Relaxed terms announced for interest-only mortgages

            More flexible terms for interest-only mortgages is available to borrowers, thanks to enhancements announced by Freddie Mac.  The new policy makes interest-only products a more attractive option for financing the purchase of a home and for homeowners who want to refinance their mortgage.

            “Freddie Mac has expanded the credit terms of its interest-only fixed-rate mortgages in order to make more of these loans available to consumers,” said Mitchell Kiffe, a Freddie Mac vice president.  “The change will provide the potential of a longer interest-only term for these loans.”

            Here’s a sampling of the new terms:  Full-term interest-only loans must be 10 years or less.  The maximum LTV is 70 percent.  Partial interest-only loans must be 15 years or less, with the IO period 3 to 5 years on a loan with a term of 7 to 15 years.  The maximum LTV on these loans is 80 percent.  The IO period is 3 to 4 years on a loan with a term of less than seven years. – maximum LTV of  75 percent.

Wait-and-see prospective buyers slow market activity

Existing-home sales continue to dip, according to several studies.  They are now at the lowest level in nearly four years, while inventories climb and prices fall in most markets, it was noted in a report from the National Association of Realtors.

“The market is under-performing when you consider positive fundamentals such as the strength of job creation, economic growth, favorable mortgage interest rates and flat home prices,” said NAR economist Lawrence Yun.  “It appears some buyers are simply waiting for more signs of stability before they get serious about getting into the market.”

While home sales are down, most homeowners are confident their homes are retaining, even gaining value, according to responses to a survey conducted by The Boston Consulting Group.  In fact, they are nearly as optimistic now about the rising value of their homes as they were a year ago, the survey revealed.

New home sales falling

Sales of newly constructed homes also continue to fall.  In the latest indication that the housing market remains in a correction phase, sales of new home slipped 1.6 percent in May to a seasonally adjusted annual rate of 915,000 units.

“Builders are continuing to offer incentives in order to shore up sales and work down their inventories as home buyer demand remains slack,” said Brian Catalde, president of the National Association of Home Builders.  “The gradual decline in new-home sales is still underway and we expect this trend to continue as the market approaches the bottom.  We expect sales to stabilize before the end of this year, followed by a multi-year recovery beginning next year.”

Nonresidential construction market strong

            The housing market may be generally sagging, but the Nonresidential construction market is showing solid gains this year and spending is expected to increase by 7.2 percent this year and will stabilize next year, according to a report from the American Institute of Architects (AIA).  The hotel and office building space is expected to see substantial growth, as well as the institutional sector including healthcare and educational facilities, it was noted.

Reverse mortgage applications increasing

More seniors than ever before are signing up for a reverse mortgage.  New data from the Department of Housing and Urban Development (HUD) reveals that more than 300,000 seniors have used the federally-insured Home Equity Conversion Mortgage (reverse mortgage) program to generate cash without the necessity of selling or leaving their home.  More than 76,000 seniors obtained a reverse mortgage through HUD last year, compared with only 6,637 in year 2000.

Insured by HUD’s Federal Housing Administration, these reverse mortgage loans require the borrower to be age 62 or older, own their home, and must live in the home.  Reverse mortgage borrowers are also required to participate in HUD-approved housing counseling programs before obtain the loan.  Understanding all aspects of an offered reverse mortgage is vitally important.  Interested seniors should discuss it with a knowledgeable person who has no financial interest in the transaction before making a decision.

Sales still strong for luxury homes

One important niche in residential sales seems to be oblivious to the market slump.  High-end luxury homes are selling well in many markets, and their owners expect their home values to continue to rise substantially.  That’s the finding of a survey recently completed by Previews, a brokerage group that specializes in upper-end properties.  In the new survey, a full 56 percent of respondents expect the value of their luxury home to increase in value over the next 12 months.  It was also noted that over the next five years about 58 percent of respondents believe their residence will increase significantly in value.

It’s interesting to note that women are even more optimistic than men, the survey revealed.  About 61 percent of female respondents expect the value of their luxury home to increase over the next 12 months, compared to 50 percent of male respondents.  The survey report noted that these homeowners are so positive about the real estate market that 40 percent of respondents are considering purchasing a home within the next year as a second or vacation residence.  About 38 percent are interested in purchasing a property as an investment, and 22 percent are looking for a retirement property.

Among those who plan to move their primary residence, 61 percent want a bigger home and 51 percent are relocating.  About 47 percent want to move because they want a different floor plan, and 41 percent want to move to be closer to recreational activities.

The Institute for Luxury Home Marketing estimates that home sales at the $5 million-plus range rose 11 percent last year, compared to a 8.4 percent decline in overall housing sales.

A good time to invest in residential real estate

Right now and over the next 12 months is an excellent time to invest in residential properties, according to a report from Housing Predictor, an independent real estate research firm.  The subprime loan meltdown has produced a near record level of foreclosures, providing the highest number of lower price homes in many years in most real estate markets, the report stated.  Housing prices in three out of four markets have fallen. 

The oversupply of inventory is making a significant impact on many markets.  Investors are flocking to these markets to make purchases of foreclosures or negotiate lower prices in the conventional resale market, according to the report.  The number of new housing construction starts is still falling.  In May they fell another 2.1 percent from the previous month, according to figures released by the Commerce Department.  Starts are down 24 percent from a year ago.

“Builders are cutting back on new production as they work down their inventories in the face of slack home buyer demand,” said Brian Catalde, president of the National Association of Home Builders.  “Builders are trimming prices and offering a variety of non-price incentives to boost sales.  The downswing in new housing production is still underway, although the rate of decline has slowed since late last year,” he noted.  “We still expect construction starts and permits to bottom out late this year before a systematic recovery process begins next year.”

Is this a slump or normal real estate market?

Finally, we’re settling into a normal real estate market.  While many media reports indicate bad news, with slow sales, lowering home values in some areas and slowly rising mortgage interest rates, all these factors are just deflating the boom years to the point where the market has returned to a more normal, balanced and stable point.  At least, that’s where we are from a historical perspective.

“Over the last few years, sellers held all the power because there was a sense of urgency in the market,” said Brett Long, vice president of Fox Chase Bank.  “That sense of urgency has disappeared and market conditions have returned to normal.  Buyers are waiting to see a model home instead of just buying what they see on construction plans.  Buyers now want to negotiate and wait for the right deal.”  The same trend is seen in the marketing of previously owned homes. 

That sounds like a description of a very normal market.  But many home sellers aren’t used to these conditions yet and, in many cases, are having a tough time adapting to them.  It means being more realistic in pricing a home, waiting for a longer period for a buyer to be found and a sale to be consummated, and being willing to negotiate.

Home prices now show a widely dispersed drop in single-family home prices, resulting in a continued decline in the incidence of overvaluation in the market, it was revealed in a recent study and survey by Global Insight, an economic analysis and forecasting company.  Of the 317 metro areas covered in the study, 157 of them experienced price declines in recent months.  That, combined with wage gains and slow but steady interest rate increases, has reduced the widespread overvaluation of homes.

Tips for first-time home buyers

First time home buyers are having an increasingly tough time acquiring their first dream home.  Prices continue to slowly increase along with mortgage interest rates, and lenders are more picky about qualification requirements.  However, those young first-timers seem to be more determined than ever to find a way to purchase a home – perhaps even more determined than their parents a generation earlier.

To help first-timers during this active summer home buying season, some timely suggestions were offered by Freddie Mac, a major government-sponsored buyer of existing home mortgages.  Here’s a few of their tips:

While preparing for your home purchase, take steps to improve your credit rating and score.  This will have a major impact on your ability to obtain a mortgage at the best rate and terms.  It will even affect the pricing of your homeowners’ insurance.  Establish a home buying budget. 

Pre-qualify yourself for a home mortgage.  Before looking at homes, work with your mortgage broker or lender in become pre-qualified for a loan.  Lenders will consider your 4 Cs – capacity, credit, capital and collateral – in determining your qualification capabilities.  Capacity is your ability to repay a loan based on your income and work history.  Credit means your history of repaying loans and paying your bills and other obligations.  Capital is your wealth in terms of the property or money you have now.  Collateral is any property you own that is acceptable as security on a loan.

After you make an offer on a home, and it’s accepted, you will need to make a formal mortgage application.  There are many types of mortgage plans available to home buyers in today’s market.  Be sure you understand all the terms of your selected loan.

“His” and “her” condos available

There is a great variety of condominium types available today, from comparatively low priced units to large luxury condos and “special niche” developments.  In fact, recently developed condos have been design specifically for men or women buyers.

“For too long, condos have been designed with a one-size-fits-all mentality,” said Alexander Edelstein, CEO of Gemstone Development, a major builder-developer firm.  “That’s not how the rest of the world designs products.  More and more condos are purchased by single men and single women.  We’ve designed special condos to provide uniquely appealing residences for these individual market niches.”

Women are one of the fastest growing buyer demographics for condos.  Some condo developers are targeting this market when designing new projects.  They provide special amenities and speak to the precise needs of women.  For example, they may include jetted bathtubs with “temperature hold.”  These are tubs that automatically maintain the water temperature for the full length of the bath.  These condos also offer electrical sockets in the back of the vanity drawer, allowing for hairdryers and other appliances to stay plugged in but are easily stored out of sight.  They provide magnified makeup mirrors with day-night lighting.  And, of course, they feature large closets with organizer systems – lots of space for shoe storage.

For men, condos now include ceiling-mounted HDTV projectors, delivering eight to ten foot pictures and surround sound speaker systems.  Some include stylish wet bars.  And of course space for a home office with high-speed access is an increasingly important design element.

Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers – along with freelance features.  Reproduction of this report, in part or entirety, is prohibited without the express permission of the author. E-mail: storyjim@aol.com.