My New Blog

Foreclosures in San Diego County have increased 22% in March over February.  This is not so good news for these homeowners, however, this is good news for those looking to become homeowners.  With the addition of higher loan limits in San Diego County, which were way overdue, it is making it easier for people to become homeowners with secure, fixed, FHA home loans.  The great thing about FHA loans is they are more forgiving on credit and the mortgage insurance is much cheaper than traditional mortgage insurance.  Traditional insurance can cost upwards of 2% of your monthly payment while FHA mortgage insurance is only .5% of your monthly payment.  There is an upfront mortgage insurance premium of 1.5% of the total loan amount which can be financed into the loan reducing upfront costs to homebuyers.  If you choose to become a homeowner and take advantage of all of the foreclosures and short sales currently available in the market, you are creating a win-win-win situation or everyone involved.  You help the current homeowner who is losing their home, you help the bank reduce their losses and you get a great deal on a home that was previously out of your price range.

On another note, real estate transactions in San Diego actually rose.  Experts say that San Diego's present conditions suggest that over the next half-year, prices may start to rise.  "There's usually a 3 to 6 month lag between when transactions go up and prices go up," says Jonathan Miller, president of Miller Samuel, a real estate appraisal firm in Manhattan.

This is the time to buy before rates and prices begin to increase.  You can become a home owner with no down payment or credit challenges.

The Fed meeting minutes mentioned a "prolonged and severe" economic downturn in the future.  This is what prompted the Fed to cut interest rates .75 %.  Looking into the future the Fed has to balance between inflation, rising unemployment and a slowing economy.  Cutting rates again at the next meeting at the end of April is most probable especially with the rising unemployment.  The economy has lost 232,000 jobs over the past 3 months, lowering rates should prompt businesses to invest and start hiring, we'll have to wait and see.  All of the rate cutting hasn't improved the credit markets much and is weighing on the housing and financial sectors as well. 

The Fed will most likely cut rates again and hopefully this will allow the economy to pick up and start a return to normal.

The Fed cut rates .75% to 2.25%, why are mortgage rates still around 6%?  The interest rate that the Fed controls is the overnight rate at which banks lend to each other, that's the rate that was cut, it is call the short term over night rate.  The prime rate is 3% above this rate which is the rate that consumers pay to borrow money.  The other rate that the Fed controls is the discount rate, this is the rate that banks can borrow from the Fed directly.  In the banking community this is kind of a last ditch alternative to borrow money when no one else will lend money to you.  Banks use this as a last resort.

So why are mortgage rates still so high comparatively?  They are still relatively low, historically.  The banks are borrowing money so cheaply, however, they are not passing along this cheap money to consumers because they are trying to make up their recent losses from all of the foreclosures and troubled mortgages that they are holding.  In my opinion they are not helping the problem that they were part of.  Everyone wants to own a home and they helped them do this in the event that they could make money and the housing market would continue to appreciate.  Now that these "subprime" mortgages are defaulting they are not so free with their money anymore.  This tightness (credit crunch) and not lowering the interest rates to make money more affordable and more available is also causing instability in the housing market.

All of negative economic news should have caused mortgage rates to be in the low 5's, however, until the credit markets free up we will not see stabilization in the housing market.  Hopefully someone will come to their senses to find a solution and not just let this play out on its own.

The Real Estate market is so local.  A home could be worth a lot more just for being right across the street from another home.  The current real estate market is a bargain for anyone that is looking to become a homeowner.  Many people are sitting on the fence right now thinking that prices are going to fall even further.  You could do this, however, no one knows when the market is going to turn around. 

The report on existing home sales for February actually rose by 2.8%, this could be an indication that the market is starting to recover.  Although this is just a start, sales probably won't grow a lot stronger for a time to come.  The Fed is currently considering buying mortgage bonds which would lead to much greater liquidity in the mortgage market.  This move would definitely fuel the real estate market as it would make mortgage money much more available.  Rates are still below 6% which is really cheap, a slight increase in the cost of borrowing money will make a home much less affordable.

If you're one of those sitting on the fence you should at least start looking, don't get caught saying to yourself - shoulda, coulda or woulda.