The Kestner Team

Pending Home Sales on a Roll, Up for Sixth Straight Month!!

September 2nd, 2009 12:27 PM

Pending Home Sales on a Roll, Up for Sixth Straight Month

Posted By susanne On September 1, 2009 @ 4:04 pm In Home Buying 101, Real Estate, Today's Marketplace, Today's Top Story, Today's Top Story - Consumer | Comments Disabled

^[1]RISMEDIA, September 2, 2009—Contract activity for pending home sales has risen for six straight months, a pattern not seen in the history of the index since it began in 2001, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in July, increased 3.2% to 97.6 from a reading of 94.6 in June, and is 12.0% higher than July 2008 when it was 87.1.The index is at the highest level since June 2007 when it was 100.7.

Lawrence Yun, NAR chief economist, said the housing market momentum has clearly turned for the better. “The recovery is broad-based across many parts of the country. Housing affordability has been at record highs this year with the added stimulus of a first-time buyer tax credit,” he said. “Other buyers are taking advantage of low home values before prices turn higher. Nationally, the typical mortgage payment now takes less than 25% of a middle-income family’s monthly income to buy a median priced home, with payment percentages so far in 2009 being the lowest on record dating back to 1970. As long as home buyers stay within their budget, mortgage payments will be very manageable,” Yun said.

NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit. Buyers have little time to act because they must complete the transaction by November 30, 2009 to qualify for the credit. Unless extended, contracts signed but not completed by that date will not be eligible- it is taking approximately two months to complete home sales in the current market.

The Pending Home Sales Index in the Northeast declined 3.0% to 78.8 in July but is 4.7% higher than July 2008. In the Midwest the index slipped 2.0% to 88.1 but is 8.1% above a year ago. In the South, pending home sales activity rose 3.1% to an index of 103.8 in July and is 12.0% above July 2008. In the West the index jumped 12.1% to 112.5 and is 20.0% above a year ago.

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said Congress needs to keep the momentum going. “Even with a good recovery taking place, the market is not yet back to normal. With a gradual absorption of inventory, we are on the cusp of a general stabilization in home prices,” he said. “To ensure that housing has a broad stimulus to the overall economy and stays on sound footing, we’re encouraging Congress to extend the tax credit into 2010, and to expand it to all buyers of primary residences. The faster we stabilize home prices, the fewer families will face foreclosure and the quicker credit can be extended to other sectors of the economy,” McMillan said.

NAR’s Housing Affordability Index (HAI) stood at 158.5 in July, below the peak set in April but is still 36.0 percentage points higher than a year ago. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income.

Yun expects existing-home sales to rise through the fourth quarter. “Unless the tax credit is extended, no one should be surprised to see home sales drop in the first quarter of next year,” he said. “However, the fundamentals of the housing market and the economy are trending up, and we expect home sales to generally pick up in the second quarter of 2010. The buyer psychology may be shifting from, ‘Why buy now when I can purchase later,’ to ‘I don’t want to miss out on a recovery.’”

For more information, visit http://www.realtor.org/ ^[2].

Posted by Nina Kestner and Kevin Lennon The Kestner Team on September 2nd, 2009 12:27 PMPost a Comment (0)

Mortgage repayment yields big returns

September 24th, 2009 12:54 PM

Compared to Treasurys and CDs, investment's a no-brainer

By Jack Guttentag, Inman News

One consequence of the financial crisis has been to make investment in mortgage repayment increasingly attractive. Mortgage repayment is a riskless investment that yields a return equal to the interest rate on the repaid loan. If the loan carries a 6.125 percent rate, the borrower earns that rate on the balance repaid. The yield on other investments of comparable risk, including federal government securities, CDs and money market funds, are way down. My money market funds today are yielding barely more than 1 percent.

Not so obvious but even more compelling, some borrowers in process of refinancing can earn a much higher return on partial loan repayment if the balance reduction allows them to reduce or avoid mortgage insurance coverage. The return is high because the crisis has increased mortgage insurance premiums. Here is an example from my mailbox.

"My credit is excellent; my income is adequate; my rate is 6.125 percent; and I qualify for 5.125 percent, except for one thing: The value of my house has declined from $360,000 to $280,000 and we owe $242,000. My lender says that for us to refinance we need mortgage insurance, which was not required when we took out the loan originally. I don't want to pay for mortgage insurance. …"

If this borrower can come up with $18,000 to pay down the balance to $224,000, that balance would be 80 percent of the current appraised value and no mortgage insurance would be needed. Relative to remaining with her current mortgage, the $18,000 investment would yield 18 percent over five years. The return is not very sensitive to how long the borrower has the mortgage -- it will be a little higher if the period is shorter and a little lower if it is longer. The return includes the lower payment over the five years plus the smaller loan balance at the end of the period. If the loan runs to term, the return would be 16.6 percent.

If this borrower does not have the needed $18,000, she should refinance anyway and pay the mortgage insurance, because she will be better off. Relative to paying an insurance premium of 0.62 percent, investing $18,000 to avoid it will yield about 13 percent over five years.

Similar logic applies if a partial prepayment converts a super-jumbo into a conforming jumbo. Because the crisis has increased the yield spread between them, the return on an investment in prepayment can earn a sizeable return for a refinancing borrower.

"I have a jumbo mortgage with a balance of $809,000. I can refinance it at 5 percent for 15 years, or I can pay down the balance to $729,000 and borrow that amount for 4.375 percent. Other costs are about the same. Is this a good way to invest $80,000?"

I calculate the yield on the $80,000 investment to be 10.4 percent over five years, and since there is no risk, it is a very good investment indeed. The yield is a little higher if you terminate earlier, a little lower if you terminate later. It is not as high as in the previous case because the investment required to lower the rate is substantially larger than the investment required to eliminate mortgage insurance in the previous case.

If the existing balance is $769,000 instead of $809,000, the investment required to convert the new loan from super-jumbo to conforming jumbo would be reduced to $40,000. In this case, the rate of return over five years would rise to 15.4 percent.

In general, the yield on investment in balance reduction will be above the rate on the mortgage that is paid down by an amount that is larger when a) the larger is the rate difference between the super-jumbo and conforming jumbo mortgages, and b) the smaller is the required investment.

Note: I did all these calculations on a hand calculator with financial functions. These are available today for about $20; look for the tell-tale symbols: N, I, PV, PMT and FV. I will have instructions on how to calculate the return on investment in the Web version of this article at www.mtgprofessor.com.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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Copyright 2009 Jack Guttentag

Posted by Nina Kestner and Kevin Lennon The Kestner Team on September 24th, 2009 12:54 PMPost a Comment (0)

Credit Card Reform Offers Good News and Bad

September 14th, 2009 2:25 PM

Credit Card Reform Offers Good News and Bad

^[1]RISMEDIA, September 3, 2009—(MCT)—Life with a credit card presumably got a little easier in August 2009. Under new federal regulations, credit card companies have to give more warning before upping your interest rate and more notice before your bill is due. And another round of consumer-friendly changes goes into effect in February 2010. It’s all part of the Credit CARD (Card Accountability Responsibility and Disclosure) Act of 2009, aimed at protecting consumers from unexpected fees and excessive penalties. That’s the good news.

The bad news is that in recent months, credit card companies have been ratcheting up interest rates and cutting card limits. It’s partly in anticipation of the new restrictions and partly a response to increasing default rates among recession-battered consumers who can’t pay their bills. “Regardless of the apparent consumer victory and the noble intentions behind the new law,” said Ben Woolsey, a consumer credit expert at CreditCards.com, “the unintended consequences—higher credit costs, less generous terms and higher prices across the board—could be the rule and not the exception.”

Credit card interest rates and fees overall are up an average 20% since January 2009, according to consumer savings website BillShrink.com, based on its survey of 150 major cards over the last seven months. Similarly, credit limits—the maximum amount you can charge on your plastic—have been cut back this past year for an estimated 58 million Americans—many of whom had high credit scores and no problems with their existing card. That’s according to a recent study by FICO, developer of the widely used consumer credit score.

“There’s been a lot of pre-emptive activity over the last six months in preparation for the law going into effect,” said Billshrink’s co-founder and president, Schwark Satyavolu. “A lot of banks are effectively trying to get in their changes in rates and fees now to make them egregiously higher before the law goes live.”

Under the changes that took effect in August, credit card companies must issue monthly bill statements 21 days before they’re due, instead of 14 days. And they must give card holders an extra month’s notice before raising interest rates—45 days instead of 15. And if you elect to drop the card and pay off the balance, you can do so at the old interest rate. There’s been some backlash to all the increases. Consumer blogs are rife with complaints about rate hikes on credit cards.

The fee hikes and other changes have been the trend this past year and will intensify through February, said Gerri Detweiler, a consumer credit expert with San Francisco-based Credit.com. “Issuers are experiencing increased charge-offs and defaults by customers who are severely delinquent,” where it’s much less likely they’ll be able to collect what’s owed.

The situation is “frustrating for consumers who are trying to do the right thing and make their payments on time but are really backed into a corner when a card issuer raises their minimum payment or interest rate and makes it difficult for them to dig out.”

“If you’re a customer with a good payment history, low debt and a strong credit score, you may be able to negotiate with your bank (card issuer) to reinstate your credit line or come to a happy medium on interest rates,” Detweiler said. But if you have high credit card balances, are falling behind on payments or having trouble making minimum payments, calling your card issuer could trigger more scrutiny of your account and lead to even bigger rate hikes, she said. If you’re struggling, Detweiler recommends talking with a credit counseling agency to get all your debt under control. Or look into transferring your balance to another card, although there are transfer fees you’ll need to consider. “It’s tricky to navigate and it can be incredibly frustrating when you’re trying to do the right thing,” she said.

About 85% of U.S. households pay credit card charges, primarily interest, according to a study by UC Davis graduate school economics professor Victor Stango and a Dartmouth College colleague, who analyzed data from 10,000 consumers between 2006 and 2008. Their study also found that 48% of those surveyed incur penalties for late payments or exceeding their credit card limits. “A lot of these fees are incurred because consumers are unaware of them or didn’t fully understand the terms they signed,” said Stango. Because credit card rates and penalties are “dramatically” changing now, Stango said it’s crucial that consumers pay attention to bills and letters from card issuers. “If you throw away the letter, you could be in for a nasty surprise two or three months later,” he said.

Until it all shakes out, “the best thing consumers can do is stay on top of these changes and evaluate their options regularly,” said BillShrink.com’s Satyavolu. “Keep more vigilant about your credit card choices, until the credit card industry stabilizes and figures out what fees and rates they’re going to stick with. A lot will keep changing over the next year.”

Distributed by McClatchy-Tribune Information Services.

Posted by Nina Kestner and Kevin Lennon The Kestner Team on September 14th, 2009 2:25 PMPost a Comment (0)

Pros' guide to window screen replacement

September 10th, 2009 12:32 PM

Why fiberglass is the preferred choice

By Paul Bianchina, Inman News

It's getting to be that time again. The windows are open, and the bugs are clamoring at the window screens, trying to come in and join the party. If a few too many of these uninvited guests are getting in, it's probably time to get that damaged screening replaced. Luckily, this is a great do-it-yourself project that you can take care of in no time.

To do your own window screen replacement, all you'll need is some new screening material and a simple re-screening tool, both of which are available at home centers and hardware stores. Screening is available in both fiberglass and aluminum, but the fiberglass is much easier to work with and is the preferred choice for most applications. It's available in different widths, so purchase one that's a minimum of 2 inches wider than the screen frame itself.

Remove the window screen frame from the window, and set it on a workbench or work table. You'll notice that one side has a groove running around all the way around it that the screen is tucked into that. Place that side face up.

Look closely at the groove. What you'll notice is a gray or black vinyl spline that's tucked down into the groove, holding the screening in place. Look for the end of the spline, which is usually in one corner. With a small screwdriver or a utility knife, carefully pry up the end of the spline until you can get a hold of it. Lift the spline out of the groove all the way around, and then remove the old screening. Clean the groove with a screwdriver tip or some compressed air to remove any dirt and debris.

Now examine the spline. If it looks fairly flexible and seems undamaged, you can clean and reuse it. If it's worn, stiff or cracked, you'll want to replace it with a new one. Splines are available at the same place where you purchased the screening -- take the old one into the store with you to be sure you get the same size.

With the screen frame lying flat on the workbench, unroll the new screening over it. Make sure that you have minimum of 1 inch of overlap on all sides, and then cut the screening off the roll.

You'll be installing the new screen into two adjacent sides of the frame, then stretching it across the frame and installing it into the other two sides. Make sure that the new screening material is lying straight on top of the frame before you start. Begin at one corner, and press about an inch of the spline part way into the groove with your fingers, trapping the screening in the groove.

Next, you'll be using the screen roller tool. The roller has a wooden or plastic handle, with a plastic roller at each end. Using the roller with the concave (inward-curving) edge, set the roller on top of the spline. Pressing down with moderate pressure, use the roller to press the spline about halfway down into the groove. Continue across the entire first side of the frame, rolling the screen and the spline into the groove.

With the first side in, check again to be sure that the screening material is sitting square on the frame. If it gets off, the screening will appear to run diagonally across the screen frame, rather than vertically and horizontally. Turn the corner with the spline, and use the roller to set the screening into the second side, adjacent to the first. Try not to stretch the spline too much as you set it.

With the first two sides set, lightly stretch the screening material across the frame with one hand while continuing to set the spline in place with the roller. Don't worry about stretching the screening too tight or if you have some minor wrinkles – those will come out in the next step. However, if the screening is really loose or is crooked in the frame, simply pull out as much of the spline as necessary, reposition the screening, and try again.

When you get to the final corner, you may find that you have more spline then you need, even though you're reusing the original spline. That's the result of stretching the spline as you install it, so simply cut off the excess with a utility knife.

You now have all the screening and spline installed, with the spline about halfway down into the groove in the frame. Using the roller tool, carefully work your way around the entire frame again, rolling and pressing the spline the rest of the way into the groove. This will finish stretching the screening, and should leave you with a tight, smooth installation.

The final step is to cut off the excess screening. Use a sharp utility knife, and place the tip of the knife between the spline and the outer edge of the groove. Hold the knife relatively flat in relation to the screen, and work your way around the entire frame, slicing off the excess.

Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com.

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Copyright 2009 Inman News

Posted by Nina Kestner and Kevin Lennon The Kestner Team on September 10th, 2009 12:32 PMPost a Comment (0)