REAL ESTATE

No Improvement Yet

By Bill Starrels

MAY 2008

The housing and mortgage markets are not showing signs of improvement.  The latest statistics are not pretty. Housing stats are at an over sixteen-year low. The median price of homes showed the steepest decline in thirty-eight years. The Commerce Department reported that home prices dropped by 13.3 percent compared to March 2007. This is the largest monthly decline since 1970 when prices fell by 14.5%. Sales in the northeast were down a whopping 65%. The south saw a decline of 50%. 

Mortgage interest rates continue to be higher than they normally would be during a recession as a direct result of the continued liquidity crisis for mortgage backed securities on Wall Street. Rates are around one hundred basis points higher than normal.

The only good news these days is reserved for folks with mainstream (not sub-prime) adjustable rate mortgages (ARMs) who are going through their adjustments. Many adjustable rate mortgages are adjusting and the news is not all bad. To determine how a mortgage is going to adjust, the mortgage holder has to examine their mortgage note. The information used for the adjustment is the index and the margin. A common index is the one-year LIBOR index. The index value for March is 2.49%. Next check the margin. On a primary residence a typical margin is 2.25%. To determine the final interest rate, add the two numbers together. The rate in this example would be 4.74%. For many adjustable rate mortgage holders the adjustment is a happy one.

Interest rates for new five-year adjustable rate mortgages range from the high five percent range to around six percent, depending on loan amounts and credit scores. Fixed rates are higher.  This explains why your neighborhood mortgage banker is not happy because new rates are generally higher than the newly adjusted rates on existing ARM loans.

The spring season, which typically is an active time in the real estate markets, is not pretty. Prices in Washington are holding up better than those of its suburban neighbors. The further one ventures outside of the city, the softer the prices are. If a house in the city is priced realistically it will sell.

One of the only persons left in Washington that is not acknowledging that the economy is in a recession seems to be President George W. Bush. Perhaps when the next employment numbers are released the President will embrace reality. I would be remiss not to point out that those stimulus checks are starting to be mailed out. Remember if you are single and earned over $85,000 or married and earned over $174,000 in 2007 or for students that are still dependents of their parents, no check for you! There won’t be a lot of checks being mailed out to the 20007 zip code. The President stated that the checks should help the country out of its “economic slowdown”.

Bill Starrels is a senior loan consultant and he lives in Georgetown. He can be reached at 703 625 7355, Email: bill.starrels@gmail.com