Real Estate Market?

[kickout]

Since I am the OP and I see this thread is alive again...

No luck buying a house in Eastern Nebraska. Market has been hot, although we are in a higher price bracket so it hasnt necesarrily been hot on all homes.

I will poll the CF commentariat. We are thinking of building now. Does anybody have a very high level overview of the $$$ involved? How much $$$ down? Do we have to purchase lot with cash or can we finance that and construction under 1 loan? When do we start paying a monthly mortgage, while they are building or not until they are finished?

Thanks

 

[cycloneworld]

I'm not sure why people would consider an ARM right now with rates where they are. I'm getting ready to buy a house in Urbandale and 30-year fixed is 3.25% and 15 year is 2.75%.

 

[cydline2cydline]

Since I am the OP and I see this thread is alive again...

No luck buying a house in Eastern Nebraska. Market has been hot, although we are in a higher price bracket so it hasnt necesarrily been hot on all homes.

I will poll the CF commentariat. We are thinking of building now. Does anybody have a very high level overview of the $$$ involved? How much $$$ down? Do we have to purchase lot with cash or can we finance that and construction under 1 loan? When do we start paying a monthly mortgage, while they are building or not until they are finished?

Thanks

You can spend whatever you want on a new home. High level I would say pick a number you are comfortable with and expect a 20% down payment. However, I met with a local bank and they were offering a 90% finance on new home, but builders were saying 20% was most common.

Our agent told us typically land is 20% of the homes value (this allows for houses of the same quality to be built around each other). You don't want to have a 500,000 home on a 40,000 lot as your neighbors will probably be 200,000 bringing your home value down.

Some builders prefer to purchase the lot and carry the finances (then you buy the house when all said and done) others may want you to carry the construction loan (which you can make your first withdrawal for the price of the land so you don't have to buy it before the loan). Pluses and minuses to both (for example, if you buy the home at the end your Prop. Taxes may be higher as the state knows how much the home is 'worth' whereas if you bought the land and carry the loan they don't know how much the home cost to build, just the size of the house).

If you carry the construction loan, you make payments on the money that has been withdrawn.

****We just went through the initial process of building then found a house we liked and bought it instead.

 

[Ficklone02]

People who are buying top end homes right now with ARMs, you have quite the appetite for risk.

Let me know when this latest housing bubble bursts if you are looking to get out.

 

[chadly82]

We have a 15 year with one free rafe adjust with no fees. It is 3.25%, after free adjust. I think the fees would eat up the savings over time. And I just don't see risk/reward being strong enough at these rates to take the risk. I was a loan officer when rates jacked up over 2% in a short time. The ARM took a beating.

I cant see it doing that in the next 5 year which is why I locked in almost 2 years before it expired. If I need to....I can rent or sell, im not in a tough spot on a house that now has a payment of 800

 

[ArgentCy]

Doubt anyone on CF really has some high-end real estate but it is definitely peaking again.

https://www.armstrongeconomics.com/markets-by-sector/real_estate/real-estate-turning-down/

In the United States, the three main regions for this rally in the high-end market has been New York,Miami, and Los Angles. All three markets have begun the decline and we are now watching this slowly spreading outward. Chicago real estate has begun to turn and so has the Vancouver market as well as in London, no less Paris as well as Hong Kong. The outer regions even in Britain never exceeded the 2007 high as was the case for the average market in the United States. In fact, home ownership has fallen to a 51.6 year low from the 1965 high.

Because of the mad rush of foeign investors, politicians went after them with a vengeance. In the United States, if a foreign citizen now sells US property, 15% of the gross is held by the US government for potential taxes.

 

[ArgentCy]

Here is a handy and informative little chart. I know everyone usually gets a little too involved with their local markets but this tool lets you see / graph housing indexes from around the world. Also see the values / rent or real income. The US looks pretty decent right now but definite bubbles in Australia, UK, and Canada. I was also trying to find some decent data on mortgage trends around the world. It's pretty hard to come by. It appears that Canada has mostly 15-year loans or less (no 30 year loans which will soften the downturn). Some countries have "mutil-generation" loans that really never pay off. Ouch I saw Switzerland and Japan on that list. https://www.canadianmortgagetrends....010/12/mortgage-variety-around-the-world.html

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices


http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

 

[Stanton327]

Since I am the OP and I see this thread is alive again...

No luck buying a house in Eastern Nebraska. Market has been hot, although we are in a higher price bracket so it hasnt necesarrily been hot on all homes.

I will poll the CF commentariat. We are thinking of building now. Does anybody have a very high level overview of the $$$ involved? How much $$$ down? Do we have to purchase lot with cash or can we finance that and construction under 1 loan? When do we start paying a monthly mortgage, while they are building or not until they are finished?

Thanks

Okay, I'll make this as short as possible. Been in the mortgage biz for 25 years and currently manage all mortgage op's for a local Bank.

1) An ARM loan is okay if you are a person that feels you will upgrade (and move) in the next 7 years. Don't mess around with any ARM loan under a fixed term less than 7 years. If you do, you'll have to qualify at the maximum rate (thank you Dodd-Frank), so most don't qualify anyway. A bank willing to keep the loan in it's portfolio will have the best ARM rates. Make sure to ask.

2) You can buy a lot. We require 20% down and put all lot loans on a 1/1 ARM. When/if you build, a construction loan will pay off the lot loan. Or, if you find a lot and a builder, you can purchase the lot through a construction loan. If you find a builder who owns the lot, the same is true. Our construction loan rate is currently 5.00%. Construction loans typically run for 6 months, and you will pay interest only, each month, based on the amount of money "drawn" to pay the contractor. When construction is complete, an "end-loan" will pay off the construction loan. This is your final financing. If you want to build, I will assume that you will stay in the home for many years, so get the fixed rate (ours is currently at 4.25% for 30 years). Since most loans are sold into the Secondary Market (a long discussion for another day), I will assume rates in NE will be very similar.

This is longer than expected, but your biggest financial decision is not a short answer. Too many other variables to take into consideration. Reply If you have more questions and I will be happy to respond.

 

[cydline2cydline]

... Since most loans are sold into the Secondary Market (a long discussion for another day)....

'Inside Job' documentary and 'The Big Short' were great movies that talked through the housing bubble in easy to understand concepts.

 

[Stanton327]

Not sure how you are getting a 30-year rate quote at 3.25%. The market today means that the Bank will be losing 4.50% by doing your loan at that rate. So if you have $100,000 loan, the bank will be losing $4,500 just to do your loan. Since the bank wants to make a profit, I will assume that a 3.25% loan is feasible, as long as they are charging you 5.50 in points.

 

[Stanton327]

'Inside Job' documentary and 'The Big Short' were great movies that talked through the housing bubble in easy to understand concepts.

Thank you. Unfortunately, we are not talking about the housing bubble, but the best option at this time for someone to secure financing for a home purchase.

 

[SoapyCy]

Not sure how you are getting a 30-year rate quote at 3.25%. The market today means that the Bank will be losing 4.50% by doing your loan at that rate. So if you have $100,000 loan, the bank will be losing $4,500 just to do your loan. Since the bank wants to make a profit, I will assume that a 3.25% loan is feasible, as long as they are charging you 5.50 in points.

Why do banks sell their notes? Why don't they compete on rates and keep them in house?

 

[ArgentCy]

Money, money, money. Keeping them all in house limits the amount of capital they can use. Even though they still expand the money supply on their deposits they are still somewhat limited. Plus, by selling them off they don't have to worry about any interest rate or default risk. When you have the government offering to buy everything you have distorted the "market".

 

[Stanton327]

Why do banks sell their notes? Why don't they compete on rates and keep them in house?

They sell their notes to avoid interest rate risk. Let's just say that a Bank offers you a 4.00% interest rate on a 30-year loan and decides to keep it "in-house". That's great, but the bank has to keep that on their portfolio for 30 years.

So when the bank is being paid 4.00% on that loan; and the interest rates rise to 7.00%; the bank then has to pay 7.00% on deposits, but they are only collecting 4.00% on that particular loan. They are losing 3.00% every year.

Read up on the S&L crisis of the '80's. This is why so many banks failed. They booked long term mortgages on their books; and when interest rates rose; they had to pay more out in interest on deposits than they were receiving in loans. Bank failure.

The secondary market was created to counter act this. They buy mortgages and wrap them into securities that can be sold to investors. The bank still makes their money on the sale; but in most cases, they "service" the loan so the borrower doesn't know the difference.

 

[jkclone]

They sell their notes to avoid interest rate risk. Let's just say that a Bank offers you a 4.00% interest rate on a 30-year loan and decides to keep it "in-house". That's great, but the bank has to keep that on their portfolio for 30 years.

So when the bank is being paid 4.00% on that loan; and the interest rates rise to 7.00%; the bank then has to pay 7.00% on deposits, but they are only collecting 4.00% on that particular loan. They are losing 3.00% every year.

Read up on the S&L crisis of the '80's. This is why so many banks failed. They booked long term mortgages on their books; and when interest rates rose; they had to pay more out in interest on deposits than they were receiving in loans. Bank failure.

The secondary market was created to counter act this. They buy mortgages and wrap them into securities that can be sold to investors. The bank still makes their money on the sale; but in most cases, they "service" the loan so the borrower doesn't know the difference.

There are also the capital requirements with keeping it in house.

 

[ArgentCy]

The general business model of the banks use to be borrow short-term money to lend long-term (especially mortgages). This is at least part of why bank stocks railed lately. They like a wider "spread" or "steepening of the yield curve" where long-term interest rates go up (they are earning this interest) but short-term rates stay low (have to pay to borrow if their asset base is not large enough).

 

[Stanton327]

There are also the capital requirements with keeping it in house.

absolutely correct!!