Get Erick On The Phone Now, 703-677-1120 Relax, You'll Be Treated Like Family.

Watching some so-called experts parade in front of the news cameras this morning, it was funny to hear some of the comments.

One "expert" said the Fed's recent cut (exactly one week ago) has had no effect on housing.

This shows how little understanding some "experts" have about the way short-term rate changes have little or no impact on home loans.

Do they really think that fence-sitting home buyers see the Fed cut, get in their car, buy a home, get a mortgage, and close within a week?

Next, an economist from Standard & Poors said, "Most mortgages are priced off the 10-year Note".

So what?

I have no clue as to what that means to me or my buyer clients. And oh by the way, I have a Bachelors Degree in Economics.

Do YOU know what "Most mortgages are priced off the 10-year Note" means to you???

Here are some facts that are refreshing.

The consumer is still feeling pretty confident as the Consumer Confidence index for January was reported at 87.9, which was stronger than expectations of 87.0.

Adding further strength to the report is an upward revision to December's index reading from a previously reported 88.6 to 90.6.

WARNING: If the Fed does cut short-term rates to banks by 1/2 percent tomorrow as expected, the long term picture may not be so good for Mortgage Bonds.

So you, my gentle reader may wonder, "Why would a short-term rate cut be BAD for Mortgage Bonds?"

Here is the logic as explained to me by my trusted mortgage banking maven:

First, he Fed has already cut the short-term rate they charge banks for funds by 1.75% since September 18th, bringing the Fed Funds Rate down to 3.5% from 5.25%.

Second, add to that the 1/2% cut in just the Discount Rate back in August.

Third, add in the President's Stimulus Package and another 1/2% cut tomorrow by the Fed and you have a whole lot of ammunition to boost the economy too hard and too fast.

When the economy gets boosted too hard and too fast, the potential for higher inflation soars like a rocket.

Inflation erodes a mortgage banker's Return On Investment (ROI).

If a mortgage bank makes a long-term loan now, like a mortgage loan, the bank will get 5.5%-6.5% ROI.

Next, if inflation rises later this year to 4.5%, the 4.5% inflation rate eats into the bank's yield such that the true, honest, after-inflation ROI to the bank would be just 1% from a 5.5% mortgage loan.

So what happens next?

Well, mortgage banks will pull back available funds and wait for higher rates, higher ROI to the bank.

Insurance companies and pension funds that fund a huge chunk of our mortgage loans will switch to investments in stocks as the stimulus package adds a boost to the economy.

With less cash available to home buyers, mortgage rates will rise rapidly.

This is a good time to get the message out to your friends who may be waiting on rates to drop further before getting a loan approval, and buying a home while prices are hovering around 2003 prices.

As always, loan applications never peak at the lowest point for rates...they do so when rates start moving up and the average "Joe Sixpack" home buyer gets off the fence after the train has left the station.

Warn your friends of this common error.

It is wise to get your friends into a loan application now, especially those above $417k, but below $625K.

This way they can pounce on the lower rates once the Conforming loan limit is raised by Congress to as much as $730,000 in selected markets.

Gentle reader, a final thought from one who has helped over 2,000 families buy and sell homes over the past 25+ years...

Skilled, experienced investors who know how to time the market buy on BAD NEWS. (Falling home prices, dim economic forecasts, pundits preaching economic tragedies)

Consumers, "The Average Guy/Gal" tend to wait, and wait, and wait to buy on GOOD NEWS. (Home prices rising, home values improving, supply dwindling)

Some average folks lose out on opportunities because the say such nonsense as, "I'm waiting to buy until I think we've hit the bottom of the market".

How does the average Joe/Josie decide when the bottom hits??? When he/she is absolutely, positively, 110% convinced that rising values are here to stay, long after values have ticked upward.

They tend to follow the herd.

I call the folks who follow the herd "Sheep".

I call money-making investors "Lions".

Sheep eat grass... lions eat sheep.

Need proof?

All I have to do is look at the REAL investors, the lions, who have been scooping up deals on homes at prices 80% of the 2005 market peak... homes that were purchased by sheep who followed the herd too late.

Not a sermon... just a thought.

Here is a portion of today's mortgage market e-mail from my buddy, "Big Dave" of Nations Home Funding.

"The "Maestro", former Fed Chair Alan Greenspan, is back on the soapbox - but this time with a more positive tone. While he still thinks the chance of a recession (2 consecutive quarters of negative GDP growth) is 50/50, he said that if the US economy did enter one, it would be short and shallow.

"Moreover, he thinks 2008 could be the bottom in housing.

"We are glad to see he is thinking the same way we have been.

"And consider this - if the housing market had a large affordability gap...perhaps as much as 30%...the excess will have been reduced quite a bit by the end of this year.

"Prices declined by 5%-10% in 2007.

"Add another 5% drop this year and half the excess in affordability is gone.

"Now think about incomes rising a modest 2.5% per year.

"Since we qualify at a front ratio of 33% or less, the 2.5% increase in income translates to about 7.5% increase in price.

"Two years of that wipes out the remaining 15% gap in affordability.

"There is still a lot of inventory to soak up, so prices won't rocket higher next year, but we should see stabilization and modest price appreciation.

"Yesterday, we mentioned the potential for a conforming limit increase.

"This is almost a done deal and should be realized by the end of next month.

"The cap will likely be 125% of the median home price in your area, with a maximum around $730k.

"For those with loans above $417k, but below the new cap, the savings will be huge.

"Get ready for another refi frenzy."

Have you noticed that new homes are rising out of the ground all over Prince William and Woodbridge in the middle of a "real estate slump"?

How come builders are still selling when existing home sales SEEM to be stalled?

Price.

Builders price homes with their HEADS; too often, home owners price their homes with their HEARTS.

Builders set their prices based on market facts. Some home owners set their price based on facts, but the vast majority of owners base their asking price on EMOTION.

Builders are selling a commodity.

Home owners are selling a comodity too, but most don't know that. Most owners view their real estate as a prized possession...

I popped in to see Beth at Victory Ridge today to find out how many homes she has been selling.

Beth is the new homes Sales Manager for NVHomes at Victory Ridge.

Beth has logged 3-5 sales per month over the past year.

That's an ideal pace for a cozy subdivision because the construction supervisor can start one new foundation each week; four new "starts" per month.

"But Erick, but Erick!!! The builder down the road from MY house was selling houses in the $700's two years ago... now they are selling the same exact houses in the $500's. Was he making a fortune two years ago, or is he losing money now?"

Gentle reader, the cost of sticks-and-bricks to the builder is roughly the same as it was two years ago. However, the land developer has dropped the price for his building lots $200,000.

Builders gross profit (not net profit after overhead and taxes) is only seven percent (7%) or less.

"But Erick, but Erick... I thought all builders were greedy jerks who were toting huge sacks full of cash to the bank... and besides, I thought the builder WAS the developer."

Nope.

Developers develop land into finished building lots they then sell to home builders.

Developers dig dirt... home builders cobble sticks-and-bricks together.

Home builders are CUSTOMERS to a land developer.

If the developer's customer can find cheaper land down the road in a declining market, the builder will pack up and move.

However, the land developer can't move his land somewhere else where he can sell it for a higher price.

Just try loading 210 acres of finished building lots onto a Ford F-150 pickup truck and drive on down the road...

So the developer eats the $200,000 price drop.

So, if you have been dreaming about getting a glorious new home, hook-up with your Family Realtor.

Your Family Realtor will help you save a ton of money when you get a new home with his/her "inside information" he/she can use to help you get the most new home for the lowest price.

And, if you have tried to sell your present home without success... take a look at your price and see if you are pricing it to sell at a market price.

Are you priced to sell, or are you being a little too greedy in a slack market.

Oh, and if you don't HAVE TO sell, don't. Relax. Your investment in your home is safe. The long-term value of real estate climbs ever upward over time.

TTFN

I moved to Prince William County in 1983 when most of the county was a vast wilderness, criss-crossed with windy two lane roads that ended in the middle of nowhere.

Fast forward to 2008. Prince William County is now a lush, inviting place to live, work, and play.

I say lush, because the County still offers plenty of green space, while mixing in world-class communities.

One of my favorite neighborhoods is River Falls.

River Falls is a young neighborhood surrounding the lush rolling fairways of Old Hickory Golf Club.

I have played golf at Old Hickory, and I can say without a doubt that it's one of my top ten favorite golf courses on planet Earth.

My golf instructor, Vincent, has kept my swing tuned just right at the exceptional golf academy at River Falls, Powerline Golf Academy.

Vince Natale, Powerline Golf Academy Instructor

River Falls offers Homes from the mid $600's, all the way up to stately mansions on the shore of the Occoquan starting at $1.2 million.

River Falls is tucked away from the hustle and bustle of busy streets, yet it's convenient to the Prince William Parkway, County Center, shopping galore, restaurants, and so much more.

Click here to search homes for sale in River Falls, or any other community.

My dear old mentor, Dallas Wood, gave me some insight many, many years ago that has been useful through market changes.

"Erick, when you see news stories that say 'Real estate is it going up like a rocket so buy now before you are priced out of the market', you better start cutting expenses, and lay-off extra staff because the business is about to grind to a halt."

Next, he said, "When you hear news reports that say, 'The real estate market has been sliding fast, and it's going into a free-fall', that's the time to hire folks, and get cranked up because the market is about to get rolling fast, so be ready for it."

I was sitting at a traffic light two weeks ago listening to the radio when I heard a news report quoting some "expert" who said real estate is in a free-fall. Time to get cranked up.

Actually, I've noticed that a reliable clue indicating that the real estate market is gaining momentum is when the news is full of stories questioning the state of the market.

When teams of so-called "experts" are arguing over who has accurate data showing market trends, the market has stabilized.

Stories touting "Opportunities" in the market for homes is a sure sign that stability and sanity has returned to the market.

Potential home buyers have been overloaded with news stories from new outlets that give conflicting, contradictory information. They're ignoring the media and seeking out solid numbers and facts on their own.

For my market, I've set up a Market Snapshot feature on my web site that buyers and sellers can use to do their own research from the comfort of home.

I landed a job as a summer intern at the San Antonio Express/News where I learned a dirty little secret most major news outlets don't want you to know.

The very, very best reporters, the ones who really dig for the facts and become peak-performers are rewarded with big news stories that make the main news section of the paper.

I'll lay it on the line. I discovered that the mature, most proficient reporters got the got the BIG stories, and the fluffy stuff went to reporters who were less experienced, at the shallow end of the gene pool.

The real estate beat at most newspapers is tossed off to rookies. Fresh-faced kids, straight out of college. Twenty-three year-old kids who have never owned a home, or obtained a mortgage write the stories for the real estate section at most publications.

Why should anyone pay attention to the misguided ramblings of a twenty-three year-old cub reporter who has never bought or sold a property, and never obtained a mortgage?

Do your own research. Do your homework. You're smart. Trust yourself.