Darel Ansley

Last week's stock market jitters proved once again that the financial markets are not back to normal by any means. So what is happening to interest rates? Well, since we are in a global economy, what you pay per month for your house is affected by the government pensions being paid out in Greece.

The short answer is that when we really are in an economic recovery, mortgage rates will rise; but for the short term, while things are shaky, we have these great low rates, with 30 year mortgages in the 4.75%- 4.875% range. If someone is on the fence about buying a house; they shouldn't expect rates to stay low forever.

If you want the long answer to the relationship between Greece and our mortgage rates, see below:

So here is the chain as I see it. Greece, Spain, Portugal and several other countries pay out way more in government programs than they take in in taxes. If I tried to spend more than I make, I would have a big credit card balance. Well, that's what Greece has ( except they call them Greek government bonds). Now in the recent past, they were able to get nice low rates, so even though their balance was growing, they could still handle the payments. The market woke up one day and did the math and figured out that pretty soon Greece is going to run out of money. So now people won't buy Greek bonds unless they get 15% interest. As the old bonds come due and need to be refinanced, their rates are going up to 15% as well. If Greece was running out of money at 4%, you can only imagine the calamity that the higher payments are causing.

Now Greece is part of the European currency called the Euro, so a financial collapse of Greece would drag down the economies of Germany, Britain, France etc. Europeans buy a lot of US Goods, so the possibility of a European recession is keeping US Stocks from growing.

So the question becomes, where does someone ( a person, government, large corporation) invest their money to get a good return, and also keep their money safe?

When the stock market is a little shaky, they often put it into bonds,because bonds have a guaranteed payout. People are running away from Greek bonds of course, but running to US Bonds. One type of bond they are buying is the Mortgage Backed Security (MBS). The demand for these MBSs is what determines our mortgage rates on a daily basis.

So right now, the 30 year mortgage rates are under 5%. Why is that?

Because, as we all know, lending rules have become very restrictive, so the only people who can get a mortgage these days are well qualified. As a result, the mortgages that make up these new MBSs are seemingly more secure than they were in the past. If the new restrictions mean that people getting loans today are less likely to default on their payments, then these MBSs by nature are safer.

So you could look at it this way: we as lenders won't lend to you if your household budget looks like the Greek Government budget.

Therefore, as long as the stock market remains somewhat risky, investors will keep buying MBSs and mortgage rates will remain low. As soon as people perceive that the stock market is safe and offers good returns, investors will sell their MBSs and mortgage rates will rise.

I have encountered several clients who started construction of a home on their own nickle, expecting to get a construction loan to finish the last 10 -20 or 50%. Only to find that most banks won't lend on a house if construction has already started. I can't speak for the rest of the markets, but at least in our area of Eastern Washington, you have some choices. You CAN get a construction loan to finish a house, or to buy a partially completed home. We have several spec homes in our market that the builders walked away from; fortunately they were dried in, so they are in good shape. Someone will be able to come along and buy those with a construction loan which will provide the funds to both aquire the house and pay a contractor (or the homowner) to finish it. These type of deals are going to require at least 20% down on the total cost.

So two main points: 1) If you want to start building with your own cash, make sure you know where the money to finish is going to come from, and 2) don't do this if you have messed up credit- I had to turn away a guy with $300k into his house because he trashed his credit over the last few years (ouch). Construction costs are very low right now, I am currently working on construction loans for Winthrop, Okanogan County, Leavenworth, Chelan, Wenatchee, and Moses Lake, and all are seeing great prices, although some materials are starting to rise. If you need a contractor in our area contact the Homebuilders Association for a referral.

With some great prices out there right now for vacation condos in Leavenworth and Chelan, a lot of people are entering the market. With prices coming down, some people ask me if they should wait for them to drop further; I tell them, " When you can buy a condo you like for less than it costs to build, there can never be an oversupply at this price, because if this is the price, no one will build any new ones. So if you didn't catch the absolute bottom of the market, you sure got close"

After you see the great prices, before you make an offer, you better check on financing. A lot of lenders have backed away from doing loans on vacation condos, especially those which can be rented out part of the time. Most condos loans I actually do are for people who started with a lender who said they could finance it as a conventional loan- only to have it get kicked out of underwriting. We do both Fannie Mae condo loans as well as 'non-warrantable' condo loans, and here is the big difference (I'm not smarter than anyone on this, we just checked with Fannie Mae to see what they would take): It is the presence of BOTH a rental pool, AND a nightly rental desk that kicks most of the loans out of FNMA eleigibility.

The other issue is the percentage of units that are investment properties Vs 1st/2nd homes. And then the other new FNMA rule that stops most new condos is that FNMA won't buy a loan for a condo unless 90% of the units have been sold.

So what does this all mean? For Leavenworth and Chelan, only a small number of projects can get Fannie Mae loans (I recently closed one at Kahler Glen). For all other condos, you will need to seek out a community bank that does Portfolio lending (lending their depositors money). These rates can be higher, however 1) If it is a new project, the bank that financed the project is probably offering special financing. and 2) If you save $100,000 or more off of what they used to go for, but you have to pay a higher interest rate SO WHAT; you are saving a bundle overall. Here is some quick math - you think you would like to pay 5% , but let's say the portfolio rate you find is 7%. If the loan amount with the new pricing is $200,000 you pay $1330 a month P/I. That unit used to sell for a $100K more. Even if you could have gotten the 5% you wanted, 5% on $300,000 is $1610 a month.

These deals won't last forever, as there is no more supply coming on the market for a great while. Seek out a competent Realtor in the specific market you are looking at to help you.

This year, probably half of the construction loans I have done have been for owner-builders. This is the term we use for people who are building a home without a general contractor. In reality, the projects vary from individuals who never lift a hammer and just schedule all the subcontractors, to the people who are out there on the project themselves setting their own concrete forms and doing all their own framing and finish work.

For those who are a little nervous about being completely in charge, there are now lots of consultants available, as well as companies who will build everything for you except for the parts you feel comfortable with. Oftentimes they will build the external shell of the house -framed inside with roof,siding, doors and windows. You can then split the rest between your own labor and subcontracting. Basically, if you know which parts you want to do, you can find a builder who will take care of all the rest.

What I have been seeing is a nice drop in materials and labor prices this year, making these projects a great investment for the homeowners, as the cost savings equals additional equity in their homes.

If you are in the greater Wenatchee area, pick up a copy of the July issue of The Good Life magazine; a story inside features my clients the Flittons and the success they had with their owner-builder project in East Wenatchee. I would love to link to the article, but the magazine is not online.

I currently have owner builder homes under construction in Winthrop, Omak, Chelan, East Wenatchee, Leavenworth, Cashmere and Crescent Bar, and just finished one in Wenatchee.

If you are looking for a new home, with prices down for land, construction materials and labor, now would be a good time to check out the option of being your own contractor.

Here are a couple shots of some owner-builder projects currently underway.

I was at a meeting with Realtors from Western Washington, and they were amazed that we were still doing lot and land financing. Actually in our market areas of Wenatchee, Chelan, Winthrop, and Leavenworth (plus surrounding Counties), there are actually several community lenders that will lend on land. Each bank has different programs and terms, so it is worth calling around to compare programs before making a decision.

I have seen some great deals out there; your dollar really goes a lot farther than it did a few years ago.