I’m not scared by lions and tigers and bears, either…oh my!  That could be because I don’t encounter them on a daily basis.  But, the entire process of buying real estate is certainly convoluted these days and I do encounter that daily.  I’ve always contended that working with less than professional Realtors, inspections and possession could be the “stickiest points” in any real estate transaction.  However, real estate deals are like “walking through quicksand” from beginning to end right now.  I have been diligently looking with my investment partner for our next income real estate property and finally located one on which to bid.  I had to make a “sight-unseen” first bid contingent upon seeing and approving the property, of course, if we agreed on the other terms of the that offer.  Upon seeing the condition, running the numbers “ad nauseum”, I concluded that it was too much work for the price I was initially willing to pay.  I revamped the offer and the response was a counter-offer from the seller AND they lowered the price officially to that countered price.  Even though a couple of weeks had passed during this initial series of events, I suddenly encountered a multiple offer situation.  This just confirms my “pricing trumps location” theory.  Price is king! 

My third attempt at an offer prevailed and the offer was accepted!  Now we have had an oil tank sweep (found two older oil tanks, no longer in use, that must be decommissioned), we’ve had a sewer scope (the 1929-built home’s sewer line “shows the signs of age” but is functional) and a full-house inspection (we knew the house needed remodeling but now found some relatively minor structural issues).  I’m glad I’m “in the biz”.  I’ve seen enough inspection reports not to let it deter me from the “greater good” and that would be getting 5.5% mortgage interest rate for 30 years in a buyer’s market (even if well-priced investment properties are likely to generate a competitive bidding situation)!!!

Stay tuned for lots more on the exciting adventures of getting through the loan process.  Also, our future remodeling experiences  and tribulations and learning experiences  and set-backs .  Our last summer’s renovations should hopefully help prepare us for this new project.

PS:  don’t be afraid to let your offer be in “back-up” position on a short-sale, as the attrition rate is notorious (we all have a limit to our patience)!!!

But, is this an indication of a recovery in the Portland home selling marketplace?  Homes ARE selling if they are priced to suggest a “steal or a deal” because homes that are NOT distressed must compete against homes that ARE distressed properties (meaning that sellers must simply sell for less than is currently owed on the property OR the property is bank-owned and has already been foreclosed).  But, if you subscribe to the theory that all sales are good sales because it continues to lessen the inventory then this is a positive indicator (or, at least, not bad news). 

Here are the 2009 Portland Oregon monthly stats for lockbox activity (monitors the number of home showings by Realtors in the Portland area) showing a definite spike in May and slight decrease in June (schools out and family vacations???)

Monthly Stats for lockbox activity for Oregon

Moving forward, here’s a few ways to help a borrower short on cash:

1)      ♥  When they buy, they will skip a month’s payment, keeping cash in pocket.  For example, close in June and first payment won’t be due until August.

2)     ♥   If they are a first-timer, they will be able to write off mortgage interest on their taxes (big write-off, consult your CPA).  They should be able to raise their payroll exemptions and have less taxes taken out of paycheck, putting more in their pocket right now.

3)     ♥  $8000 tax credit for most will mean no (or smaller) tax bill next April.  Read number two about raising exemptions and getting a few hundred/month benefit right now.

 4)      ♥  Gifts from mom & dad.  Many parents or relatives will help a family member get into a home.  And, there are ways to work it out to keep everyone involved in the deal happy.  Call me for details and ideas.

Initial Jobless Claims Down:
Initial Jobless Claims were down by 20,000 last week.  While the overall numbers were still bad, this is the first time in quite a while that we have had any sliver of positive news in the employment numbers.

This is important because our housing markets have always been tied directly to employment levels.  As the employment picture starts to level out, consumer confidence will rise and will lead to increased interest in housing.  We could consider taking advantage of these great rates and large selection of homes on the market while home prices are still at bargain levels.

What happened to rates last week?
The Mortgage Backed Securities (MBS) market closed early on Thursday.  We ended up slightly for the week but we had a roller-coaster ride.

We saw a huge rally in Fannie Mae mortgage backed securities on Tuesday and Wednesday that caused 30 year fixed mortgage rates to fall.

But we gave it all back by Thursday’s market close which caused 30 year fixed rates to move back to their levels on Monday.

TO BUY OR NOT TO BUY….that is the question!

And, of course, the answer is as varied as the number of people asking the question.  It is always to be considered on a “case-by-case” basis.  As smart and considerate investors we want to attempt to “buy low, sell high” and that’s always a positive goal….not always completely possible but a goal, none the less.  I often use a tennis ball analogy to demonstrate timing the market:  it’s coming down, down and “boink”, it hits bottom and it’s on its way back up.  You know it was the bottom of any market only after it is recovering.  However, especially with real estate there are other components to the purchase:

1)      Tax benefits

2)      Emotional:  A house as “home and hearth”

3)      Long-term investment built on the premise that “everyone needs to live someplace”….a “buy and hold” philosophy

4)      Investing in yourself vs. paying someone else’s mortgage

5)      Establishing a fixed mortgage rate vs. anticipated and predictable rent increases

Interested home-buyers and investors ask, “are we at the bottom of the market?”.  I have attended two presentations by economists in the last two weeks in hopes of answering exactly that question.  Crystal balls are scarce these days but here’s what I’ve learned.  In the presentation by John Mitchell (principal of M & H Economic Consultants of Portland, past chairman of the Oregon Council of Economic Advisors and former chief economist of U.S. Bancorp), said (on a positive note) that “we have endured 32 recessions in our economic history and all have ended” and that he believe that our local market was “at or near the bottom” and he mused that he considered us “bouncing along the bottom”.   You can see more on my notes from that presentation at

www.portlandrealestateupdate.com .  A second presentation by Ted C. Jones, chief economist for Stewart Title Guaranty Co, delved into interest rates and their ultimate impact on perceived value.  He believes that due to the fact that interest rates are linked to the dollar and the impact of impending inflation, we will see interest rates rise by the end of the year (perhaps to 6.5% or 7%….still historically low, but not nearly the 4.5% to 5% we are seeing today). 

So, let’s run the numbers (you can go to www.bankrate.com or use the mortgage calculator at the bottom right hand side of this page and access an easy to use calculator if you want to play with these numbers).  Remember to use loan amount (the amount after your down payment).

Loan amount:  $250,000                                Loan Amount:  $250,000

Amortized over:  30 years                              Amortized over:  30 years           

Interest Rate:  4.5%                                         Interest rate:  6.5%

Principal & Interest payment:  $1266.71     Principal & Interest payment:  $1580.71

Loan Amount:  $300,000                                Loan Amount:  $300,000

Amortized over:  30 years                               Amortized over:  30 years

Interest rate:  4.5%                                           Interest Rate:  6.5%

Principal & Interest payment:  $1520.06     Principal & Interest payment:  $1896.20

Loan Amount:  $500,000                                Loan Amount:  $500,000

Amortized over:  30 years                               Amortized over:  30 years

Interest Rate:  4.5%                                          Interest Rate:  6.5%

Principal & Interest payment:  $2533.43     Principal & Interest payment:  $3160.34

Well, anyway you get the drift.  So, let’s say you purchase a home at $300,000 and the market continues to decline another 5% or $15,000 before starting a steady, albeit slow, appreciation again.  You would be still be saving approximately $376/month with the lesser interest rate or $4,514/year and if you multiply that by 30 years would equal a savings of $135,410 over the life of the loan!  A nice little “chunk of change”!!  We are in a very perplexing cycle, however, we’ve been through other difficult financial cycles.  And, also remember the big picture when it comes to real estate:

National data on housing appreciation:

1970-1979 = 142% appreciation
1980-1989 = 52% appreciation
1990-1999 = 45% appreciation
2000-2008 = 42% appreciation

Source: The National Association of Realtors

One should never underestimate the profound resiliency of the human spirit, nor how swiftly things can change for the better – often overnight.

When you compare FHA loans to Conventional loans, here are some pros & cons:

·         FHA loans require only 3.5 percent of the purchase price as a down payment — conventional loans now require at least 5 or 10 percent down (20% down to avoid mortgage insurance premiums).

·         Importantly, the FHA does not mind if your down-payment funds come from a gift, a city-funded down-payment assistance program, or even a charitable organization — most conventional lenders require the funds to be from your own personal savings.

·         FHA loans often offer very low interest rates compared with lower-down-payment conventional loan programs — the government-backed insurance minimizes the risk on the lender’s part, so they charge you less.

·         FHA loans have very reasonable credit qualifying guidelines — while your specific lender might look for a higher FICO score, the FHA itself has a minimum credit score requirement of 500 if you are putting less than 10 percent down. Realistically, though, most lenders are looking for at least a 620 credit score to obtain an FHA mortgage — and they look at the borrower with the lowest middle FICO score.

·         The FHA typically implements home saving programs for homeowners with FHA mortgages much sooner and more effectively than non-FHA loans, in the event they run into financial difficulties during the life of the mortgage.

However, here are some of the potential pitfalls that FHA borrowers have also experienced:

·         FHA loans — like most government programs — are quite paperwork-intensive, causing some mortgage professionals to charge more for FHA loans than conventional loans. However, many reputable mortgage brokers will do FHA loans for 1.5 points or even less, its always best to shop around. FHA appraisals can be slightly more expensive.

·         FHA loans place more restrictions on the condition of the property than conventional loans. All elements of the home must in working order.  Abandoned homes without power, water and heat source will not pass inspection. 

·         FHA loans allow legally married individuals to buy homes on their own, but still requires that their spouse’s credit and debt be taken into consideration in the qualifying process.  Whereas conventional financing will allow spouses to buy separately without consideration for the spouse’s financials.

Action Plan

1. Avoid letting others’ experiences create anxiety or confusion in your mortgage decision-making process.

2. Get a reputable mortgage broker — ideally by referral from your Real Estate agent or a trusted friend or family member – to give you a personalized assessment of your purchasing power and mortgage options.

3. Discuss the FHA pros and cons with your chosen mortgage broker.

There is another LOAN PROGRAM available now that again rewards first-time homebuyers in the Portland area.  And, remember if 1^st-time homebuyers purchase then 2^nd time homebuyers move on and 3^rd time homebuyers get an opportunity to move up.  Hopefully, it’s a “trickle up” effect and can be another way to stimulate the local housing market!!  The definition of “first-time home buyer” for this particular program is not having owned a home in FIVE YEARS.  This interest rate coupled with the $8000 tax credit for first-time buyers plus lower housing prices should make a real estate purchase look very attractive:

Up to 80% loan-to value (in other words:  20% down or more)

$417,000 maximum loan amount ($521,250 purchase price)

3.75% initial fixed rate for two years

5.75% fixed rate for years 3 – 30

Prepayment penalty if the property is refinanced within 1^st 4yrs

NO prepayment penalty if home is sold in 1^st 4yrs

Minimum credit score of 700

Single-Family homes and Duplexes only.

No manufactured homes or new-construction

For 80-85% loan-to-value  (in other words:  15-20% down)

Add 0.50% to rate for mortgage-insurance

Mortgage Insurance (required by lenders if less than 20%down) falls off after value is 80% or less (minimum 12mo from purchase date)

Obviously, this would mean you would definitely have one year (the 3^rd year) of an (at present) over market interest rate of 5.75% (they’ve presently been hovering plus or minus 5%).  In my mind, this would only be prudent if you knew this was a short-term purchase due to a known move OR plans to move up OR move down due to expanding/contracting family plans, etc.  Otherwise, if you had that kind of money for a downpayment and a credit score of 700 (or better), you’d do better obtaining a typical conventional loan with an interest rate of around 5%.  But, it could make a short-term difference for a first-time buyer struggling to purchase their first home with plans to move onward & upward.  And, of course, you could refinance without penalty after 4 years or sell the home anytime within that 4 year period (but , we don’t know what interest rates will be in 4 years).  Call or write for more info OR just to brainstorm…..jj

National data on housing appreciation:

1970-1979 = 142% appreciation
1980-1989 = 52% appreciation
1990-1999 = 45% appreciation
2000-2008 = 42% appreciation

Source: The National Association of Realtors

A recent Forbes. com article listed Portland as #4 of the top 5 cities for real estate in the US.  It’s refreshing to hear a bit of positive news for our local real estate market.  Hopefully, this will mean our local market will stabilize sooner:

http://realestate.msn.com/article.aspx?cp-documentid=18080758&gt1=35000