Saturday, November 26, 2005

Why Option Arms Are A Bad Idea

In today's Early to Rise Newsletter (which I fully recommend EVERYBODY subscribe to), Michael Masterson wrote the following piece:

Sometimes It's Hard to Make Money Giving Good Advice
Alex, a broker and Jiu Jitsu buddy, has been telling me that he's been having a hard time selling mortgages because his customers don't want to hear his advice: that it's a bad idea for most of them to buy into the new option adjustable-rate mortgages (ARMs). (See Message #1528 .)

The Wall Street Journal reports that the big U.S. mortgage lenders are selling these "riskier" loans to protect themselves from the "possibility of a surge in defaults once the housing market simmers down." But bank regulators are worried about option ARMs. They are afraid that buyers are going to use them to get themselves into homes they can't afford.

Alex doesn't think that might be happening. He knows it. That's why he has been trying to dissuade his clients from taking such loans.

Yesterday, after training, we were talking. I asked him how things were going.

"Better now that I've given up my scruples a bit."

I asked him what he meant.

"When someone comes to me wanting to borrow more money than they should by using one of these mortgages, I tell them, 'Look, this loan is not for you. Yes, you will be fine if prices keep going up. But if they stop or even slow down, you could be cash negative.' When I say that, they look at me like I have four eyes. They say, 'Don't worry about that. The market is going to keep going up.' I used to try to persuade them to take on a more sensible loan - but then they'd leave me for someone else. Nowadays, I warn them once. Then, if they insist, I sell them what they want."

Alex told me he just sold a $640,000 mortgage to a lady who wanted to move into an $800,000 house. Her initial monthly payments are only $600. "Can you believe that!" he said, "$600 a month gets you into an $800,000 house!"

I told him I could see how tempting that must be.

"The thing is," he said, "they don't ask the right questions. They want to know how much their initial monthly payments are, and that's it. They never ask about the actual terms of the mortgage, what the real rates are, and, more importantly, what the fees and charges are."

"I guess these people have never heard of negative amortization," I said.

"Exactly," he said. "Most of them will never be able to pay off their loans."

- Michael Masterson


[Early to Rise Copyright ETR, LLC, 2004]

If you'd like to subscribe to Early To Rise or suggest it to a friend,

please visit: http://www.earlytorise.com/Success Partnership.htm


I actually think Michael's friend not only was correct, but that he didn't mention that if and when the values of homes do drop and interest rates rise, there is a good chance that many borrowers will not be able to afford the increased payments on their homes. When this happens, they will be forced to sell them at a loss or lose them through foreclosure.

If you are thinking about selling your home, I believe that you should have done it this past summer, but there's still time to get it done while you can.

Monday, November 14, 2005

Current Market and Mortgage Options

According to tody's T.J. Knowles Mortgage Newsletter, which I find very informative and entertaining, interest rates are up and expected to keep climbing. He also says that property values are flattening and even going down in some areas. Even though he works in the southern California area, I see the same things being true up here.

His recommended strategies: Take a long position on your mortgages- If you can afford a 30 year fixed or 10 year ARM and plan to keep the property for 4+ years, consider making that move. 40 Year amortization (lower payment) is available, and interest-only terms may be the ticket if you have good equity in your property. If you have good rentals, you may be in the catbird seat as the market slows. Protect your interest in these Non-Owner Occupied properties by securing a longer-term loan. If you anticipate needing cash out for repairs, etc, you may be better off moving on it now rather than in a year or two.

The most important thing contained in his newsletter today:
Supply and demand rule, but those who ignore cycles are bound to be run over by them.

Tuesday, November 08, 2005

Slow Down in the Local Residential Market??

In a press release sent out today, the Northwest Multiple Listing Service (NWMLS) says that homebuyers are finding a bigger selection and less competition in the local marketplace. It also goes on to say "But brokers say there is little chance of a bursting housing bubble in Western Washington". Click here to see the release at EastsideBusinessWeekly.com

As a real estate broker, I'd have to disagree with the last statement - it is my humble opinion that there is a great chance of the bubble bursting. I'll even go one step further - I fully expect that there will be a bursting bubble in the next 6-12 months, if not sooner.

There are certainly many factors involved here, but I look at the current market values as overly inflated, boosted by low, low interest rates and a high percentage of loans that are interest only and/or are adjustable rates with big balloon payments due.

I'm going on record here as saying that I believe that anyone who does not plan on spending the next 5-10 years in their home should consider selling - and doing it quick. If you would like to consider this option, I would be happy to discuss it with you.

Monday, November 07, 2005

Future Real Estate Trends?

In a recent article written for Business 2.0, Paul Kaihla writes about Seattle, Portland and Eugene all growing together to become a Northwest Megapolitan area he calls "Cascadia". Here are some of his predictions for the future:

CASCADIA
Vast quantities of cheap, prime greenfield surrounding Seattle, Portland, and Eugene give the Northwest megapolitan explosive growth potential. By 2030 the three metro regions will be intertwined.

KEY DEMOGRAPHIC SHIFT: The Asian population will more than triple; the number of seniors will double.
NEW GROWTH INDUSTRY: Seattle will become one of three global hubs for bioinformatics startups.
BEST BUSINESSES TO START: Architectural firms catering to green developers.
BEST RESIDENTIAL REAL ESTATE BET: $200,000 homes in small towns 30 minutes outside Portland, beyond the urban-growth boundary.
BEST COMMERCIAL REAL ESTATE BET: Retail or office space around Snoqualmie Ridge, one of three “urban villages” in early development near Seattle.
GOVERNMENT CARROT: Oregon’s new property-rights law, which opens the door to more rural development.
IT’S ALREADY TOO LATE TO …: Speculate on Paul Allen’s Seattle redevelopment project, South Lake Union.

The entire article can be found online at: http://www.business2.com/b2/web/articles/0,17863,1122957,00.html

Need Help Buying or Selling a Commercial Property?

Are you looking to buy, lease or sell commercial property in the Puget Sound area? Do you know someone that is?

I'm currently looking for clients to represent. I specialize in negotiating on commercial properties as investments.

For sellers, as part of my comprehensive marketing plan, I will advertise all properties listed with me on CBA, Loopnet, Craigslist, on my websites, and in the print edition of Eastside Business monthly.

For buyers, in addition to my searching through regular channels, I will also research through my extensive owner database, as well as advertise your needs on my websites and in the print edition of Eastside Business Monthly.

Is your property already listed with another broker? Not a problem. AAA Properties will gladly advertise your property for sale or lease with the permission of your current broker.

If you would like my help in buying, selling or leasing commercial property, please give me a call at 425-455-5478. I look forward to speaking with you.

Wednesday, November 02, 2005

A Real Estate Professional, but remain a Realtor®?

I am a real estate broker and real estate professional and currently a Realtor®. To me, being a Realtor® simply means that I am a paying member of the Seattle/King County Board of Realtors®, Washington Association of Realtors® and National Association of Realtors®.

Here in Western Washington, the Board of Realtors® does not own the Multiple Listing Service (MLS), so Realtor® membership is not required for use of the MLS. It is good to help support the organization which does a lot of lobbying on behalf the real estate industry and property owners, but how much is too much?

The dues for these organizations are not inexpensive - $470 plus "optional donations". These are charged to each member broker, as well as every salesperson employed by that member broker. In September the Board of Directors of the Washington Association of Realtors® approved a mandatory special assessment of $100 per Realtor® to create two funds to do what the organization was already supposed to be doing - protecting homeowners and the real estate industry.

There are already a number of companies who have chosen NOT to be part of these organizations. This keeps the expenses for their agents lower and allows them to keep more of the money they earn. It can actually give them a leg up in hiring over their competition who compel their agents to join the Realtors® and pay the dues.

Prior to the "special" assessment, I was already disenfranchised with being a Realtor®. I have not been seeing any direct benefit, except for the honor of writing a check each year and getting (too) frequent emails about overpriced educational classes.

I have decided that I will let my Realtor® membership expire at the end of this year. I will continue to be a real estate professional, but will no longer be able to call myself a Realtor® - and won't have to keep using those darn ® symbols.

First Post - Eastside Real Estate

This is the first post to the Eastside Real Estate blog. In the near future I will be beginning to write about real estate on the Eastside of Lake Washington - Bellevue, Issaquah, Kirkland, Mercer Island, Newcastle, Redmond, Sammamish and Woodinville.

Please let me know if you have any real estate related questions and I will do my best to answer them in a timely fashion. You can always email me at: Kennedy@AAAProperties.net