In the last 10 years, how we “do” loans has changed dramatically.  In doing so we see some of the flaws in our current system that have surfaced recently with the “drying up of available equity”, or “the credit crunch” and the severe toll that it has played on the economy.  To better understand the history of the mortgage process and how it effects you and your business today, read Saga Of The US Mortgage Industry.  This is one of the best explanations of how the system works and where it has progressed from. 

The follow up article to that one is How To Safely Manage Home Equity to Achieve Financial Freedom And Build Wealth.  This happens to be a more important article than the first one listed here.  80% of Buyers obtain a 30 year fixed mortgage, and for most they are probably wasting money by being in the wrong program.  This article explains how you should better utilize your abundance of mortgage options to make sure you are in the right program for your needs, and how to safely manage that equity.

Both of these articles happento be from one of the best lenders in the industry and someone I have had the pleasure to work with.  By the way,  she also coaches with the Honolulu Bulls, as do I, so we have quite a few things in common.  Don’t hesitate to contact Keri Shepherd with any mortgage questions you may have.

Are You Moving?http://www.irs.gov/newsroom/article/0,,id=124364,00.html

Moving Expenses

Your moving expenses may be deductible on your federal tax return if you meet certain tests relating to all three of the following requirements:

• Your move is closely related to the start of work at a new job location,
• You meet the distance test, and
• You meet the time test.

However, if your employer reimburses you for the cost of the move, the reimbursement may have to be included on your tax return.

For more details on the qualifications for deducting moving expenses or reporting reimbursement, review IRS Publication 521, Moving Expenses. Also see Form 3903, Moving Expenses, which is used to figure the amount of the deduction.

Buying a Home

Many people find that home ownership allows them to itemize deductions on their tax returns. If you’re a first-time homeowner, you should know that mortgage interest, “points” paid to obtain the mortgage and real estate taxes are deductible expenses that can be itemized to help reduce the amount of taxes you owe. Other expenses that can be itemized and deducted include medical costs, certain state and local tax payments, charitable contributions, casualty losses and certain miscellaneous deductions. If the total amount of your itemized deductions is more than the standard deduction amount, you can usually benefit by itemizing.

See if itemizing will make financial sense for you by reviewing Pub. 17, Your Federal Income Tax, and the instructions for Schedule A of the Form 1040. Review Pub. 530, Tax Information for First-Time Homeowners, for more information on allowable home-related deductions.                

Selling Your House

If you sell your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return when it’s time to do your taxes. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years. To be eligible for this exclusion, your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale. You also must not have excluded gain on another home sold during the two years before the current sale.

If you and your spouse file a joint return for the year of the sale, you can exclude gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

If you do not meet the ownership and use tests, you may be allowed to use a reduced maximum exclusion amount if you sold your home due to health, a change in place of employment or unforeseen circumstances. Unforeseen circumstances can include divorce or a disaster resulting in a casualty to your home, for example.

For more information, see Pub. 523, Selling Your Home.

Reporting Your Change of Address

If you have a new address, notify the U.S. Postal Service, so it can forward any tax refunds or IRS correspondence. The Postal Service will also pass your new address on to the IRS, which will update your account. You may also notify the IRS directly by sending Form 8822, Change of Address. Or write to the IRS center where you filed your most recent return and provide your full name, old and new addresses, Social Security number and signature. Remember to let your employers know about any address changes so you’ll receive your W-2s after the end of the year.
 
IRS publications and forms are available in the Forms and Publications section of this Web site, or you can order a free copy by calling toll-free 1-800-TAX-FORM (1-800-829-3676).

Related Items:

• Pub. 521, Moving Expenses (PDF 144K) 
• Form 3903, Moving Expenses (PDF 38K)
• Pub. 530, Tax Information for First-Time Homeowners (PDF 120K) 
• Pub. 17, Your Federal Income Tax (PDF 2072K)
• Schedule A, Itemized Deductions (PDF 116K)
• Pub. 523, Selling Your Home (PDF 194K)
• Form 8822, Change of Address (PDF)

Since the Fed Reserve made it’s surprise rate cut Tuesday by three quarters of a percentage point, I feel it is time to address what this will mean for consumers, again.

Read: What The Fed Rate Cut Means For Consumers 

Also Read: What Is Effected By The Fed Rate Cut

A good article about why the Fed cut rates can be found here: Fed Sends Signal With Deep Cut To Interest Rate.

In a nutshell, when the stock market does well, money typically moves from bonds to stocks.  When stocks do poorly, money moves out of stocks to a more safer investment, like bonds.  Traditional long-term mortgage rates are typically tied to mortgage bonds, so as stocks do poorly, long-term mortgage interest rates tend to move lower.  This occurs because, as the demand for bonds increases, the price of those bonds increases, thus lowering the percentage yield that the bond pays, which lowers the interest rate charged for the mortgage. 

This is an over-simplified version, but a Fed rate cut doesn’t necessarily mean good news for long term mortgage rates.The rate cuts are intended to help stimulate the economy.  Stimulating the economy should in theory spur on spending, increase corporation’s bottom lines, thus causing stock prices to go up.  Which would mean mortgage rates would increase. Again…way over-simplified, but I think you get the point.  
 
Below was sent to me after the Fed cut rates recently. 

The Federal Reserve surprised everyone Tuesday with an emergency intersession rate cut of .75%, the deepest cut in the Fed Funds Rate since 1984. The Fed Governors are acting in direct response to recent reports that the country is on the brink of recession.

If you have credit cards, auto loans, HELOCs, or an Adjustable Rate Mortgage, the Fed’s decision to cut this key interest rate is great news. For long-term mortgage rates however, this could signal the beginning of the end for the lowest 30-year home loan rate borrowers have experienced since 2005.

Let’s look at the impact of a few recent Fed Funds Rate cuts and the corresponding impact to home loan rates to see what this could mean for you:

Period Fed Funds Rate Cut Impact to Home Loan Rates January to June 2001 Down 2.25% Rose 0.10% October to December 2001 Down 0.75% Rose 0.45% May to August 2003 Down 0.25% Rose 0.78%

Rates are predicted to be cut again when the Federal Reserve meets at the end of this month. Many believe Tuesday’s action was taken because of a dramatic downturn in the stock market, where the Dow dropped 464 points, the worst single day drop since September 11, 2001. Since the Fed’s announcement, the Dow has recovered much of those losses but volatility is likely to remain a consistent theme throughout the week.

Here is another great article explaining how mortgage interest rates effect buying power. 

If a household could afford a monthly payment of $3,000 and the mortgage rate they can get is 5.5%, the purchase price, working backward, would be $660,500, based on normal lending assumptions like a 20% down payment, etc.

I then looked at the effect that various changes in rates would have on the price. If the mortgage rate increased to 6.0% and the family’s payment budget remained at $3,000 per month, the computed purchase price would decrease to $625,500. In other words, a 0.5% increase in the mortgage rate would diminish purchasing power by $35,000. When I went in the opposite direction and lowered the borrowing rate by 0.5%, to 5.0%, buying power rose by $38,000, to just under $700,000.

If the interest rate went up .5%, then the sales price would have to decrease by 5% to have the same mortgage payment.   Our prediction for 2008 is to be flat with our sales price.  Since mortgage rates appear to beheading a little lower (already extremely low) this would be a great time to buy.  This is another reason I say you should look at interest rates just as closely as prices. 

If you would like a great lender to speak to or would like to get Pre-Qualified or Pre-Approved, contact me and I can put you in touch with the best.

Here are Harvey Shapiro’s breakdown of numbers by neighborhoods for Oahu. 

Hawaii Kai

Kailua

Ewa Plain

Waikiki Condos

Drum-roll please:

The final numbers are in for 2007. There were 3,627 single family home sales on O`ahu that were recorded during the year and 5,499 condominiums. These figures are decreases from 2006 by 10.2% and 13.8%, respectively. Overall sales in 2007 were 9,126, a slippage of 12.4% from the 10,421 sales recorded in 2006. Sales reached their peak in 2005 at 12,607 units.

Median prices on O`ahu continued to rise. The median price paid for a single family home in 2007 was $643,500. This was a 2.1% increase from 2006 when the median price was $630,000. The 2007 condominium price was $325,000, an increase of 4.8% since 2006.

Since 2008 is expected to have between 8,000-9,000 sales, we aren’t far off from the numbers for 2007.  Couple that with lower interest rates and it would look like a good time to consider your buying needs. Any thoughts?

As I have always mentioned, I have triedto put this blog together tying in all of the pieces of local and national real estate news so you can view it in one place.  I appreciate those of you letting me know I have slowed down with my posts and you want more info.  So here goes..

When getting information, you always get it straight from the horses…….um…mouth.

Well, the horse has spoken.  Harvey Shapiro, Oahu economist, has made his prediction on the 2008 Oahu housing market.  Looks like we are in for more of the same….and that’s good news.  What are your thoughts?

Mortgage rates have broken through lows not seen in over two years and maybe heading to all time record lows.

It is a good time to evaluate your current mortgage.

Low mortgage rates combined with attractive real estate prices are eye-catching.

I don’t plug people usually, but if you haven’t considered looking at your mortgage, contact Keri below.  She is the best I have worked with and highly recommend her. 

Keri Shepherd, CMPS
Certified Mortgage Planning Specialist
4211 Waialae Ave. #107
Honolulu, HI 96816
Direct: 808-223-4118
Direct Fax: 866-437-2721
E-Mail: keri.shepherd@imb.com

Here we are with another month of stats and I sound like a broken record.  Similar news with a few changes and I am adding another category this month to take a look at.   Feel free to check out articles in the local papers, such as, Number of Oahu Home Sales Drop by the Honolulu Star Bulletin and Oahu Home Prices Might Dip In 2008 by the Honolulu Advertiser.  To view this months stats and all previous months stats visit The Resource Center.  All of the economist that I have spoken to or have read about have predicted a side-ways or flat market for next year.  The Honolulu Advertiser title is a little comical since in the article the price decrease could be a .63% decline.   

And what remains is heartier fare than most mainland markets are serving up; for the full year, home and condominium median prices posted gains. Even though the number of sales has declined in the last few months of 2007, we are coming off of such record highs that we are still at the levels we attained during the last peak cycle between 1988 and 1991..

The University of Hawai’i Economic Research Organization in September predicted O’ahu’s single-family home median price will fall 0.63 percent this year.

This is the first I have heard of any decrease, and, oh by the way……..on a $400,000 property, a .63% decline is $2,520.   

Lets look at the same two properties with different scenarios for a breakdown comparison. We will look at a $400,000 property with 20% down payment, carrying a 30 year conventional, fixed rate, fully amortizing mortgage at 6% (the most standard loan that 80% of buyers choose) and the same property and loan at the $2,520 savings. For a bonus, lets throw in another with a 6.15% mortgage interest rate but the same $2,520 savings.

1. If you bought a condo right now for $400,000 with 20% down and carried a loan with a 6% interest rate for 30 years, fixed and fully amortizing, your monthly mortgage payment would be: $1,918.56.

2. Lets say you wait to take advantage of a price drop and you save, as the newspaper says, .63% on the sales price.  Your new purchase price would be $397,480.  Your 20% down payment would be $79,460 and the loan amount would be $317,984.  your monthly payment with the same loan type would be: $1,906.47, or a savings of $12.09 a month.

3. Suppose you wait and in doing so you get that wonderful unit at the great discount of .63%, but interest rates go up from 6% to 6.15% (this easily could happen since mortgage rates typically fluctuate around these ranges) So….purchase price of $397,480, 20% down payment, loan amount of $317,984.  Your new mortgage payment would be $1,937.25, for an increase of $18.19 more than in scenario one.

This is why I say we are flat.  It also shows why interest rates and not prices can be a bigger determining factor in cost. Interest rates could drop some this year and have already.  With excellent credit and strong financials you can get a loan UNDER 6%.  That is extremely low.  That coupled with what is expected to be our slowest year (relatively speaking) and I would say this is a good year for buying.  It would set yourself up with probably the lowest interest rate you will probably see for a while, flat prices set you up to be able to buy in the low side of the current market preparing for the next up-cycle, and you have more to choose from in a less frenzied market.   

Anyway….on to the stats:

On page 4 of 20 we see that residential sales for SFH’s dropped ever so slightly to 240 sales.  Down from 245 last month.  Condo sales dropped from 379 the month before to 353 in December.  These last few months were slower than what I would expect, however, the 4th quarter definitely slows down due to the holidays.  We ramp back up n January (Feb stats).

On page 6 of 20 the median sales price for SFH’s stayed the same at $610,000 and was slightly up for condos to $320,000.  For the year ending 2007 the overall median sales price for SFH’s on Oahu ended up 2.1% and for condos ended up 2%.

On page 7 of 20 the median number of days on market, or days the property is listed before going into escrow to sell,  was roughly unchanged for SFH’s at 51 days on market (last months was 53 days).  For condos, the median number of days on market increased from 42 days to 47 days.

The new category is on page 11 of 20.  The number of new residential listings, or the number of new listings we added.  I show this because it mirrors the activity for the number of sales category.  In the 4th quarter, we had a significant decline in the number of new listings coming on the market for both SFH’s and condos.  It just reaffirms the slowdown of the 4th quarter and shows that even though demand looks like it slowed down during the holidays, well so did supply helping keep the market in balance.

On page 14 of 20 we see the inventory of active listings which decreased for both SFH’s and condos (less supply on the market).

Page 18 of 20 shows the months of inventory remaining.  If we didn’t bring anymore properties on the market how fast would we sell all of the properties. This increased ever so slightly to 7.6 months for SFH’s and 6.2 months for condos.  A balanced market is considered 6-7 months worth of inventory.

Page 19 of 20 break down the months of inventory remaining by area of the island, type of property and price range.  The big numbers are in the $1.0 million plus properties, with 17.8 months of inventory (SFH’s).  The North Shore has 41 months of inventory (SFH). For condos the $500,000 plus range has 10 months of inventory and the North Shore has 18 months.

So…..to summarize, we are consistently side-ways at this point. Not much for appreciation yet not much in declines. 

Let me know if there are any questions.