The Real Estate Faction

Historically low interest rates coupled with a strengthening economy are getting the new year off to a fast start, stirring hopes that the Bay Area’s dormant housing and mortgage markets may finally come to life in 2012.

After hovering around 4 percent since September, rates reached an “all-time record” low of 3.89 percent for a 30-year fixed-rate mortgage last week. More first-time buyers are shopping for homes, according to brokers, while those who already own homes and have enough equity are keeping mortgage brokers busy with requests to refinance their loans.

“We’ve had a huge increase,” said mortgage broker Andrew Soss of Stewart and Soss Mortgage in San Jose. “I’d say over the month, we’ve had a 40 percent increase in applications.”

Low interest rates are only one part of the equation needed to stoke the housing market. A better economy with more hiring and a sense that home prices will stabilize this year have people who have been on the sidelines beginning to act.

“It’s confidence that the economy is moving forward,” said Alex Gonzales of Vintage Mortgage in Pleasanton.

The record low average rates were reported last week by Freddie Mac, a government-sponsored company that publishes a weekly rate survey.

A $400,000 mortgage at 3.89 percent would be $263 a month less than one at 5 percent. Rates were at 5 percent as recently as May 2010.

“It’s great for the people who can do it,” said Tom Sammon of Tom Sammon Mortgage in Walnut Creek. But, he said, refinancing is out of reach for underwater homeowners and those with employment or credit problems.

Underwater homeowners — who owe more than the home is worth — can expect a break soon because new rules for the Obama administration’s Home Affordable Refinance Program will greatly enlarge the pool of people who can qualify for refinancing.

Borrowers’ psychology is the reverse of what it was during the housing boom, Sammon said. Now, few who are refinancing want to take cash out, and many are using the low rates to pay off their houses sooner by switching from a 30-year loan to a 15-year mortgage, where the average rate last week was 3.16 percent.

“The way I look at it is long-term,” said Keith Chow, a Silicon Valley engineer who is refinancing to a 15-year mortgage. “You pay a lot less interest.” He said his parents remember interest rates of nearly 20 percent. Rates reached 18.63 percent in 1981, according to Freddie Mac.

Dede George, an accountant, and her husband, a manager for a sheet metal company, have refinanced their San Jose home several times since they bought it 10 years ago. This time, they’ll lower their payments by $200 a month. The savings will first go to paying down bills.

Connie Bantillo, a vision therapist, is refinancing the mortgage on her home in San Jose for the first time in “many, many years.” She’s taking a small amount of cash out and hopes to buy a car with it. “What better thing for the economy, right?” she said.

Mortgage applications were up a seasonally adjusted 4.5 percent last week, the Mortgage Bankers Association reported.

In addition to all the refinancing, first-time buyers are entering the market, where they are competing for inexpensive properties with investors paying cash.

A California Association of Realtors survey shows first-time buyers growing from 19 percent of the state’s housing market in 2008 to 43 percent in 2011.

“We’re seeing many, many more first-time buyers getting into the market,” said Barbara Lymberis, president of the Santa Clara County Association of Realtors. “The phones are ringing off the hook.”

Lymberis, of Perfect Harmony Properties in San Jose, said the improving employment picture is also making first-time buyers “feel a little bit more secure about taking that first step. All the factors are fitting into place.”

“The only problem they are having is they are in competition with investors. They need to be out there looking and they need to act fast.”

She recently helped a client snag a home for about $300,000 after a sale to an investor fell through. “We really slipped him into this one under the radar. We found out it was going back on the market and we called that minute.”

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Mortgage interest rates, near all-time lows, are likely to remain attractive throughout 2012. That means opportunities for new homebuyers and for homeowners who want to refinance.

Here are five reasons why you might want to get a new mortgage, and what you should know.

While depressed housing prices and low mortgage rates have made homes more affordable, economic uncertainty and volatile housing markets have discouraged so many homebuyers that mortgage purchase applications dropped to a 15-year low in August, the Mortgage Bankers Association reported.

In qualifying for loans, buyers face hurdles including a down payment and the ability to document at least two years of income, says Justin Lopatin, vice president of Baytree National Bank & Trust in Chicago. Income documentation can be hard for people who’ve suffered temporary unemployment, are self-employed or have irregular wages.

Many investors pay cash to purchase residential rental properties. But some take out a mortgage to increase their leverage, says Julie Miller, sales manager at Prospect Mortgage in Irvine, Calif.

Lopatin says low interest rates are an inducement for investment property buyers.

“If you can take out an investment loan at 4.5 percent and rent out (the property) and make a few dollars a month, annually, the return will be worth the loan,” he says. “Not to mention the tax write-offs and other advantages of owning real estate.”

Mortgage insurance isn’t an option for investment property, so a fat down payment, typically 20 percent or more, is a must.

Investment buyers also need to show that they have enough income and reserves to afford the payments even if the tenant fails to pay the rent or moves out. Lenders typically will count 75 percent of the rent toward the borrower’s income-qualifying ratios, Lopatin says. For example, a monthly rent of $1,000 would count as $750 of income.

Low rates can make rate-and-term refinancing a smart financial move. This type of new loan is exactly what the name implies: a refinance in which the interest rate or term is changed, but the loan amount stays the same.

Another benefit might be locking in a fixed interest rate instead of an adjustable rate.

Homeowners who want to refinance must provide income documentation and have a “decent” credit score, to use Miller’s characterization.

Equity is also required for most loan refinance programs. This hurdle can be troublesome because homeowners don’t control a property’s market value, Lopatin says.

If your loan amount exceeds your home’s value, consider the Home Affordable Refinance Program, or HARP, part of the federal government’s Making Home Affordable initiative. If your loan is insured by the Federal Housing Administration, the FHA Short Refi program might enable you to refinance in a negative equity position.

A home equity loan or line of credit can be a good way to get cash for financial needs such as remodeling, major home repairs or financing a college education. The benefits, Lopatin says, include immediate cash, low-cost debt and potentially an income tax write-off.

There’s a catch: You can’t borrow against your equity if your mortgage debt exceeds your home’s value.

Taking out cash isn’t free money. In fact, a cash-out refinance increases your debt, which is “just not wise today,” says Alfred McIntosh, principal of McIntosh Capital Advisors, a financial planning firm in Los Angeles.

Co-signing a home loan for someone might sound like a feel-good proposition. But those warm fuzzies are the only benefit to co-signing.

“I see no reason why anyone should co-sign on anything for anyone, unless it’s a relative, because you’re putting yourself in a position to jeopardize your credit,” Lopatin says.

Miller sees “more negatives than positives” because the co-signer is equally responsible for the loan. If the borrower fails to make payments, the co-signer is on the hook.

Mortgage rates fell this week, reaching new record lows as investors seemed to ignore the latest signs of economic recovery.

The 30-year fixed-rate mortgage fell 3 basis points to 4.18 percent. A basis point is one-hundredth of 1 percentage point.

The 15-year fixed-rate fell 4 basis points to 3.4 percent. The average rate for 30-year jumbo mortgages, or generally for those of more than $417,000, fell 2 basis points to 4.62 percent.

The 5/1 ARM fell 1 basis point to 3.19 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.

(Reach Marcie Geffner at editors(at)bankrate.com. Distributed by Scripps Howard News Service)

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In getting America back to work, the bottom line has been and will continue to be slow and steady growth. Recovery has been gradual since mid-2009, and it will persist in this way over the next year.

But that doesn’t mean 2012 won’t be positive for the job market.

Each year, CareerBuilder asks employers about their hiring plans for the next 12 months. This year, we polled more than 3,000 hiring managers. Of those polled, 23 percent plan to hire full-time, permanent employees in 2012, while 16 percent plan to cut back staff levels. While these numbers are about even with employers’ 2011 predictions, they’re a marked improvement from recent years past. For example, at the end of 2008, just 14 percent of employers planned to hire new employees in 2009, while 16 percent planned to cut staff levels.

There’s also a good chance that hiring in 2012 will be better than employers’ predictions.

Historically, companies have been reserved in predicting hiring needs. Follow-up surveys done by CareerBuilder throughout the year typically find that employers hire more and downsize less than initially foreseen.

Small business shows promise Additional hope for the 2012 job market comes from an uptick in the number of small businesses that plan to hire next year. Sixteen percent of companies with 50 or fewer employees plan to bring on additional full-time staff next year, a 2 percent jump over 2011. Better still, 20 percent of companies with fewer than 250 employees and 21 percent of companies with fewer than 500 employees also reported plans to add staff next year. Both are increases over 2011 forecasts.

Small businesses provide about half of the private-sector jobs in the U.S. and have accounted for about 65 percent of the total job creation in the past two decades, so much of the hope for the job market rests in the hands of these companies.

Job-market trends for 2012 A number of trends emerged from the survey data that will affect the labor market throughout 2012. Among them:

1. Workers will seek new opportunities: As the economy improves, workers will begin looking for better job opportunities. Thirty-four percent of employers surveyed said that voluntary turnover was higher at their organizations in 2011 than in 2010, and 43 percent are concerned that it will continue to rise in 2012.

2. Employers will ramp up efforts to keep their current employees and attract new ones: Perhaps sparked by higher turnover in the past year, companies are willing to spend more money in 2012 to keep their staff; 62 percent of employers reported plans to increase employee compensation next year. The payouts will also be extended to new hires; 32 percent of companies plan to increase starting salary offers to new workers.

Not surprisingly, the jobs that are most likely to command a raise next year are those that affect the bottom line. The areas in which employers said they’d most likely offer raises include sales, information technology, engineering and business development, in that order.

3. The recovery will continue to be uneven: Certain industries, job functions and geographic areas will recover faster than others. For example, employers need highly skilled workers, so jobs in engineering and IT will be plentiful in the coming year. Similarly, more employers in the West reported plans to hire in 2012 than did employers in the Northeast, Midwest and South.

4. Employers will try to close the skills gap: The skills gap — a hot topic in recruiting in 2011 — will continue to be an issue in 2012. In order to meet their growing need for employees in high-skills areas, 38 percent of employers will provide workers and new hires with on-the-job training.

5. Employers will place greater emphasis on diversity: Employers will continue to make a concerted effort to recruit Hispanic, African-American, bilingual and female employees. Twenty-nine percent of employers said they’d focus on workforce diversity in 2012. Twenty percent said they’d be recruiting African-American and Hispanic workers, while the same number reported plans to recruit women. Forty-four percent plan to concentrate on hiring more bilingual employees.

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