When to use an Adjustable Rate Mortgage

An Adjustable Rate Mortgage (ARM) can be risky because – as the name implies – the rate is adjustable based on a financial index. Thus, the rate can go up, down or remain the same. However, there are situations where an ARM makes sense.

  • Buying for the short term – Buyers planning to live in the home for 3-7 years.
  • Strong future prospects – Buyers who know their financial future is about to improve.
  • High net worth individuals – Buyers who know they can earn more interest with their than what they are paying in interest on a mortgage.

Experts warn that the worst scenario is for a buyer who can’t qualify for a 30-year fixed to use an ARM to qualify with a lower rate.

Checking out the neighborhood

The location of a home determines its value and desirability; it also determines your overall satisfaction. A few things to keep in mind:

  • Don’t just visit the prospective home on the weekends. What’s the traffic and the noise like on a Monday morning. Will you be on a school route? If possible, stay overnight nearby so you’ll have an idea of how things are on a workday 8am.
  • Check the sidewalks. Sidewalks are a safety measure and should be in good repair. The lack of sidewalks may mean that taking a stroll around the neighborhood could be a risky proposition,
  • Local foreclosures. Foreclosure trends can be a good indicator of the local job market as well as the state of the neighborhood long-term.
  • Local amenities. Do your homework on schools, crime rate, parks as well as nearby shopping.

A strong spring ahead for real estate?

February saw California home sales increase by 11.3 percent over January – the lowest level in sales in over 10 years – and many analysts are looking for the trend to continue this spring. According to the California Association of Realtors, February’s numbers were the highest growth in sales since January 2011.

Analysts say lower interest rates stabilizing home prices were the prime factors in the sales jump. Overall, the nine Bay Area counties saw a slight decrease in home prices.

Also, the Bay Area saw a 41.9 increase in active listings and realtors are expecting continued buyer interest into the spring.

Renovation Do’s & Don’ts

Always a popular topic, Zillow has recently released a report analyzing which renovations bring the most bang for the buck – and which don’t.

  • Number 1 on the list is improving curb appeal: paint inside and out, landscaping and yard care. Interestingly, the right color combination can mean up to an extra $6,000! Here’s a hint: avoid yellow; those homes tend to sell for $3,000 less than expected.
  • Upgrade the bathrooms – but not too much. Mid-range remodels can bring an increase of $1.71 for every $1.00 spent but be forewarned: upscale remodels only bring 87 cents on the dollar.
  • Install new windows – again mid-range remodels are cost-effective; high-end is not.

Zillow also advises not to bother with the kitchen as these remodels tend to bring the worst return on investment primarily because everyone seems to have a different opinion on what constitutes are great kitchen. Let the buyers do it themselves. Also, finsihing the basement – even with adding a bathroom – will only fetch 50 cents on the dollar.

Baby Boomers finding it difficult to downsize

Fifteen years ago or so the trend in warm climates such as Texas, Arizone, North Carolina, Florida etc. was for new retirees (mostly Baby Boomers) to advertise their success in life by building huge 5 or 6-bedroom homes. This, of course, was a time of easy credit and real estate was booming.

These days, of course, everything is different. Keeping up with maintenance is very costly and the owners are that much older. Even more challenging is the fact that these large homes are proving to be very difficult to sell. Younger buyers aren’t interested in these mansions, opting instead for more modest homes. A recent survey revealed that more than half of would-be buyers are looking for homes priced $200,000 or less.

In Scottsdale, Arizona there are currently 349 homes valued at more than $3 million on the market with many being listed at discounts of up to 50 percent.

The Fed: No more rate increases in 2019

After its March meeting, the Federal Reserve decided to leave short term interest rates unchanged and announced that no changes are likely for the rest of the year. This is after raising rates for five successive quarters dating back to late 2017.

Analysts noted that it is possible that interest rates might actually be lowered at some point this year.

Federal Reserve Chairman Powell said that the economy is “in a good place” although he mentioned that it is slowing compared to previous years and is likely to slow even further in 2020.

Easing the mortgage application process for the self-employed

Fannie Mae and Freddie Mac are instituting an automated system that will simplify the mortgage application of self-employed and freelance workers. This automated income verification system will put an end to the manual combing through tax documents that often delays the process.

The new system should allow loan applications to take only three to five days to process and reduce the costs of the applications.

According to the Bureau of Labor Statistics the number of self-employed works in the United States is over 15 million.

Co-Living: A new era of affordability and connectedness?

In an age of high home prices, low inventory and an ever-increasing sense of human disconnectedness, is co-living an answer in the coming decades?

With rentals at the highest point since the mid 1960’s, more and more millennials – and those coming after, about to enter the workforce – are looking for housing that is affordable and brings a sense of community.

A growing list of startups are helping to facilitate co-living in urban areas from finding matching roommates to classes on collective living.

While home ownership remains the “American Dream” for many, others are seeking different alternatives for the future.

Home equity continues to increase

Given the continued appreciation of home prices, it’s no surprise that CoreLogic’s Home Equity Report states that U.S. homeowners with a mortgage saw an increase in equity of 8.1 percent year over year. The average homeowner saw home equity gains of approximately $9,000 between the fourth quarter of 2017 and the fourth quarter of 2018.

The number of homes with negative equity, where the loan balance is higher than the home’s current worth sits at 2.2 million or 4.2 percent of all mortgaged properties.

Given that home prices are predicted to rise 4.5 percent over the next year, this number should be reduced by 350,000.

Bay Area housing authority coming?

A new bill is being introduced in Sacramento which would create a first-of-its-kind housing authority that would have the authority to put fees and taxes on ballots throughout the Bay Area. While specifics were not clear, the authority could target everyone from developers to property owners to employers. The goal is to raise $1.5 billion which would go to affordable housing construction, acquiring land for housing projects, providing emergency rental assistance, etc.

Many local cities expressed concern as the bill could take up to 20 percent of future property taxes. Smaller cities and towns worry that they will be excluded from the benefits of the housing authority.