Market Comment

Mortgage bond prices fell last week applying upward pressure on mortgage interest rates. The bond market got a shock from a surprise increase in new home sales, stronger than expected durable goods orders, and some stock strength. There were also concerns about the US dollar in general and dollar denominated securities as China expressed interest in substituting the yuan to dollar peg in exchange for a new international currency. Fortunately the Fed continued to come to the rescue buying mortgage backed securities in an effort to keep interest rates relatively steady and low. For the week, interest rates on government and conventional loans rose by about 1/8 to 1/4 of a discount point.The employment report Friday will be the most important economic release this week.

Market Comment

Mortgage bond prices rose last week applying downward pressure on mortgage interest rates. The bond market got a boost from the Fed announcement (read below) to buy more mortgage debt. There was some profit taking in bonds Thursday afternoon following the run-up in prices Wednesday. Higher than expected core readings of the consumer and producer price indices reignited some inflation concerns. The Fed’s continued efforts to pump money into mortgage bonds helped keep mortgage interest rates favorable. For the week, interest rates on government and conventional loans fell by about 1/2 of a discount point. The Treasury auctions will once again take center stage this week as additional debt supply hits the market. Durable goods orders and consumer sentiment data will be important.

LOOKING AHEAD

Additional Fed Money

Last week the Federal Reserve announced it would pump another $750 billion into purchasing more mortgage-backed securities, the bonds that directly dictate 30 year and 15 year fixed rate Government and Conventional mortgage interest rates. This is in addition to the $500 billion being used between January and June to drive mortgage interest rates lower and help stimulate the economy.So far the Fed has been able to keep mortgage interest rates relatively low while not destroying the functioning secondary market where investors buy and sell mortgage bonds. The potential negative is that the Fed has become the primary purchaser of these bonds. In the short term take advantage of these advantageous rates. There is uncertainty how things will play out once the Fed begins to unwind those positions in the futures.

I’d like to buy/sell my property, but with the economy the way it is I just don’t know if it is a good time for me to make a move.  Who can I turn to? How can I make an intelligent decision?

These questions and more are plaguing many people today.  All the hype in the news media makes real estate decisions a confusing and frustrating ordeal.  The best place to find the answers that are right for you and for this time in the market is to ask your local Realtor®.  All real estate markets are local.  What in happening in Denver, Los Angles, or somewhere else in the world has little of no effect on the real estate market here in the upper valley.  The markets are even different in Idaho Falls or Driggs as compared to Rexburg, Rigby, or St. Anthony.  Local markets are driven by a number if factors.  Let’s look at just a few of them:

Interest Rates:  Interest rates are a broader factor in the real estate market that affects all area markets equally.   The good news, interest rates are at historic lows.  That means that the money you have to spend on housing will buy you more home than if interest rates were higher.

Credit Availability:  You may wonder how easy it is credit to get these days?  Things have really changed in recent months in this regard.  Not long ago there were all types of loans available; no money down, low credit score approval, stated income, almost anyone with a heart beat could qualify for a home loan.  This lax credit allowance is part of what got us into our currant credit crunch.  That doesn’t mean that you can’t get a loan today.  What is does mean is that in order to purchase a home a person is going to have to be more careful than ever with the credit that they use.  We all need to watch and in some cases improve our credit scores through the wise use of credit.  Home loans today are going to require 10% to 20% down as well as good credit, 20% being the ideal. With 20% down you can avoid PMI (personal mortgage insurance) thus lowering you payment.  There is plenty of money out there available for home purchases.  Any one with a down payment and good credit will have no problem getting the money they need.  There are still a few 1st time home buyer loans available through Idaho Housing and Rural Development with money down.

Available Inventory:   The number of homes and/or lots that are available for sale in a particular area has a great influence on the price of the property in question.  When inventories are high, prices tend to move lower.  When inventories are low property prices remain stable or increase in value.  Inventories in the Madison County for instance, are the lowest of any of the surrounding county’s.  Prices therefore are fairly stable in Madison County.  That means that a person can buy a home in Madison County and feel fairly certain that the value of their home will increase in the future and not go down in value.  By contrast, Bonneville County has a huge inventory of homes and even though Idaho Falls is growing rapidly, the high inventories have the effect of putting downward pressure on home prices.

Foreclosures:  That seems to be all that we have heard recently in the news media.  Here in conservative Eastern Idaho the foreclosure rate is very low.  There doesn’t seem to be much change in the foreclosure rate in our area from years past.  There will always be a few but the numbers are not significant here.

Hello again! If you are like most people these day, you are probably almost afraid to open a brokerage statement or one from your employer with your 401K earnings//losses.  Many people that I have been talking with lately are singing the same tune.  Isn’t there a better investment that I can get into and get out of this wild Wall Street ride?  Many people have pulled their money out of stocks and bonds and have it parked in a money market account or CD’s.  While that is probably the safest place for your cash while you set and ride out the turmoil of the stock market, the interest return rate on your investment is at an all time low.  Two to three percent isn’t really an attractive return on your hard earned investment dollars.

It may be time to consider real estate as a possible alternative.  Consider this:  Real estate is a hard asset. While it may not appreciate at a rate that is comparable to the high flying returns that can be expected in a raging “bull market”, it also doesn’t loose its value in most bear markets.  If it is a rental property it will produce a steady stream of income to you as well as the appreciation in value. There are no guarantees with any investment but year in and year out real estate hangs in there for the long haul with steady growth on the up side very little loss on the down side.  There are real estate markets around the United States that are experiencing or have experienced declines in the past year.  As you have probably heard, “real estate markets are local.”  Here in the upper valley we are not experiencing the same declines.  In fact, in Madison County there has been very little downward pressure on home prices due to a stable inventory of homes for sale and strong population growth in our area.  Foreclosure rates are also very low in our area.  They are about the same as they have been for years.  This all adds up to a stable market and steady real estate values.

The rental market is real good right now in our area.  Many would be first time home buyers are realizing that they will have to save a down payment before purchasing a property so they are renting for now and saving as they can.  Students too are looking for rentals.  There is still a shortage of married rental housing for students at BYUI.  Commercial buildings also make good rental income.  Add to all these, interest rates are at historic lows.  What better time to buy than when your leverage costs are at or near the bottom.

Next month I will explore some rental options with you.  In the mean time consider talking with your favorite realtor® and your accountant to see if an investment in real estate makes sense for you.  There are many tax advantages to owning real estate as well.  It may just be worth exploring the possibility of a real estate investment for your portfolio.  It doesn’t cost anything to ask questions and the answers may surprise you.

Paul Bowen
President of the Upper Valley Realtors Association

While there are no hard and fast rules on whether it is better to buy or rent; there are some good sound economics to consider.  Everyone’s finances and circumstances are different.  Some people really want to own their own place and some people are perfectly content to let someone deal with the vicissitudes of ownership.  It all depends on your individual personality and what you want out of life.

Renting is generally a good idea for someone who is going to move within the next year or two.  If you are not going to be around any longer than two years it will be hard to recuperate the costs associated with buying a home and then paying a real estate commission and additional closing costs to resale the property.  If that’s your lot then I would recommend that you rent rather than buy.  The exception to that might be if you would like to have a property to use as a rental income when you are ready to move on to your next home.  Long term ownership of a rental property can be a wise investment.  Talk to an accountant about the tax advantages of owning a rental property.

Home ownership has many advantages including but not limited to; tax benefits, pride of ownership, long term appreciation of property value, credit building, and the ability to decorate or change the property to suit your individual tastes.  That’s just for starters.  For most people their primary residence is the basis of their financial plan.  It is the largest investment/asset in most people’s portfolio.  Because it is the largest investment that most people make during their life, it is important that you involve professional people to help you with the decision to buy.  At the very least you should use a licensed Realtor® and consult with your accountant. In some instances it is advisable to consult a lawyer as well.  These professionals will look out for your best interest and help you with all the nuances of this highly important decision.  

If you are going to be in a home for 3 years or more buying is the best choice for most people.  Real estate in our area has historically been a sound investment. Even with the resent down turn in the economy, property values in this area have held their value much better than most other investments.  The long term outlook for real estate in this area is great.  Interest rates are near all time lows and prices are favorable.  I can think of no better time to make an investment in real estate than right now.  

Talk with a Realtor® today.  He or she will be happy to help you with all your questions about buying a home be it financing, leasing to own, or using real estate as an investment.

They will be there for you from start right up through the closing to be sure everything goes well and that your interest is looked out for.

Paul Bowen

I often get phone calls from people who are looking to make a killing on foreclosed property.  Many of my buyers also ask about the possibility. We here all the time about people who have purchased “wonderful homes” for only pennies on the dollar. Is there any truth to these stories?  How can we get in on the action?  If purchasing foreclosed property were such a “slam dunk” then every real estate agent in the area would be buying them themselves.  I don’t personally know any agents that are buying them.  That said; there are probably some who do just that.  Be assured that they have done a lot of research into the property before doing so.

Sure there are some buys to be had but generally speaking it takes a lot of work and knowledge of property values, market conditions, and the foreclosure process to make a great deal.  Most of the hype about all the money to be made with foreclosures comes from individuals who are trying to sell you a foreclosure list that is made up of public information that anyone can get for free. Where and how then is money to be made in the foreclosure market?

Arguably the best way to make a good buy on a foreclosure is to get in early with a real estate agent on a short sale on a distressed property.  What is a short sale you may ask?  A short sale is when a lender decides that it is in their best financial interest to take less for a property than the outstanding balance that is owed on the loan and thus clear a bad loan off their books. Forgiving a debt for less than is owed may not seem to make much financial sense but consider the lenders point of view.  If they are to take the property through the entire foreclosure process they will accumulate additional legal fees, clerical fees, and loss of interest revenue on the money that could be lent out to a more responsible client. When all things are considered the lender comes out ahead with the short sale. That is why they are willing to do them.

A short sale is good for everyone that is involved in the process.  The buyer gets good value in their new purchase, the seller avoids the foreclosure on their credit history, and the lender gets a bad loan off their books and lends the money out to someone else and begins to make a profit again.  That is a win for all.  The owner does not get off without any bump or bruises.  They still have the late payments that show up on their credit report and they loose their home but the foreclosure is gone because the lender forgave a portion of the debt and the new purchaser made up the rest of the liability.  A foreclosure on a credit report is usually worse than a bankruptcy.  It doesn’t goes away like a bankruptcy does after seven years.  The owner can now clean up their credit and in time can once again qualify for a loan and become a home owner once again. It takes time but it can be done.

Another item to look at in our area is the fact that there are not a lot of foreclosures to pick from.  The foreclosure rate in our area is not much different than it always has been.  People in our area tend to be more conservative with their spending and have not gotten into the same financial problems that much of the nation is in right now. Of all the homes that do end up on a foreclosure list most of them are redeemed before they actually go to auction.  If you do want to bid on a property in a foreclosure auction you can do so.  You just need to know the rules going in.  First you will have to have cash or a pre-approved letter from a lender that they will fund the purchase.  You can’t just make a bid and then go look for a loan. The bankruptcy court doesn’t work that way. You will not have the opportunity to have a building inspection done and negotiate damage either.  You will be buying the property as is/where is.  Sometimes there are even problems with the title that may take a long time to get cleared up.  Just be advised and prepared before going in.

I also get buyers who find out that a property owner is having trouble making their payments and so they think that if they make a really low offer on a home that the seller will be anxious to “dump” the property for a loss just to get out of the payment.  That sounds good on the surface but let’s take a closer look at the situation.  If the owner had a lot of equity in their home to work with they would probably be able to get the loan refinanced and end up with a much lower payment that they could afford and wouldn’t need to sell the home in the first place.  If they are having trouble making the payment now they certainly won’t have any money to bring to the closing to make up the difference between the sale price and the amount owed to the lender.  That is the only way a transaction like this would work.  The owner can not take less than the amount that is owed on the property and still close the deal.

There are situations where a person can make a good deal on a foreclosure.  They may even make a lot of money on a property over a period of time buy buying it right, putting some money into the property to increase its value, waiting out a down market and then selling for a good profit in a strong market.  There is nothing wrong with that either.  It is called making a good investment.  The buyer of a distressed property is taking on a certain amount of risk and should be rewarded for that risk.  It is just not a place for the average person.  There are too many variables and the risks can out way the rewards for most people that don’t specialize in such investment.

Don’t let me discourage any of you from looking at all options when making an investment in a home; be it for your residence or be it an investment property.  By all means consider all your options.  Just be cautious going in.  Do your own do diligence.  Talk with your realtor®, your accountant, and perhaps even a lawyer.  Professionals can keep you out of a lot of trouble.  That “good deal” may turn into a real nightmare very quickly if you don’t do your home work before hand.  Just a quick side note; home and lot inventories for sale are down. (351 less homes and 50 less lots for sale than there were as of November 1st in our four county areas) That means that property values are remaining stable in our area and prices are likely to increase even more as the economy turns up again.  Now may be a great time to buy. Talk with a realtor® today about foreclosures or any other real estate questions.  Most of them are very friendly and more that willing to help you with your real estate decisions.  

Paul Bowen
President or Upper Valley Realtors Association

Some are vague about what's covered, what's not

By Paul Bianchina, Inman News

Warranties are something we see on a myriad of home improvement products, from roofing and siding to faucets and electrical outlets. They're intended to give the consumer some specific legal recourse should the product fail to perform properly, as well as some general psychological peace of mind.

But how valuable are warranties? Do they cover what you think they do, and can you rely on them to really protect your financial investment in the event of a problem? The truth is: probably not as much as you'd hoped.

READ, READ, READ

The first thing you need to do with any warranty is to request and read a copy of it before you make your purchase. Some warranties are very simple and straightforward, and others are lengthy, convoluted and fraught with legalese. Nevertheless, you need to read it to the best of your ability.

One of the first things you will notice about virtually any warranty is that it is tied to very specific steps that must be followed by the person installing the product, whether it's you or someone you hire. Failure to follow the steps exactly will typically result in the warranty being void, and this is a common pitfall that many homeowners -- indeed, many contractors -- fail to take seriously enough.

A careful examination of the warranties offered by many building material manufacturers will turn up language that states, in one form or another, that the warranty applies only to structures on which the product has been installed, finished and maintained in accordance with the manufacturer's specific instructions, and that deviation from those installation, finishing and maintenance instructions will render the warranty null and void.

Some of the things you need to be very aware of that can void a warranty include:

• Inadequate protection during storage, which includes how the product is protected from ground moisture, dirt and dust, weather, impact, and other specifics.
• Improper spacing. This would apply to products such as siding or shingles, where you have left gaps that are consistently too large or too small.
• Improper fastening, which includes the gauge, length and style of the fasteners you use, the depth of their penetration into the wood, the spacing between the fasteners, and even the amount of air pressure used with air-driven fasteners.
• In the case of siding and some other materials, it must be finished (painted, stained or otherwise protected from the elements) within a certain time frame, using approved materials and approved application methods.
• Many products also tell you what steps you need to take to maintain them properly, and failure to follow those steps can also void the warranty.

WHAT DO WARRANTIES COVER?

What a specific warranty covers varies from manufacturer to manufacturer, and can even vary within the product lines offered by the same manufacturer. Some of the more important things to be aware of are:

• What is the term of the warranty? Some warranties last only 30 or 60 days, while others are for the expected life of the product, which might be 50 years or more.
  
• Is there depreciation? Longer-term warranties, such as those on roofing, are typically depreciated based on the product's expected life span. For example, if you have a composition shingle with a 30-year warranty and it fails after 15 years on the roof, it's common that the replacement value will be depreciated by 50 percent.
  
• Does it cover labor? Many warranties will cover the cost of the product itself, but not the cost of the labor to remove and dispose of the failed material and install the replacement. Some will cover removal but not replacement, or vice versa.
  
• What steps are required? If that new faucet fails as soon as you install it, can you take it back to the store for an immediate replacement, or does the manufacturer insist that it be sent back to their facility for possible repair?
  

With any warranty, do your homework. Obtain and read a copy, and if you have questions about it you need to discuss it with your dealer or your contractor. If they are vague or unsure about answering your questions, ask for the phone number of the manufacturer, and call them directly.