Joe Harris

Brevard County Mortgage and Real Estate Market Data For January 2010

Welcome to the first market data report for Brevard County Real Estate of 2010. While 2009 turned out to be a good year for both the reduction in inventory, and sales of existing inventory, it also proved to be the year of lending changes, and bottoming out prices. With 2009 in the distant past, we now get our first glimpse into the new decade for 2010.

Not too surprising, the vast majority of sales were under $200,000 with 76% of all residential transaction selling between $0 and $199,999. This trend has been consistent over the past year as the first time homebuyers are greatly incentivized to come in and purchase. However, we did see an increase in the average price sold of homes to $160,079 in January 2010 versus $148,474 in January 2009. This data could be telling us that we have hit bottom, and are going up.

The biggest surprise for January is the sheer number of cash transactions that are taking place. This January 2010 we had 252 cash Transaction which accounted for 52% of the market. Again, Real Estate has historically been a decent investment, and with so few places to put your money right now, buyers are choosing to use their cash instead of financing. When the cash on the sidelines starts coming into the game at this pace, that is a sign that we have hit bottom.

Whether or not the Brevard County market has hit its bottom or not, one thing is certain: it is an outstanding time to buy real estate. If you are a first time homebuyer, the government is still offering the $8000 tax credit, however, there is an end date, so you better act soon to find your home and claim your government incentive. Also, we know that the federal government will stop their Mortgage Backed Security purchase program which will almost instantly add to the increase of interest rates. So, if you are on the fence, or if you know someone who is thinking about buying, now is the time to act. If you have any questions, please contact me.

While it is not official yet, it looks like the FHA is about to make several major changes that will affect borrowers in Brevard County, Florida and the rest of the country. The talked about changes will affect the cost of mortgage insurance, the down payment, the amount of seller paid closing costs, and also some steps towards being able to better oversee and regulate lenders originating FHA loans.

The FHA does not actually lend money; the FHA insures loans made by lenders that meet the guidelines set forth by the FHA. In order to insure these loans, all FHA loans have an up-front mortgage insurance premium that is meant to cover the costs of defaults. Because there are so many defaulting loans, the FHA has to increase the loans up-front cost. It looks like the cost will be raised from 1.75% to 2.25%. The up-front mortgage insurance premium is a cost that is actually financed into the loan, so it is not something that the borrower has to bring to closing.

Currently the FHA has a minimum down payment of 3.5% for all qualified borrowers; it seems as though the FHA will increase the down payment to 10% for those borrowers with a credit score below 580. This is kind of a moot change. The reality is the majority of lenders have a credit score floor of 620; some lenders have even raised their minimum credit score to 640 and higher. Unless lenders plan to lower their minimum credit scores, this should really not be a factor.

The FHA allows the seller to pay up to 6% of the purchase price towards the buyers closing costs and pre-paids. The new rule will only allow the seller to pay up to 3% of the sales price towards those items. As the many of the closing costs are fixed costs, this rule will really impact those lower priced buyers who have enough for a down payment, but who do not have enough funds to cover all of the closing costs.

Lastly, the FHA is looking to better oversee and regulate the current lenders that originate FHA loans. Recently, Taylor Bean and Whitaker, a Florida based operation, was shut down due to originating loans that the FHA said did not comply with the rules. It is likely that we will see more of this in the future.

All in all these changes will most likely continue to make the FHA loan as a viable source for people with challenged credit, less money to close, and many others. These changes only seek to strengthen the FHA, and make sure that it continues to have the ability to ensure loans for years to come.

Joe Harris

Mortgage Professional

www.joeknowsmortgages.com

Everyone knows that when you refinance your current mortgage into a new one you can benefit in better terms, better interest rate, better payment, and you may skip a month of your mortgage payment, however, most people do not look at the opportunity cost of the money that it costs to do the refinance. What rate of return is your money getting right now as it sits in the bank? A half a percent? A whole percent? I doubt it is doing much better than that.

What if I told you that you could receive a guaranteed rate of return on your money of over 60% per year? Would that interest you at all? Of course it would; you are a rational, financially conscious human being. Well, let me give you a scenario where that is not only true, but highly likely in today's mortgage interest rate environment:

Let's say that you have a mortgage of $300,000 at an interest rate of 6.25%. Your monthly principle and interest payment would be $1847. If you were able to take advantage of today's interest rates, and refinance the $300,000 balance into a 4.75%* interest rate, you would then lessen your monthly payment to $1564 per month. That is a monthly savings of $283, and a yearly savings of $3396.

As we all know, there is a cost to refinance; these costs are called closing costs. You can either roll the closing costs into the loan, or you can pay them out of your pocket. If the closing costs were around $5500, and you were saving $3396 per year because of the reduced payment, then that "investment" of $5500 will get a 61% annual rate of return, for as long as you have that loan. If you had the loan 10 years, then you would have saved over $33,960 and achieved over a 600% rate of return on your investment. How much would $5500 earn you at your bank right now?

While this scenario may not be exactly like the one that you are currently in, think about this: what is my money doing for me right now? Can I use that money that is gaining no interest in the bank for something that will give me a better rate of return with little or no risk? Even if you have little to no equity in your home, you still may be eligible to refinance your home into a better interest rate. There are several government sponsored programs that you may be eligible to take advantage of and put your money to work for you. Please contact me today, before these interest rates and programs are gone.

*Author of this article makes no claims and is not advertising this rate. This is a theoretical situation. For current interest rates and to have a professional go over your options with you, please contact Joe Harris at joe@joeknowsmortgages.com

Let me make a statement, and I hope you truly digest what I am about to say: the interest rates on mortgages here in Brevard County, Florida are about 1/8% off of their lowest levels in history. That means that if you qualify for a mortgage, you could potentially get a better rate on your loan than just about anyone in history. With interest rates and home prices as low as they are, and with the first time homebuyer tax credit extended into 2010, people should be lining up to buy homes. However, these rates have only one way to go, and we are headed there soon.

One of the biggest factors in our low rates right now is not the Fed's decision to keep the overnight rate as low as it is, rather it is from their decision to continue to purchase mortgage backed securities in the many Billions of dollars per week. When this purchase program ends, the demand for Mortgage Backed Securities will be less, therefore the price will decrease, and the yield (or interest rate) will increase.

Another factor that is keeping rates low, has been the low threat of inflation. While inflation is not happening right now, there are many concerns of inflation coming once the economy starts to improve. We are already seeing signs of inflation as the Core CPI (Consumer Price Index) came in higher than expected, and a little higher than this time last year. It is inevitable that when you dump as much into the economy as we have, and when the cost of money is as low as it is that we will see inflation. In inflationary times, bonds are not as attractive because they become devalued.

So, with Inflation around the corner, and the Fed finishing their Mortgage Backed security purchasing program coming to an end in 2010, interest rates are going to increase. The increase in interest rates will affect buyer's purchasing power, as well as their cost of money. I have said it before, and I will say it again: Now is the time to buy! Rates are low, but rising; home prices are down, but will go up; sellers are generous, but they will be greedy. Please take advantage of this opportunity, before it goes away. If you are currently renting, talk to a professional to see if you can buy; if you know someone who is renting, encourage them to see if they can buy.