Interest Rates Drop – Sunday, September 14, 2008

With the government conservatorship of Freddie Mac and Fannie Mae a week ago, mortgage interest rates dropped significantly the past week. Rates on 30-year fixed-rate mortgages (FRMs) averaged 5.93% for the week ended September 11, with an average 0.7 point discount. That's down from an average 6.35% last week, and down from an average of 6.31% recorded during the same week last year. Experts think these rates will pull the final holdout buyers off the fence and promote a turn-around in the housing market that we are already beginning to see in some markets. A 15-year FRM averaged 5.54%, falling from 5.90% last week and 5.97% from a year ago. The five-year adjustable rate mortgage (ARM) dropped to 5.87% from 5.97% last week, and 6.17% a year ago. One-year ARMs averaged 5.21%, a slight increase from a week ago when it stood at 5.15%. That's down from a year ago when the rate averaged 5.66%. (CNNMoney, 9/10, 9/11)

Other points regarding the government conservatorship of Freddie & Fannie:

· Under the conservatorship, the FHFA has the authority to take up to an 80 percent stake in the companies, and will review both GSEs’ financial condition quarterly. The federal government also may inject capital into Fannie Mae and Freddie Mac, if needed. Both GSEs will be allowed to increase their mortgage funding over the next year and a half, and their stock will continue to trade, with stockholders retaining all rights in the stock’s financial worth. However, the plan does call for a 10 percent reduction per year to GSEs’ portfolios, beginning in 2010, until they have been reduced to $250 billion.

· Although the conservatorship has resulted in lower interest rates for consumers, and restored investor confidence, C.A.R. is concerned that the Treasury and the new CEOs will change the mission and role of GSEs. Without GSEs, mortgage capital eventually will be less predictable and more expensive. This may result in adjustable-rate mortgages becoming the standard loan for home buyers, as well as higher down payment requirements, and the possible disappearance of the 30-year fixed-rate mortgage.

· C.A.R. supports a structure that maintains GSEs in their current countercyclical roles and is urging lawmakers to support continued government involvement in supporting the institutional secondary market. As a result of these concerns, C.A.R. will be asking Congress to enact legislation to ensure GSEs continue to fulfill their congressional mission of supplying an affordable and stable flow of capital for home loans. (CAR, 9/11)

Your home: When it’s wise to downsize - As a result of reaching retirement age and becoming empty nesters, more baby boomers are choosing to downsize from large, multi-room homes to ones with less square footage. While some buyers are choosing to downsize to save money, others -- especially those still in the workforce -- are opting for a lifestyle change, such as a shorter commute; the convenience of an onsite fitness center, often found in condominium communities; or energy savings. (CNNMoney, 9/5)

· Some buyers are choosing to downsize to condominiums, as they are often located in close-proximity to shops, restaurants, transportation; and everyday needs such as grocery stores, dry cleaners, or the pharmacy. Although this is convenient, buyers who wish to save money by downsizing should weigh all the facts before making the decision to downsize. While most single-family homes incur costs such as property taxes, utilities, and home maintenance, most condominium communities require owners to pay monthly homeowner association (HOA) fees, and sometimes special assessments. The monthly dues and special assessments are generally used for items such as replacing a swimming pool, upgrading the community clubhouse, or adding new amenities. Buyers concerned about these costs should ask how much HOA fees have risen over the past five years, and whether the association has plans for new assessments in the near future.

· Even with the added costs, many buyers will realize an annual savings when downsizing. Some experts estimate that the average annual savings in utility costs and property taxes could be as high as $3,900 if a buyer downsizes from a 2,800-square-foot residence to one that is 1,800 square feet.

· Buyers who are at or near retirement should consider acquiring a mortgage loan with a 15-year maturity or a traditional 30-year, fixed-rate loan that does not charge a prepayment penalty. Although payments on a 15-year mortgage are higher and the interest rate is only about .10 percent lower than a traditional 30-year, fixed-rate loan, borrowers can save approximately $141,000 in interest over the life of the loan.

· If a borrower elects for a traditional, 30-year, fixed-rate loan, they should consider one without a pre-payment penalty. This allows the borrower to make extra payments each month and pay off the mortgage more quickly, without adding additional pressure should their financial situation change. (CAR, 9/11)

Fast Facts: · Calif. median home price - July 08: $350.760(Source: C.A.R.) · Calif. highest median home price by C.A.R. region July 08: Santa Barbara So. Coast $940,000(Source: C.A.R.) · Calif. lowest median home price by C.A.R. region July 08: High Desert $177,330(Source: C.A.R.) · Calif. First-time Buyer Affordability Index - Second Quarter 08: 48 percent (Source: C.A.R.)

A sincere thank you to all of you who donated to Danielle's Avon Walk. With your help, not only did she meet her goal, but she surpassed it, raising nearly $2000. She tells me that she has never walked so far for so long ever (39 miles), and has ended up with sunburn and plenty of water blisters on her feet. But she has never had so much fun raising money for a good cause. Thank you again!

Sources: California Association of REALTORS®, CNNMoney.