The Silver Lining to the Financial Storm

By Mike Bryant

The following information is based on MIKE BRYANT'S BULLETIN OF ASHEVILLE AREA MORTGAGES, dated January 8, 2009. It is reprinted with permission and approved changes.

Today's 30-Year Fixed Rate: 4.5%, 1 point, APR 4.675%

Today's 15-Year Fixed Rate: 4.25%, 1 point, APR 4.278%

There's not a lot of positive news on the economic front for the New Year other than the radical market adjustment downward that has thrown long-term fixed mortgage interest rates into a nose dive. This event should benefit most homeowners in restructuring and refinancing their debt service. Moreover, home buyers will see tremendous deals through this year. There is a silver lining to the storm after all!

The above rates should be obtainable at 0 points very soon! However, the dip will only last until the economic reports show consumer confidence and the housing market have stabilized. I believe this will be followed by a long steady incline on interest rates similar to those in the 1970s.

Why? The Fed is printing too much money for the dollar to withstand taking a significant devalution. The same will occur over the next year with most other currencies around the world for the same reason: too much printing of money by other nations, too.

This extraordinary printing of currency will likely cause massive inflation in the form of a market recovery as soon as 2010 and lasting through 2015. During this time I believe there will be steadily increasing interest rates and limiting of credit access that could delay home value increases by slowing demand for a prolonged period of time.

REFINANCE NOW ... WHILE HOME APPRAISALS REMAIN HIGH

My advice for many homeowners is to refinance into fixed rates as soon as possible -- while appraised values are still strong. The last six months is nothing compared to the next six months during which many people who have been holding on and tapping out existing lines of credit will no longer be able to sustain debt service. They will then be forced to drastically reduce selling prices on their homes or default on their mortgages.

This will result in a reduction in home prices that will have a further negative effect on appraised home values -- and, consequently, will make refinancing more restrictive for others. As the banks will see it: "Five distress sales can be overlooked as Comparable Sales; however, 25 cannot be ignored."

Until we reach the true bottom of the housing market -- which I forecast for June or July 2009 -- we will continue to see Appraisal Comps become more and more challenging.

WHEN HOME PRICES STABILIZE, THE BEST REAL ESTATE MARKETS IN AMERICA MAY INCLUDE NC AND SC

As I have stated before, home prices should stabilize sooner than later (within approximately six months) and will start at the bottom to work their way up.

Certain markets will be quicker than others to stabilize.

The worst markets in the country will most likely be Florida, California, Nevada (particularly Las Vegas), Arizona and Michigan.

The best markets in the nation will most likely be in North Carolina, South Carolina, Tennessee, Georgia and Virginia.

The Asheville Area Market should be very stable with homes priced under $300,000 by the summer of 2009 with fixed interest rates in the 4% range. That means a 30-year fixed rate loan at 4.5% will cost approximately $500 of principle and interest per $100,000 borrowed. This rate will get some very favorable results by homeowners looking to refinance and home buyers who have, up until then, been standing on the sidelines.

EXPECT MORE RESTRICTIVE LTV RATIOS

There's another wrinkle in obtaining mortgages today and for the foreseeable future. Mortgage insurance will become more difficult to obtain over 85% LTV (i.e., amount of the LOAN TO VALUE of the home).

Most loans with an 85% or higher LTV will have to be financed through FHA (Federal Housing Administration). This will limit the lending activity in the Asheville Area because any mortgage in excess of $271,250 will likely be an FHA loan. Consequently, this will cause a slow down in reviving home sales priced in the mid to upper price ranges.

Here's why. A loan in excess of $271,250 will most likely require a minimum down payment of 15 to 20%. A loan greater than than $417,400 will most likely require a minimum down payment of 25%.

We will have to wait to see the details based on what the Fed anounces in early 2009. Hopefully, the news as it pertains to interest rates and the amount of down payment will be favorable to those who want -- and need -- to refinance their existing mortgage or require a new mortgage.

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COMMENTS AND QUESTIONS: Mike Bryant appreciates your feedback. Please share this article with your colleagues. Your comments may be emailed to: mgbryant (at) ashevillemtns.com, or call anytime at 828-230-3035. 

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ABOUT THE AUTHOR:

Mike Bryant is a real estate and financial consultant. He is an independent mortgage broker affiliated with Countrywide, a fullly owned subsidiary of the Bank of America.

Bryant is also owner and broker-in-charge of Estate Realty, an Asheville-based real estate firm that specializes in residential and commercial property sales and leases. He writes and lectures on the topics of mortgages, real estate and personal finance.

Mike Bryant is a contributor to FinancialWellnessForum.com, which is published by MediaBear, a division of Wenoca Real Estate, Inc.

Copyright 2009 Mike Bryant
Reprint permission of Mike Bryant's Mortgage Bulletin has been granted to Mediabear, which publishes westernnorthcarolina.com, financialwellnessforum.com, and other informational websites.

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