Our National Builder Division Hits the Ground Running in San Ramon

We have been busy in San Ramon for the last month helping the first phase of 496 new home owners get their financing together. At the 'Reflections' property, one bedroom condos are selling for as little as 249,900, and 2 bedroom models are getting up around 439,900. The first release took place this last Saturday, and it was a feeding frenzy. Anybody concerned about real estate bubble conditions in the East Bay might want to keep an eye on this project, because they had more than 200 qualified buyers waiting in line for housing.

When it comes to housing prices, its all about supply and demand, folks. Good old fashioned economics. You will not see prices trail off until demand subsides. For now, strong job growth, and a general lack of supply for housing at this price in this community are going to keep demand pretty strong.

We have met some interesting people, and had quite a bit of fun out there so far. But I think this is the calm before the storm. 496 units makes for some serious paperwork, and some serious weekend hours. Have you ever bought real estate directly from a new home builder, or through a condo conversion? I'd like to hear about your experiences with this process, especially how the financing was handled. Drop me a note and tell me about it if you get the chance...

What is the best Mortgage?

Question: Is your mortgage a big liability, something that you feel an eager need to 'pay-off', and live debt free? Or is it a handy financial tool that can help steer your handling of your overall financial goals? Maybe a little of both?

What is the best type of Mortgage?

-Lowest rate
-Lowest payment
-Most flexible payment
-No mortgage at all!
-other

I would love to hear from you on this. Please email me with a response, and a brief explanation for your answer. I will follow up on this topic based on your answers.

Prime Time!

The Greenspan era came to an end today in the Federal Reserve, and Alan had his red tie on! That means another raising of the Federal Funds rate and the Prime Rate, both having implications for the market for mortgage debt, interest rates, and the economy in general.

The Federal Reserve lowered these rates a few years ago when our economy began to head into a recession. Lowering the cost of borrowing money helps consumers and business borrow and spend money, which generates activity in our economy, and ultimately helps swing the pendulum back into recovery. Now with the economy growing steadily, the Fed has to keep balance. Greenspan has kept a sharp focus on signs of inflation, and used these 'measured' rate hikes to slowly cool the jets in this time of heavy borrowing.

Interest rates are in a rising trend, but the global economy and foreign participation in US Treasury auctions is helping to keep a lid on our long term rates. With a higher cost for access to money, spending should slow a bit, and the demand for goods and services in our economy will lessen. This has been Greenspan's way of keeping inflation at bay. The raising of these short-term rates is putting pressure on the interest rate environment from the short end of the yield curve, which now sits basically flat. Some economists believe that this indicates another recession is around the corner, which would suggest that the Fed was too aggressive, and the general consensus believes that we will get one to three more .25% hikes in the next few Fed meetings.

With this raise of 25 basis points, the Fed Funds rate has been jacked-up on 14 consecutive Fed meetings, for a total change of 3.50%. Prime now sits at 7.50% (up from a low of 4.00%), and is the basis for all of your Home Equity Lines of Credit (HELOC). You might have seen your zero margin HELOCs go from 4.00 to 7.50 since June of '04, and it seems likely that we will see another rise at the end of March when the Federal Reserve meets again under the chairmanship of Ben Bernanke before this cycle ends. Again, some believe we will see an additional one or two raises after this.

Don't panic yet. Your HELOC loan balance probably represents a relatively small portion of your mortgage debt, and therefore the change to your monthly payment shouldn't be too bad. The new rate will go into effect for your February bill. But if you want to compare your new payment to your payment back when Prime was at its lowest, then you might notice a bigger difference. Still, I don't think this is a cause for panic.

So what do you do about it? These adjustments represent the reality of adjustable rate debts. And for the past several years, these rates have been so low, that had you borrowed money any other way, it would have cost you a lot more. So congratulate yourself for utilizing a smart strategy thus far, and consider this a good time for revisiting this strategy going forward.

HELOCs have highly attractive features that 'convenience premium' in their cost. They will continue to be attractive even as the Prime rate rises a little more. They make for a great safety net if you do not keep an emergency fund of cash. You can pay down your balance at any time, avoid the accumulation of interest expense when funds aren't being used, and then re-borrow when needed. This flexible feature makes the HELOC a great option for many circumstances. Interest costs are generally tax-deductible (please consult your tax advisor, or contact me if you need to be put in contact with one), and obtaining these lines of credit is often very inexpensive (if not free). I have one on my house.

Consider a new HELOC if:

• you have a first mortgage only, and need a financial safety net and access to your home's equity
• you have higher cost debt, such as credit card, car loans or personal bank loans
  
• your current HELOC or 2nd mortgage was taken out at a time where your home's value or your income situation was different than it is today

Consider keeping your HELOC if:

• -you have a low margin

Consider converting your HELOC to a fixed rate 2nd mortgage if:

• your current HELOC is maxed out
• your current HELOC represents a large portion of the over-all debt outstanding on your home
  
• a refinance of both mortgages might yield a lower monthly payment

These loans have definitely become more costly as the economy has recovered from its brief recession. Their utility is not lost in these rising rates, however. Let's keep an eye on the moves of the Fed and Bernanke, and the economy in general to see if things change. You should reevaluate your strategy every so often for managing your mortgage debt, and these market changes represent some of the reasons why.

Contact Info

John C. Glynn
San Francisco, CA
415 674 1283 x16
john.glynn@home123.com

Inception