Rates have Risen Slightly, but the Fed Plans to Keep Interest Rates Low

Finance and Taxes

Rates for a standard 30 year fixed rate mortgage have risen from 2.84% at the beginning of March to 3.09%.  This is the highest level that the mortgage rate has hit since June of 2020. There is no reason for borrowers to panic. This rate increase is common in the mortgage business and represents a monetary change of only a few cents per thousand in the monthly payment.

The Federal Reserve indicated that it won’t raise interest rates until 2023 at the earliest, even though some observers have voiced concerns about rising inflation.  As of now, seven of the 18 Fed officials expect a rate hike to come in 2023, while four think one could happen next year.

INVENTORY REMAINS AT HISTORIC LOW
Housing Inventory  – March 28, 2021
– 351 homes available for sale in the five county greater Lansing area.
– 322 homes have accepted offers, awaiting inspections .
– 487 home are listed as Pending,  meaning they have passed inspection are waiting
on a  closing date.
– 7,093 homes have closed in past 12 months

 

 

Home Ownership as a Hedge Against Inflation

Buyer Information, Finance and Taxes

Home-EquityThe financial reasons for owning your own home are to build equity and take advantage of tax breaks that do not exist with other assets.  However, the greatest advantage is that owning a home is a terrific hedge against inflation.

Since the early 1900’s, the annual inflation rate in the U.S. has averaged 3.10%. As the cost of goods and services rises, so do the costs of buying a home.  Mortgage interest rates have recently risen slightly, but are still at record lows. If you purchase a home this spring, you will acquire a financial asset that promises to rise in value while you enjoy using it.

That means that while others pay rising rents and home prices increase year after year, your monthly payments become less expensive by comparison. This allows you the financial freedom to reinvest in your home or other worthy goals such as higher education and retirement.

A home can be your inflation hedge.  Once the pandemic is under control, the economy will improve to the point that the government needs to control inflation by raising borrowing rates to banks. When this happens, you can expect mortgage rates to rise, making the purchase of a home more expensive.

Protect Your Home From Deed Theft

About the house..., Finance and Taxes

You may have noticed ads for services offering to protect homeowners from title fraud or deed theft.

Fraudulent-Quitclaim-Deeds (1)These ads claim that anyone with forged signatures and fake IDs can file paperwork with the county’s register of deeds to transfer ownership of your property to themselves or a third party.  They then use your home as collateral against a large loan to steal your equity.  When you fail to make payments on the loan, the lender can place a lien on your home preventing you from selling, refinancing, or passing the home on to heirs.  As the ads state “Don’t lose your home or life savings.”

Home Title Lock is one of the services that says it will monitor your home’s deed 24/7 to prevent title fraud; it costs $15 a month ($150 annually).  But you can protect yourself for free.  Many Michigan counties now provide a consumer notification service.  You simply register and you will quickly receive an e-mail or text any time a document is recorded on your property.

Ingham County has a free deed fraud alert system in place.
https://rd.ingham.org/departments_and_officials/register_of_deeds/contact_us.php

Eaton County has a program called Fraud Sleuth.
https://countyfusion3.kofiletech.us/countyweb/loginDisplay.action?countyname=Eaton

Clinton County uses Fraud Guard.
https://www.clinton-county.org/777/Fraud-Guard

You don’t need to pay a company to protect you from criminals who put their names on your home title. You can protect your home for FREE.

 

Is It Wise to Refinance Now?

Finance and Taxes, Uncategorized

Over the summer of 2020, refinances of existing mortgages rose over 200 percent
Driven by the lowest interest rates and the highest home prices in recent history, many homeowners are opting to skip the frustrations of moving in favor of lowering their current monthly mortgage payments.

Reduce your monthly mortgage or remove PMI
Trading your current 30-year mortgage for a new 30-year loan makes good sense when you can greatly reduce your monthly mortgage expense if you plan to remain in your home for more than three years.  It can also be a good idea if you have an FHA loan with private mortgage insurance (PMI) that can only be canceled by refinancing if you have more than 20 percent equity, you can refinance into a conforming loan with no PMI due.

When refinancing is a bad idea
Refinancing could be a bad idea if it’s done for the wrong reasons, such as taking cash out of your home to consolidate credit card debt.  Refinancing comes with considerable costs and fees, typically 3 to 6% of your loan amount, which can take as long as three years or more to pay back.  If you decide to move sooner than three years, entering into a new loan to pay debts may cost you money.  Also, you’ll need to avoid the temptation to “reload” your paid-off credit cards with new balances.

The best plan is a healthy break-even point where the costs of refinancing are covered by the monthly savings provided by your new loan.  Explore the numbers with your lender before deciding.

Common low-interest mortgage questions

Finance and Taxes

Mortgage rates remain below 3% for the 30-year-fixed-rate mortgage as we close out the month of August 2020. First time buyers are enthusiastically looking to home ownership as an alternative to renting and current homeowners are taking advantage of money saving refinancing options.  So, what does this mean to you, the homebuyer or homeowner?  If you have good credit, steady employment, and a sizable down-payment, you’re in great shape to get or refinance a mortgage loan.

Q: Will my mortgage’s interest rate be higher than the one advertised?

A: When you see an ad for a low interest rate, notice the disclaimer saying this is the best possible rate. This rate goes to loan applicants who are relatively debt free, have a credit score of at least 750, and a down payment of 20% or more.  When your credit history and cash reserve is not that spectacular, you’re considered more of a risk so your interest rate will be higher.

Q: Must a first-time buyer have a 20% down payment?

A: The best interest rates go to buyers having a down payment of 20%, but there are plenty of ways to put down less and still get a mortgage.  A Federal Housing Administration (FHA) loan lets borrowers put down as little as 3.5% with a decent credit score and steady employment for at least two years. Active or retired military (or a surviving spouse of a veteran) can apply for a VA (Veteran Affairs) loan that allows 0% down.

For non-veterans, the State of Michigan as well as most banks and credit unions offer loan programs that enable borrowers with low income to receive a down payment subsidy.

Q: Is a 30-year fixed-rate loan the best option?

A: The 30-year loan with a fixed interest rate is the best mortgage for most home buyers. Adjustable-rate mortgages are often discouraged, but the lower interest ARM makes sense if you plan to move before the rates adjust to the full rate. An ARM may also make sense if you can’t afford a home with a higher rate fixed-rate mortgage.

A 15-year loan greatly reduces your interest payout, if you can afford a monthly payment that is approximately 30% higher than that of a 30 year mortgage. The upside to a 15 year mortgage is that its lower interest rate (2.46%) and shorter term will yield a savings of approximately 75% in interest over the life of the loan.

Q: What is private mortgage insurance?

A: If you can’t afford to make a 20% down payment, you’ll have to pay private mortgage insurance. PMI is a protection for lenders if the borrower is unable to pay the mortgage. Since your lender loses money, PMI helps to offset that loss. You can expect to pay about 0.3% to 1.15% of your home loan in PMI.  This can be a sizable sum, but it makes sense if you want to buy a home now rather than wait until you can amass a bigger down payment.

 

Mortgage Rates Continue Record Lows

Finance and Taxes, Market Update

The average rate on the popular 30-year fixed fell to another record low at 2.87% on July 24th.  That is about a full percentage point lower than where it was one year ago causing mortgage applications to be up 13 percent over last year.

This historically low mortgage rate bonus provides home buyers with increased purchasing power, and for current homeowners looking to refinance, it might be time to start shopping rates yet again.

 

Low Mortgage Rates…Low Inventory

Finance and Taxes, Market Update

The coronavirus pandemic has reduced homebuying and selling activity.  While many people are choosing to delay a home purchase or sale and stay in place until the coronavirus pandemic has subsided,  others are still buying and selling.

It remains a “seller’s market”, but many buyers are thinking long term as historically low interest rates have made this an opportune time to buy.  Those who are actively looking tend to be serious buyers.

Low Housing Inventory
Home listing activity has dropped significantly with many sellers having decided to delay putting their homes on the market, both to continue social distancing and eliminate the need to move in the middle of a pandemic.

As of May 18th, there were 1,322 residential home for sale in the entire greater Lansing market area. This is an increase of 260 homes in the past 14 days. Still, low inventory favors sellers and drives up offers due to competitive buyers. A balanced market, not favoring either buyer or seller, would be at least 2800 units.

Mortgage Rates
Rates have been hanging around 3.26% for a 30 year conventional mortgage.  This translates to $4.42 per thousand dollars of monthly mortgage loan. These rates are the lowest in recent memory.