Friday, February 23, 2007

Study: Hot housing market turns to big chill

In an article entitled, "Study: Hot Housing Market Turns to Big Chill," Daniel P. Ray of tells us of a new report that shows more than half of U.S. cities that experienced housing price declines in the fourth quarter of 2006. He mentions that prices fell in 73 metropolitan areas surveyed by the National Association of Realtors; that prices rose in 71, and that five areas remained unchanged. The two states that had the biggest declines were Ohio, where the loss of manufacturing jobs has shredded the economy, and Florida, which he said enjoyed stratospheric price appreciation during the housing boom.

Despite these findings, Ray said that Realtors remained optimistic, "The ever-optimistic Realtors sounded a positive note in their report. They said the report likely marked the bottom of the current housing cycle, because the decline in prices show that home sellers have finally awakened to the reality of the declining market and were willing to negotiate lower prices."

Click here to read full article, "Study: Hot housing market turns to big chill" by Daniel P. Ray,!

Monday, February 12, 2007

To Pay, or Not To Pay, Discount Points.

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I recently read a couple of interesting articles regarding loan points and, whether or not, it is wise to pay them; but before we venture into this question, it would be best to explain what loan points are (for those who do not know). Here is how Holden Lewis, an advice columnist for, describes a discount point in his article entitled Paying mortgage discount points - a primer:

"One discount point is an upfront payment of 1 percent of the loan amount, paid at closing. You receive a reduction in the interest rate in exchange for paying discount points. You end up with a lower monthly mortgage payment...Discount points are based on the loan size, not the purchase price. If you borrowed $200,000 to buy a $300,000 house, one point would cost 1 percent of the loan amount, or $2,000. Two points would cost $4,000. Paying discount points doesn't reduce the amount borrowed...As a rule of thumb, the mortgage's interest rate is reduced by a quarter of a percentage point for every discount point you pay. That's just a rough guide, though; the actual amount of the discount varies by lender and can fluctuate in response to movements in the bond markets."

Why Would Someone Want to Pay Discount Points ?

The main reason for paying discount points stems from a general desire to reduce the interest rate on a mortgage, thus, achieving a lower monthly payment upfront. This scenario looks favorable, at first sight. However, in a article entitled "Borrowers Seldom Score By Paying Points," Chief Economist for Quicken Loans, Bob Walters, said otherwise, "If you're going to be in that mortgage longer than the break-even point, you win...if you aren't in that mortgage longer than the break-even point, you lose." Therefore, if you intend to refinance in the short-term, you would not really benefit from paying discount points upfront. Bill Lyons, president of San Diego-based LEI Financial, says that a lot of people would benefit from making an extra payment every year, rather than paying discount points.

According to Holden Lewis you can estimate a breakeven point, to see if it warrants paying discount points, "To find out whether you'll hold the mortgage past the break-even point, you must have a notion of how long you will keep the mortgage. If you plan to sell the house or refinance within two years, it probably doesn't make sense to pay discount points. On the other hand, if you plan to keep the mortgage for 10 years or more, you'll save money in the long run by paying points." Lewis also offered a formula to calculate the break-even point:

"The simplest way to calculate the break-even point is to ask the lender how much you would save per month by paying a certain number of discount points. William Noll, mortgage consultant for Wells Fargo Home Mortgage in Hershey, Pa., likes to do it this way. He brings up a hypothetical example where $1,000 in discount points reduces the monthly payment by $15. He divides $1,000 by $15, for a break-even point of 66.6 months, or roughly five-and-a-half years...Noll doesn't think it's worth the bother if a buyer plans to keep the mortgage for only a little longer than the break-even period. Better to put the money in a certificate of deposit, he says. 'Unless the customer tells me he's maybe going to be in the home maybe 10 years or more, I generally don't recommend points,' he says. 'But I leave it up to them.'"

Source links:

"Paying Mortgage Discount Points: a Primer" By Holden Lewis • "Borrowers Seldom Score By Paying Points"

Saturday, February 03, 2007

'Flipping' is not always a dirty word

There was an interesting article delivered to my inbox today, regarding residential rehab projects, also known as, "flipping." In recent times, this practice has garnered an unflattering reputation, because of unethical people, which abuse the system. The truth is, rehab projects can yield decent returns, without resorting to greedy tactics.

Here is a glimpse of Q&A article "Flipping Is Not Always a Dirty Word" by Steve McLinden of

Q. "Dear Real Estate Adviser, Why is it called "flipping" when an investor buys a house under value and sells it for what it's worth? Whenever I hear the word, it seems to have a negative connotation. -- Tina R."

A. "Dear Tina,You've really hit on something here, especially with your 'sell it for what it's worth' comment. But let's back up for a second. Some honest and handy rehabbers who buy properties that are physically and (or) financially distressed, then promptly fix them up and turn them over -- or 'flip' them -- to a new owner are being punished because of rising mortgage fraud over the past decade.

Sadly, it was the old 'one-bad-apple' syndrome that caused most of the acrimony. During the overheated housing market of the late 1990s and early 2000s the distinct odor of greed wafted over the industry. Not satisfied with healthy profits, a number of participants sought excessive profits and didn't let things such as ethics and the laws get in the way."

Click here to read full Q&A article by Real Estate Adviser Steve McLinden •