Federal Reserve Increases Rate

Fed raises key interest rate to 5.25% in 17th consecutive increase on fears of inflation risks. The recent increases in bank mortgage rates areprobably a reflection of this anticipated increase, following pastpatterns."Recent indicators suggest that economic growth is moderating from itsquite strong pace earlier this year, partly reflecting a gradual coolingof the housing market and the lagged effects of increases in interestrates and energy prices," according to a committee statement."Readings on core inflation have been elevated in recent months," thecommittee stated. "Ongoing productivity gains have held down the rise inunit labor costs, and inflation expectations remain contained. However,the high levels of resource utilization and of the prices of energy andother commodities have the potential to sustain inflation pressures."In a related action, the Federal Reserve Board of Governors unanimouslyapproved a 25-basis-point increase in the discount rate to 6.25 percent. See my site at http://www.juliahuntsman.com.

California Median Home Price

According to California Association of Realtors, "The median price of an existing single-family home in California increased 8 percent in May and sales decreased 21.1 percent compared with the same period a year ago, C.A.R. recently reported. "This is the first time since November 2001 that the median price did not increase by double digits, reflecting the return to the more balanced market that we have anticipated," said C.A.R. President Vince Malta. "Interest rates, while still historically low, continue to impact sales as did the inventory of homes for sale, which reached nearly a six-month supply in May.

"According to the report, the median price of an existing, single-family detached home in California during May 2006 was $564,430, an 8 percent increase over the revised $522,530 median for May 2005. The May 2006 median price increased 0.5 percent compared with April's revised $561,750 median price. Also in May, closed escrow sales of existing, single-family detached homes in California totaled 488,260 at a seasonally adjusted annualized rate, down 21.1 percent compared with the sales pace recorded one year earlier and down 5.6 percent from home resale activity in April. "

Dataquick, on the other hand, has reported in June, 2006, and confirmed their report that May's California median home price was $469,000, "a new record"-- a mistake?
See my website and search local MLS properties at http://www.juliahuntsman.com.

That First Home

Dream homes are great to dream about, but please don't expect everything without the money to match. Expectations that are too high might cause the first-time homebuyer to miss a golden opportunity. If you've been renting and don't have much equity, the smart thing to do is look into the future at the second or even third home as the one that really represents where you want to be. People believe their parents did the right thing by buying, but many people forget that their parents may have also built up the move-up over time.

Financial coast David Bach says, "... renters may need to take a step backward when buying their first home. It's almost always better to cut the renting cycle as soon as you can and to continue to upgrade from there," he said. "Buy what you can afford now, build equity, and move closer to that dream home."

With today's loan products, there is ample opportunity to get into that first property, where you realistically may not be staying for more than 3 to 5 years, so remembering that, compromising on home features may be easier to do. Read this article about the Wells Fargo buyer survey.

Southern California Home Prices Are Holding

Even though the sales rate has slowed over the last six months, Dataquick's check of the public records tells us "the median price paid for a home in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties was $485,000 last month. That was the same as April, and up 6.4 percent from $456,000 for May last year." Home appreciation is at its lowest pace within the last 6 years, however 27,282 homes were sold in May, lower than the peak May in 2002, but an increase of over 10% from April, 2006.

Compare Interest Rate Trends

If you're a buyer or a seller looking for a buyer, the graphs on various interest rates should be of interest to you. Look at the trends since 2000/2001 to the present, and the trend is easily seen. the LIBOR and 11th District COFI are used in mortgage lending, but they all reveal the same story. By looking at the tables, it's easy to see specific interest rates and specific times. What is most noticeable is the steady upward trend over 2005-2o06.

What a Rate Increase Does to Your Mortgage Payment

More mortgage rate increases are still on the horizon; don't wait if you have the opportunity to act in the near future. This time last year (see linked article) the overal 30-year fixed rate was at 5.63 percent, this time a year later, it's 6.62% with .5 point, meaning it would be a little higher if you paid no points. The difference to you the borrower on a $350,000 loan amount is over $200/month. At 5.63 percent, your monthly principal/interest payment last year was approximately $2015.90, and at 6.62 percent this year, your payment is approximately $2239.93. See my website at http://www.juliahuntsman.com for a property search on our local MLS, and more financial information.

Public Not Buying Housing "Crisis", At Least Not In Texas

From Real Estate Center Online News:

COLLEGE STATION – Despite media reports that the housing market faces imminent collapse, a study released this week shows consumers are confident real estate values will remain solid even if mortgage rates increase.

Three-quarters of respondents to ING Direct's most recent homeowner study said they had very little concern about the future value of their homes. The study is based on a national survey conducted by Synovate, a global research firm.

Most survey respondents (85 percent) believe their homes increased in value during the last three years. While homeowners felt their homes have increased in value by approximately 6 percent in the last year, they only expect values to increase by about 4 percent in the next 12 months.

Real Estate Center Chief Economist Mark Dotzour said the survey shows many Americans are smart enough not to believe everything they see on television, such as media reports that a housing bubble is about to burst.

Dotzour said that not only is the housing market not tanking, but home price appreciation is a red-hot 12.54 percent for the entire nation.

“This is still extraordinary price movement,” he said. “You have to go back to 1979 to find this level of appreciation prior to the current boom.

“While the nation’s inventory of unsold homes was six months in April, homes typically continue to increase in value when inventories are at this level. Texas inventory levels are lower than the national average. With a five-month inventory, Texas homes are likely to continue their recent appreciation trends."

What's a Seller To Do?

In a market where inventory is building up and sellers are waiting a little longer for an offer, it's time for sellers to think once again about the best improvements to make--and not to make--to get their homes sold. Pools, for the post-baby boomer generation, may not be the right improvement--geographic demand, location, lot size, and maintenance should all be considered. According to the National Association of Realtors, house siding, and kitchen and bathroom upgrades are among the top four best improvements for bringing the best return. Surprisingly, a home office did not bring as high a return on the investment. Regular maintenance is very important, as buyers will move more quickly on a home that does not have deferred issues. In a somewhat slower moving market, a return to standard preparation for home selling will obtain a better offer and a more satisfied buyer.

1031 Exchange: Have You Thought About It?

Do you find yourself saying:

“Why should I sell – Uncle Sam would get all the profit!”
“I’d sell, but I wouldn’t have enough left after taxes to buy another property!”
“I want to get rid of this property, but the taxes would eat me alive!”

Do you want to be rid of a management headache?
Have you thought about acquiring property in a newer and appreciating area?

Please call or e-mail me for updated information on doing a 1031 exchange. You have possibilities – let me tell you the benefits of doing an exchange and how it becomes a financial planning tool. Call me direct at 562-896-2609 or e-mail me at ocean@surfside.net, or see me online at www.juliahuntsman.com.