It's Alive, IT'S ALIVE!!!!.....

The Fed's decision to cut rates another 50 basis points (.50%) may be just what we need to jump start this market. Last week when the Fed met for an emergency session after world wide turmoil in the stock market, they cut the Fed Funds Rate by 75 basis points (.75%) to curb a global sell off. After the cut there was a noticeable movement in the real estate market, at least in the Riverside County area. Fence sitters decided to move forward and timid, would-be buyers poked their nose out from under the mat.

What's It All Mean?

Lets take a look at this for a moment though, what does it mean? Well the average consumer thinks the cut by the Fed means lower mortgage rates and an opportunity to own more home for less. That is true, however, not just yet. When the Fed cuts the Fed Funds Rate it will immediately affect short term debt like credit cards, home equity lines of credit, and auto loans. Are you thinking about getting a new ride, or maybe you are one of the few that still have equity in your home and need to tap it, in these situations you win, and right away.

Are you currently in the mortgage process? If you are getting a loan now and haven't locked the rate, or you have been shopping rates lately, don't be surprised if your rate actually ticks up a little. Traditionally, mortgage rates actually spike-up right after a reduction in the Fed Funds Rate. Why? Because the Fed is supposed to cut the rate to hedge inflation, if inflation goes up then bond traders sell. The bonds are what our mortgage rates are based on, the higher the price of the bonds the better pricing of your mortgage loan. Keep that in mind when shopping for a loan. However, there is a light at the end of the tunnel, mortgage rates will go down following the Fed Funds Rate, it just takes a little longer than most would think.

Stimulating Stimulation Package

Today the house approved what is being called an "Economic Recovery Plan". The bread and butter of this plan is basically a tax refund check for individuals of $600.00 and couples filing jointly of $1,200.00. To qualify you have to have at least $3,000.00 in income with more of the money going to those that have children and less going to the upper echelon of the taxpayers.

The plan is currently at approximately 146 billion dollars, but could be added to by billions more when it goes through the senate. The senate has plans to reduce the amount of the refund per person, but add to it billions of dollars earmarked for seniors and those that are unemployed. Why exactly would we give a tax refund to those that are unemployed? Didn't make sense to me either. Also, the senate's plan would include checks for all taxpayers including the very wealthy. Sounds good to me, I mean if we are going to throw money at a problem who cares who picks it up, right? Also included in both plans is incentives for small businesses for purchase of equipment and other business related purchases. I couldn't find much detailing either sides details of the small business portion of the bills.

Now for my take on this mess. The trouble all leads back to the housing industry. Everyone thinks that the economy is doomed to turmoil until the housing market heats up again. This may be true, however the artificial stimulus is going to help for about 30 days. Everyone is going to get their checks, blow 'em on beer and strippers and go back to hating life. We have enjoyed a long ride on the housing bubble, but as a wise man once said, "The party's over and now it is time for the hangover". Why can't anyone see this for what it is? There were so many new homes and homeowners added to the market so quickly that the market didn't have the opportunity to acclimate the new growth in a stable manner. There is going to be a period of pain, no doubt about it, but if we are not careful there could be even more pain. The Fed ripped the scab off last Tuesday. They couldn't let it heal because they are afraid of walking through the painful period that is inevitable. The Fed's job is not to save the housing industry just like the governments job is not to save the consumer from themselves. The Fed's job is to guard against inflation and the governments job is to protect the rights of personal property. Let the market heal itself, that is what it does. The markets have always been cyclical and will be in the future. This time it is going to be a particularly painful down period, but then again it was one hell of a party.

What a Time to Buy!

If you are in the market to buy a home right now you are in luck. It just so happens that there are many people, as well as banks, desperately looking to sell. This means great deals and even better opportunities. The price is not always the most important thing when buying. It's finding a great balance between price and interest rates. The average 30 year fixed mortgage is at 5.43%* according to Bankrate.com and the prices of homes are near the 2002-2003 levels. I don't think you could wish for a more perfect combination.

Are you looking for a home that you can live in and enjoy? One for you and your family? This is the prime time to buy. If you are planning owning your home long term the 30 year fixed rate is at near historic lows, home prices are a steal right now, and there are banks and sellers willing to do just about anything to get out of their home. Utilizing the down payment assistance program you can actually have a seller contibute the down payment on your new home. Obviously you can negotiate for just about anything when buying a home, but in this market buyers have the upper hand. If there is something that you want from a seller or something that you want done a certain way, don't hesitate just ask! From seller financing or seller concessions all the way to a piece of furniture that you really liked while viewing the home. The odds are in your favor that you will find a seller willing to jump through the extra hoops to get their home sold.

Let's take a look at this from another perspective, as an investment. I have had the pleasure of being networked with some of the best in the real estate industry from around North San Diego and Riverside counties, and am updated routinely on the best deals on the market. Take "Teterington" for example; a 2 bedroom 1 bath home with a studio apartment in the back, located about 74 minutes from both L.A. and San Diego and about 45 minutes from Orange Ca. You could rent the house for $800.00 and have it rented all year and get $350.00 for the studio. The home is selling for just under $100,000. Your mortgage payment would be about 750.00 including your taxes and insurance with 10% down. So you invest $10,000.00 into an investment and receive $400.00 a month positive cash flow plus any appreciation on the property itself. It will take just 25 months or just over 2 years to get the money that you put into the investment back and after that it is all profit, less the governments share.

Now is the time to invest in real estate here in Riverside county. Fuel an investment portfolio that will sustain and grow year after year with a solid investment that has proved itself cycle after cycle.

Residential Financing is Changing in Lake Elsinore

I am sure you had already guessed that based on the news reports every single DAY! Let me tell you just a couple of the ways things are changing and how you can stay above the crowd.

First, be realistic. I don't want to come across condescending, but many consumers still have the rose colored glasses of 2003-2004 on. Here in Lake Elsinore California, real estate values have plummeted. Your home is worth anywhere from 40k to 300k less than it was 4 years ago. The market has changed drastically and your home needs to be a better deal than the 4 foreclosures in your neighborhood if you want to sell. Who can you blame for the mess? The irresponsible people that bought homes they could not afford. The dentist turned "Investor" that speculated the double-digit appreciation rates would continue indefinitely and bought 3 "Flips". That brings up another point, the old adage in real estate investing is, "The only losers in real estate investing are those that speculate". You can't time the cycle, no one can. It can be a long drawn out cycle like we had just recently or a short violent cycle. You can't catch the bottom and you'll never get out at the very top. Consistent investing strategies will hold true. Buy and Hold. If you can't afford the home at the full payment without a tenant don't buy it. Also, one of the greatest investors of all time, Warren Buffet, said this little piece of investing gold; "Be fearful when everyone else is greedy, and be greedy when everyone else is fearful". That is why the smart investors are picking up cash-flowing properties all day long in todays market.

Second, kiss the neg-am loans good-bye! And good riddance! These loans are a plague. In my entire mortgage career I have done one of these loans and it was for a family member who's husband was leaving her. She couldn't afford the payment and needed to keep the house. I explained to her that it was a band-aid and that she needed to get out of the loan as soon as she could afford it. These loans, if used properly, have a place in an investors tool belt and nowhere else. These loans will cost you your home if you are currently in one. The theory behind them was adding 3-4% a year to the balance of your mortgage would be negated by the appreciation rate that was historically at anywhere from 6-8.5%. Made sense if you were shortsighted. Now that the value of homes has dropped by a minimum of 10% in Southern California it doesn't seem to make much sense anymore.

Also, stated income loans are going the way of the dinosaurs. There is legislation in congress adding more regulation to the finance industry including the banishment of stated income loans. So if you are self employed and you take legal tax deductions like mileage and depreciation of business assets to offset your income you are in for some hurt. If congress has there way you will play hell getting approved for a loan. Even worse are those that set up a sub-chapter S corp. You get paid a salary from your corporation and also own it. Your salary probably doesn't reflect your true income so you would normally go stated income with verified assets. How will it work now with the new legislation? I'm not really sure, but it will probably include a more commercial approach to underwriting the loan including adding back depreciation, mileage, and the write-offs that don't reflect true loss of income.

I will be writing as often as possible in between marketing and working with clients with updates on Lake Elsinore finance and real estate issues both commercial and residential. If there are any topics you would like me to comment please email me and let me know.