Kathleen Davis

It's been a Roller Coaster for Bonds the last few weeks so keep those arms up in the air and keep screaming the ride is not over yet....

First keep in mind rates are still GREAT!!! The lowest we have seen in a very long time with the average at around 5.5 to 5.75 today. That is still GREAT so keep that in mind. However just need to keep an eye on things to understand the volatility of the market and why it's not a time to sit on the fence. We all heard about 4.5% interest rates; all talk. Now is not a time to wait now is a time of action and opportunity.

$8K tax credit runs out on December 1, 2009. There is talk of it being extended as well as increased but there are no guarantees of that at this time, it's talk.

Other factors affecting interest rates:

• Over supply of mortgage back securities being sold on the market by Tresuries. Remember we had a big refinance boom so all those loans are being pushed into the bond market to be sold giving a over supply and pushing the price of bonds down thus interest rates have to go up.
• positive Jobs reports better than expectation
• other positive stock news

The next 2 days the FED meeting will take place. If some of the outcome of that meeting is that the FED will increase its buying of mortgage backed securities this could rally the Mortgage Bond Market giving us some relief in interest rates FOR A SHORT TIME.

Interest rates have to go up at some point as does inflation to pay for all this stimulus money. NOW is the TIME to take ADVANTAGE OF THESE GREAT INTEREST RATES!!!!

Here is what the volitality looks like in the Market:

On May 21^st rates for a loans:

• under $417K were around 4.75%
• High Balance conforming >$417K to $729K were at 5%.

Today....

• under $417K around 5.375%
• High Balance FHA conforming >$417K to $729K at around 5.625%
• High Balance Conventional conforming >$417K to $729K at around 5.75%

Here is the visual of the bond market over the last month. Bonds go down interest rates go up....

There are 217 days left in 2009 from today..... 2 things will happen in December.

$8K tax credit for First Time Home Buyers will go away 12/01/09 (we hope for an extension but who knows)

1. Max loan limit for High Balance Conforming will got back to $625,500 from the $729,750 12/31/2009

Thus there is really only 188 DAYS LEFT TO TAKE ADVANTAGE OF BOTH OF THESE

Let's break it down:

$8K tax credit the final HUD one MUST have a date of 12/1/09

So let's back it up:

• 45 days to close from enter of contract: Oct 17
• 30 to 60 days; looking at house, scheduling between vacations (it is summer time), job, kids, multiple offers so keep losing the house interested in so move to the next house, this that and the other: 60 days is August 18^th
• Pre-approval so that is another 10 days after all the paperwork is finally together, desktop underwriting is completed, information verified, so now we are at the beginning of August
• Decision yes I really want to do this! So now we are what June/July; OH WAIT June is next WEEK!
• Than there all the other things that can come up in:
  • Inspections
  • loan contingencies
  • asset verification at the last minute
  • gift issues at the last minute
  • credit clean up before can get pre-approved
  • appraisal
  • short sale approval needed
  • seller delay in responding to offer
  • repairs

All of the above applies to the Max loan limit of $729,950 the banks will have a cut off of when those loans can be submitted usually around the 1^st part of Dec if not Dec 1^st.

There is not a much time!

Reasons to buy:

1. 8K tax credit
2. Seller may pay for some closing cost
3. Property taxes our down due to drop in home values
4. FHA 3.5% down up to purchase price of $729,950 with great rates
5. VA 0% down up to $417K
6. Home prices lowest in the Bay Area
7. Lowest interest rates in how long on a 30 year fixed!!!

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A story to be told...

This past year, the real estate landscape is incredibly different. 1st time in 50 years in the Bay Area, it can actually be less expensive to buy than rent. In addition, the government is paying you to own by giving first-time home buyers up to an $8,000 tax credit if you buy before December 31, 2009.

Example of what a 25 year old first-time buyer with okay credit making $30,000 per year could qualify to purchase:

• $160,000 sales price for single family home (just closed one in Hayward).
• Total cash invested, $5,600 (3.5% down payment).
• Government will give back $8,000.
• Total PITI $1,140, 30 year fixed loan, 5%.

Buyer lives there for one year and decides to move on. Rents the house out for $1,800 per month. Positive cash flow of $660 per month. Takes the $660 and put it into an investment account for the next 29 years and assume an average rate of return of 5%, this would grow to $519,797. Of course, the rent would likely be increasing over the 29 years but there would be vacancies, maintenance costs, and potential management fees so the $660/mo. would represent a conservative monthly contribution. Also, it does not account for any tax benefits.

Fast forward; that 25 year old buyer is now 55 years old.

Home is owned free and clear. Assume rents are at least $2,500 at that time so now the monthly investment would grow to $2,200/mo. (after taxes and insurance) and over the next 10 years the net accumulation would grow to $1,199,155.

Now 65 years old......

The value of the home, assuming a 3.5% annual growth rate would now be worth $740,000. Home purchased 40 years ago for $160,000 would represent a net worth of $1,940,000. Borrower moves back into this property as owner-occupied and takes out a reverse mortgage.

Assuming a loan amount of $625,000, could take out approximately $315,000 in cash with no mortgage payment the rest of there life and live in the home rent free or he could elect to take a monthly income of $2,020 the rest of their life and live rent free until dies (based on today's rates and guidelines).

So, a 25 year old made this one decision to purchase a starter home in the Bay Area today and made no other plan at all for retirement, there would have an excellent income stream and retirement in place.

This could be you, someone you know, your child just graduating from college, friend, anyone!

Time is now! It took 50 years!!! to get to housing price like this and they will go back up!

Side note -- Reverse mortgages have changed dramatically over the past year and are very consumer friendly. They are insured by FHA and have very strict guidelines to protect the borrower. In fact today, reverse mortgages can also be used to purchase property. As a real estate professional, you need to be aware of all the amazing changes with reverse mortgages.