Posted by Rosemarie Litoff on June 15, 2007 under Uncategorized | 
Square footage of a home is a matter of debate — a homeowner measures it one way, a real estate agent another way, and an appraiser a third way.
The local tax assessor has his own method, too.
So, who is right?
Until 2003, they all were! That’s when the NATIONAL ASSOCIATION OF REALTORS® Appraisal Committee defined the term “square footage” to include the following:
Finished square footage on each level of the home, measured from the exterior-facing surface of outside-facing walls.
The committee defined “finished” as an enclosed area that is suitable for year-round use and includes walls, floors and ceilings.
Seems basic enough, but there were some added notes and exceptions:
- An opening to a floor below (e.g. vaulted ceiling, open-air living room) is not included.
- Stairs are counted as square footage and are added to the floor from which they descend
- Finished areas must have a ceiling height of 7 feet to be included (except under duct work or beams in which case the requirement is reduced to 6 feet, 4 inched)
- If a room is sloped, at least half of the room must have the minimum 7-foot height in order to be included
- “Detached” finished areas are only included if they are connected to the main structure by another finished area. Detached garages, therefore, are excluded.
Even with the standard defined, the Appraisal Committee’s approach to square footage is still just a guideline; no states have formally adopted it as a standard for appraisers, tax assessors and other real estate industry players.
Until then, the debate will continue. Despite the “official” guidance.
Posted by Rosemarie Litoff on June 14, 2007 under Uncategorized |
An interesting feature of interest only loans is that your payment is re-calculated each month based on how much money you are borrowing.
The industry term for the re-calculation is “recasting”.
When an extra principal payment is made on an interest only loan, the new loan payment is calculated as:
(Outstanding Loan Size) * (Annual Interest Rate) / (12 months)
Therefore, an additional $500 principal payment against a $200,000 interest only loan at 6.000% will reduce next month’s mortgage by $2.50, or $30 annually.
$30 is six percent of $500.
This is in contrast to an amortizing loan in which your mortgage payment never changes until the loan is satisfied. Any additional payments to principal on these types of loans shave months off the end of a loan.
Recasting is not exclusive to interest only loans, however. Many lenders will allow you to recast an amortizing loan for a small fee ($100-500) but may limit the total number of times you can recast over the life of your loan.
Interest only loans recast once monthly.
Interest only loans require discipline and are not proper for every homeowner (the same way that a 30-year fixed is not appropriate for every homeowner, either). However, within a balanced financial portfolio, they can be a terrific financial planning tool.
Posted by Rosemarie Litoff on June 13, 2007 under Uncategorized |
The American Consumer keeps spending.
This morning, the monthly Retail Sales report showed a larger-than-expected jump. Even after stripping out elevated gas prices, the sales increase was more than double the expected amount.
The economy surges ahead, fueled by everyday spending, and this does not bode well for the future of mortgage rates.
The recent run-up in mortgage rates is largely from inflation fears. With inflation, investors’ dollar-denominated securities have less value over time because the dollar itself is worth less.
Runaway consumer spending exacerbates the potential for an overheated economy and that is why today’s figures are slightly troubling. Each time you and I make a purchase, we are (in small way) contributing to the economy’s growth.
Inflation, of course, is the enemy of bonds and your mortgage rates are determined by the prices of mortgage bonds. Inflation erodes the value of the bonds and that is what causes mortgage rates to increase.
As a homeowner, higher mortgage rates may depress your local market because fewer home buyers can qualify for home loans, lowering overall demand.
Rates are up by as much as 0.875% in the past 3 months.
Posted by Rosemarie Litoff on June 12, 2007 under Uncategorized |
If you ever wanted proof that mortgage rates react to global events, the past four days are it.
Worldwide, investors are shunning the United States mortgage market in search of higher returns elsewhere.
The more they sell, the worse mortgage rates get.
The latest catalyst for extra supply: speculation about a Bank of Japan interest rate increase coming soon. The Japanese central bank meets Thursday and Friday and is expected to hold its overnight lending rate at 0.500% although Finance Minister Omi has hinted at future rate hikes.
Japan is a major player in the U.S.-based mortgage bond market so the thought of higher returns at home is putting mortgage bonds on the market and forcing prices down.
As always, prices down, yields up. And the carnage continues.
Posted by Rosemarie Litoff on June 11, 2007 under Uncategorized |
After a semi-calm start, last week ended terribly for mortgage rate shoppers highlighted (lowlighted?) by Thursday’s mortgage bond market crash.
The drubbing Thursday was the worst day for the bond market in three years and is one of the reasons why the conforming and jumbo 30-year fixed mortgage is up 0.625% since late-April.
Conforming and jumbo ARMs are up as well, although not as much.
One factor impacting the mortage bond market is central bank activity in other countries. The European Central Bank, for example, raised its benchmark interest rate by 0.25% last week. That caused investor cash to move away from the United States and into the Eurozone.
As the cash leaves the U.S. markets for markets elsewhere, it creates an excess supply which pushes prices down.
For bonds, lower prices equals higher rates.
This week, there is little news to report until Wednesday so expect momentum trading to continue until then. The week then finishes with a few reports of consequence:
- Retail Sales
- Producer Price Index
- Consumer Price Index
Markets will be watching these reports with an eye towards the Fed’s next meeting June 27-28. As of today, markets are not expecting an increase in the Fed Funds Rate, but “hot” data could change that point of view.
Regardless of data (and like we discussed last week), unless mortgage bond traders engage in profit-taking, the upward trend in rates should continue this week.
Posted by Rosemarie Litoff on June 8, 2007 under Uncategorized |
Yesterday was the single worst day for mortgage rates in more than four years.
Because so few homeowners understand how mortgage rates are determined, a day like yesterday may have little context.
So, let’s try to put it in perspective.
If somebody told you that the stock market crashed, you’d understand. A stock market crash happens when many more investors are selling stocks than those that are buying.
Supply and Demand causes prices to plummet.
This is what happened to bonds yesterday — the market had a “crash” because global investors fled the U.S. markets in search of better returns elsewhere.
In other words, lots of sellers and very few buyers.
Because mortgage rates are based on the prices of mortgage bonds and because Supply and Demand dropped the prices of mortgage bonds, mortgage rates jumped as a result.
The bond markets have been under selling pressure for several weeks but yesterday a psychological price level was tripped and that triggered selling that led to a Snowball Effect.
Then, the snowball became an avalanche. A big one. Hence, “the crash”.
The 30-year fixed mortgage rate is up 0.625% over 60 days, a 11% increase. It’s not a good time to be floating a mortgage rate.
Posted by Rosemarie Litoff on June 7, 2007 under Uncategorized |
This is just a quick reminder to ignore national news stories about real estate. It may sound like strange advice, but real estate is a highly local phenomenon.
The “national scene” is comprised of data from:
- 50 states, with
- More than 30,000 incorporated cities, and with
- An innumerable number of neighborhoods
It also combines data from:
- Single family residences
- 2-4 units
- Condominiums/Co-ops
In other words, throw a dart at a map of the United States and the street on which the dart lands is in the same data set as the street on which you live.
Like I said, ignore the national statistics — focus on your local statistics.
Unfortunately, getting local real estate statistics is not always easy. The best place to start is by asking a real estate agent, a title company representative, or somebody else that has access to (and knows how to interpret!) raw real estate data for your neighborhood.
By talking to professionals that are “in the market” every day, you’ll get a much more reliable opinion than from national news sources.
Posted by Rosemarie Litoff on June 6, 2007 under Uncategorized |
Behold the power of the English language.
With just five words, Federal Reserve Chairman Ben Bernanke rattled markets yesterday.
In discussing how housing has slumped (and may continue to slump), Bernanke cited that weakness in the sector should not hold the rest of the economy back.
This is departure from earlier this year. In Q1, it was widely believed that a housing slowdown would result in a slowdown of consumer spending which, in turn, would result in a slowdown in overall growth.
Despite lackluster numbers in the housing sector and rising gas prices, however, the American consumer has proved quite resilient, and continues to buy, buy, buy. That slowdown doesn’t seem to be coming anytime soon.
Bernanke addressed his concerns about inflation by saying that the “risks remain to the upside.” Inflation, as you’ll remember, is the enemy of mortgage bonds.
Bernanke’s remarks jolted the markets somewhat. In seconds, the mortgage market turned and, by the end of the day, mortgage rates had finished the day higher.
Posted by Rosemarie Litoff on June 5, 2007 under Uncategorized |
Have you ever wondered how much your coffee habit is costing you?
Courtesy of software developer Hugh Chou, use the Coffee Calculator to calculate how much you pay for coffee each year, and how much money you forgo in savings because of it.
Did you know: If you buy a $1.87 grande drip coffee from Starbucks every working day instead of drinking free coffee in your office, you’ll forfeit more than $6,000 over 10 years’ time?
Compounding the problem? Very few of us take our coffee “plain”.
If you prefer the grande, sugar-free vanilla, non-fat latte, well, you’d best check out the savings for yourself.
The next time you wonder where you’ll find money for a downpayment on a new home, or pay for lawn care, or a car repair, begin the planning process by studying the dollars you spend on non-essential items.
Starting with specialty coffee.
Posted by Rosemarie Litoff on June 4, 2007 under Uncategorized |
Another week, another vicious rise in mortgage rates. There just wasn’t enough “bad” news to reverse the market’s recent trend to the upside.
There were three notable pieces of news from last week:
- The Fed’s May meeting minutes revealed a genuine concern that inflation is not slowing as anticipated
- The employment report showed that employers are still hiring
- Even though incomes slowed dramatically, spending is on the rise
Making matters worse for mortgage bonds is that the stock market continues to flourish. In search of better return, many investors are taking their dollars out from the bond market and using them for stock purchases.
With the extra supply, mortgage bond prices are falling and that raises their respective yields/rates.
This week is devoid of data so mortgage markets will be looking for clues from outside influencers including global oil supply, hurricane weather patterns and geopolitics.
Unless mortgage bond traders engage in some profit-taking this week, the upward trend should continue.
