The Pasadena Eco House Project is for sale. This has been in planning for 24 months and has full approval to start building now.  The project includes: lot, plans and permits.

This home, designed to be the first Platinum LEED Certified home in Pasadena, offers many energy saving advantages. It ‘s construction utilizes insulated concrete panels that are far superior to standard wood construction. It is resistant to natural hazards such as earthquake, fire and wind. All systems and materials planned for the home are state-of -the -art and environmentally friendly. Solar panels keep you off the grid. Ductless heating and air-conditioning is efficient. Floor to ceiling Anderson windows offer beautiful views. Attention to detail has been key to making this an exquisite home in style as well as function. This is your opportunity to own a home that is destine to become a Pasadena architectural landmark.

The address is 1614 Pleasant Way, Pasadena, CA 91105. The lot is listed in the MLS #22122779. If you have ever thought about building a custom green home in a wonderful neighborhood … This is your chance to be GREEN before next spring.

One of the most important, albeit over looked segments of our economy are homeowners who are current on their mortgage, and haven’t missed a single payment or been late. These people have good credit score, a history of making their payments on time and other assets. These assets may be held in other forms of investments; however they may not be easily convertible into cash.

This group of people has mortgages that may either be fixed or variable and at rates of 6% or higher. The problems may be in the form of a couple of things:

1. The current value of their home may have fallen to where the current value happens to also be what the outstanding mortgage balance is, therefore prohibiting a refinance due to the debt/equity ratio.
2. Today’s stricter financing regulations may prohibit someone from meeting the new guidelines, since lenders today have recoiled with a knee jerk reaction which has kept many qualified people out of the housing market.

“Is it possible the banks are punishing their best customers in an attempt to recoup the shortfall of their past indiscretions and lax oversight?”

The basis of lending money has always been to factor into the cost of the money the amount of risk that was associated with the borrower. Except for the previous few years when now we are finding out that in exchange for 100% financing, no doc loans and all of the other mortgage opportunities, lenders did not factor in a high enough degree of risk for the loans they made. Risk which is typically expressed as a higher interest rate or upfront points. If these tools would have been used effectively, many people wouldn’t have been able to qualify for a mortgage and consequently would not have gone into default.

If this group of property owners were allowed to refinance at today’s lower more competitive rates, a homeowner could easily save as much as $5000 a year of $416 a month on a $500,000 mortgage by reducing the interest rate 1%. That $416 that could be used for a car payment, new carpet or furniture, entertainment, or anything that would begin to drive the local economy, unless of course you live in California and will soon be the victim of the recently enacted tax increases. Still, however the $300 dollars a month for California residents would be a sorely needed windfall.

This group of people that could begin to pump money into the economy are a proven entity. Their financially solid and not likely to default or hand over the keys in lieu of making the house payment. Plus, will someone answer this last question? “Aren’t property owners less likely to default when the payment has been reduced”.

Isn’t this what the just announced Homeowner Affordability and Stability Plan was based upon? Let’s encourage and untie the hands of folks that can get things moving again.

So what happened?

In a bold move, the Fed announced that it would be buying up to $500B in mortgage bonds backed by the “Mae� triplets, Fannie, Freddie and Ginnie.   Most of my sources think this was a smart move.   The net result should be an increase in the availability of credit for refinancing and the purchase of homes along with low—albeit still volatile—long-term rates for the foreseeable future.

This sort of decisive action on the part of the Fed is critically important.   Their action will support the housing markets and cultivate improved conditions in the financial markets.   We need credit to be available.   When the credit markets are too tight—e.g. the liquidity crunch we’ve witnessed—our economy suffers.

Likewise, by keeping LONG-TERM rates low, the Fed can provide more stability to the markets.   One of the few ways for the Fed to influence long-term rates is through actions like providing stability the mortgage-backed securities market.

Many people think there is a direct correlation between Fed rate cuts and mortgage interest rates, but this is not the case.   When the Fed cuts rates, it has a direct correlation to short-term rates only, such as the Prime Rate, CD rates, and banking indices.

Long term rates are tied to mortgage-backed securities, so when money flows into Mortgage-backed Securities, it means more liquidity, and lower long-term mortgage rates.   That’s why the Fed’s actions were so important.
If you have any doubt as to how lower rates translate to improvements in the housing market and more buying opportunities, consider this example:

Let’s presume a buyer put down 20% on a “typical” house in California that one year ago cost $500,000 when mortgage rates averaged 6.5%.   With a $400,000 mortgage at 6.5%, the mortgage payment would be $2528.

Now fast forward a year…

In this particular area, let’s say prices have come down 20%.   Now the home is worth $400,000.   With interest rates now at 5.5%, and a buyer puts 20% down for a mortgage of $320,000, their payment would be $1816, a savings of $712 dollars a month!   That opens the market to a lot more buyers.

Of course, not everyone has 20% down, so fortunately we still have FHA loans which only require 3% down.   On a $400,000 loan, the borrower only has to come up with $12,000 for the down-payment with interest rates comparable to conventional loans.   The only difference is that the borrower pays an up-front and monthly mortgage premium to insure the loan against default.

This is a great time to buy or refinance, especially over the holidays.   There are lots of buying opportunities out there!

Likewise, tensions (err…war) between Russia and Georgia pushed oil up to $122 a barrel.  Generally, when oil goes up, so do inflation concerns, and interest rates follow. 

The Good News:  Interestingly, interest rates have actually been holding up quite well during this turmoil and have actually improved over the past week.   The benchmark Fannie Mae 30 Year Fixed rate mortgage is averaging in at 6.32%, which is a significant improvement from last week at 6.43%. 

The Bad News:  I don’t think the long-term prognosis for rates is very good.   It’s truly amazing that amid all the inflation concerns and a SERIOUSLY contracting credit market, interest rates are still at historic lows.  I mean, we’re still in the low 6’s!!  Does anybody remember where rates were the last time we had this kind of Carter-style inflation??  20% interest rate mortgages were not unheard of! 

Back to Good News:  The good news is that in this is an incredibly good time to buy!  It’s probably one of the best times in history to buy.  Thanks to the massive supply of bank owned properties and short sales, banks are finally being responsive.   A few months ago, it seemed impossible to get a short-sale done.   Now, with reality sinking in, banks are getting off their butts and approving these transactions. 

 If you can buy right now, it’s definitely the time.   Could prices come down further?   Sure, but with the combination of historically low rates and highly motivated sellers, I can’t think of too many other times in California history that have been better to buy.   Chasing a bottom is rarely a good strategy, because as I’ve said before there are too many factors at play.  Interest rates may go up and now you can no longer qualify for the house that you could qualify today.   Underwriting guidelines continue to tighten, so who know what additional rules and restrictions they’ll impose in the future that will prevent more borrowers from being able to qualify.
 

This could provide a boost especially to first-time buyers in higher-priced markets like California where for years they felt priced out of the market.

Another component of the relief bill will be to enable distressed homeowners who are underwater on their mortgages to refinance into lower risk federally insured FHA loans. Legislators say this could benefit up to 400,000 homeowners, but in practice there’s no way to know how many will benefit.

The bill would require lenders to “write-down� homeowners’ notes so that they can be refinanced into a loan below the market value of the homes. The question remains whether or not lenders will be willing to write down the notes or even be able to. Most loans are securitized on the secondary market, so there are numerous investors that would be affected, and modifying the loans could subject the banks who service the loans to litigation.

What happened Friday? The Michigan Consumer Confidence reading shocked the markets, with a much better reading than expected at 61.2. The expectation was 56.4. Likewise, we saw a strengthening of the dollar and lower oil prices, which caused a stock market rally at the expense of bonds.

In fact bond deterioration was so significant on Friday, that many lenders had two mid-day interest rate re-prices totaling .375% discount points. .375% discount equates to $1564 on a $417,000 loan, which means if you were to lock after the lender re-prices, it would cost an additional $1,564 to lock the same rate as before the re-price.

What’s the lesson here? Avoid the temptation to chase a bottom in the real estate market, because there are simply too many variables at play.

There are essentially two strategies that buyers are taking right now:

1) Chase the bottom of the real estate market.

Or,

2) Find a home that you like, that you can get a good deal on and that you can afford.

My opinion is that strategy #1 is not a prudent strategy. As I mentioned, there are simply too many variables at work that we can’t control. If you chase the bottom of the market, who knows where rates are going to be? If interest rates go up a full point, you could see your purchasing power seriously erode. For example, on a $729,000 loan, an increase of 1 percentage point, say from 6.5% to 7.5%, you would lose approximately $80,000 in purchasing power. It’s not uncommon in this market to see a change in rates of .25% – .5% in a week, so a change of 1% over a 3 month period is not inconceivable.

The best strategy is to simply find a home that you like, that you are prepared to live in or keep for at least five years, and make an offer on it with which you feel comfortable.

The national average interest rates as of Friday morning, July 25, 2008 are as follows:

6.49% 30 Year Fixed
6.53% 30 Year Fixed FHA
5.91% 5/1 ARM
7.56% 30 Year Fixed Rate JUMBO

Source: Bankrate and Mortgage101

Note: Interest rates are based on full income documentation, excellent credit and 80% Loan-to-Value.