Straight Talk About Real Estate

In the city of Walnut, California where I live, there are currently 127 houses on the market in this small city of about 35,000 people. In the last seven days, eleven houses came on the market while seven house went into pending sales.

In the last couple of years, more houses were being sold than houses coming on the market. That condition caused a major shortage of houses for sale, thus driving the prices of homes up at a record rate.

The market condition now is showing more inventory than buyers. The city of Walnut is just an example of what is happening in most of the surrounding areas. This is not a bad thing. Buyers are still buying. But they are taking longer to make their decision, and are more careful with what they are willing to pay.

While interest rates were in the 4.5 to 5 percent range, most buyers choose to obtain their financing through a financial institution or mortgage broker to take advantage of those rates. Now that fixed rates have risen to almost 7%, we are seeing a come-back in seller financing.

For example,let’s assume the purchase price is $500,000. The buyer puts a 10% down payment of $50,000. A first loan of 80% loan-to-value can be obtained from a conventional lender in the amount of $400,000. The additional $50,000 can be seller financed. The interest rate and term is negotiable. This can be a benefit for both the seller and the buyer. Ther seller can get a higher interest rate than what he would get if he put the money in the bank. The buyer can get a lower rate than a second trust deed from an institutional lender.

Lending institutions sent 18,668 default notices to California homeowners during the January-to-March period. That was up 23.4 percent from 15,122 for the prior quarter, and up 28.7 percent from 14,501 for 2005’s first quarter, according to DataQuick Information Systems.

Housing appreciation has slowed down. Instead of being able to sell their house for a profit, homeowners who cannot make their payments or must move may have to let their house go into foreclosure. Last year, I said foreclosures were rare. Now we are beginning to see more foreclosures coming on the market.

Read more about Calfornia Foreclosure.

Where are the most expensive homes? As ranked by Forbes.com, it is no surprise that seven of the top ten most expensive zip codes are in California. Read more.

Do landlords have to accept credit card payments for rent? According to the Los Angeles Times,they do not. However, they do have to accept cash payments for rent if offered. That seems to make sense. Read more…

We traditionally think of mortgage loans as being a 30-year or 15-year loan. If you make your mortgage payment every month, after 30 years or 15 years, you will own your home free and clear.

With rising home prices, buyers need loans that allow the lowest monthly payment possible. Lenders responded by offering adjustable rates, interest-only payments, and fixed-payment options.

Then we saw the 40-year loan option. Of course if you stretch out your payments over 40 instead of 30 years, your monthly payments are lower.

Now, we are seeing the 50-year loan, extending the loan period even longer, thus offering a lower monthly payment. Is this a good option?

If all you care about is having low monthly payments, a 50-year loan will give you that. Beware that most of what you pay is interest. Very little principle is paid down each month. Your loan balance decreases just a few dollars with each payment. Over the life of the loan, you are paying much more interest overall. This is also true of an interest-payment only plan. If real estate goes down, you may end up owing more than the value of your house. Of course this is true of any type of loan. But more so with a longer term loan since you are not building much equity with each payment.

Given the fact that hardly anyone stays in their house long enough to pay off the loan entirely, I do not object to a longer loan term, just as long as you realize the implications stated above.

Did you know you don’t have to be husband and wife to claim the $250,000 tax-free profit when you sell your principal residence? And there is no limit to the number of $250,000 exemptions if each co-owner qualifies.

For example, if three friends are on title and claim the house as their principal residence at least 24 of the 60 months before the sale of the property, each could claim $250,000 profit. That’s $750,000 in tax-free sales profit. As price of homes escalates, it is not difficult to realize such a gain. For furthur details, consult your tax advisor.