December 28, 2000

The real estate year in review

The end of the year brings several thoughts and hopes - perhaps the chief one being that the term "Y2K" will quickly be lost and forgotten. In the home and loan industry, a few important items finished head and shoulders above the crowd. Some for their immediate impact on a huge segment of the economy, others will not be felt until months, if not years, down the road. Here's a capsule look back at 2000:

Declining Rates: According to the Wall Street Journal, mortgage rates are at their lowest levels in 18 months, and seemed to be sliding for most of the last quarter. Some many "big ticket purchases' in this economy are rate driven - include homes, cars, furniture and boats. When rates come down, consumers buy and often via a home-equity loan that permits federal income tax deductibility.

Long-term mortgage rates following closely upon the heels of long-term bond movements. A rally in the bond market, giving indications of a slowing economy and hints that the Federal Reserve Board may cut interest rates, have reduced bond yields, resulting in higher bond valuations. It's confusing yet higher bond prices mean lower bond yields, sending consumer interest rates, including mortgage rates, lower and sparked a small upsurge in mortgage refinancings.

According to the Wall Street Journal, the average interest rate on a 30-year fixed-rate mortgage fell to 7.42 percent, a level not seen since June 1999. In May, when the financial markets were anticipating an upward movement in rates, the average rate on comparable mortgages hit a high of 8.64 percent. Rates remained above the psychologically significant 8 percent level for most of the summer.

A borrower would pay $1,734 a month for a $250,000, 30-year, fixed-rate mortgage today, compared with a payment of $1,947 for the same loan last May - a savings of more than $200 a month.

And, nobody anticipates a push to move home-loan rates higher. The Federal Reserve has increased rates six times during the 13 months in an attempt to curb what it felt was a boiling economy. That string appears to be over, and consumers - especially those looking for a new home - would benefit.

Digital Signatures: The electronic signature now has the same legal standing as one on a paper contract. The new law, which went into effect Oct. 1, could revolutionize the way we do business - and buy homes. Edward Miller, a policy analyst for the National Association of Realtors, told reporters "hardly anybody is ready" for the move, yet the practice soon will be commonplace. The new federal law also supersedes most state laws.

While it may not revolutionize property deals overnight, Miller says individual Realtors could begin using the new law to help move some parts of the real estate transaction online.

Online-only lenders: The business model of applying for a mortgage on line - similar to the service for a hotel room, airline ticket or book, did not fire up consumers. The average borrower, while doing some research and rate comparison on line, prefers to do business with a real person. The "clicks only" lenders like I-Own and Mortgage.com either folded or completely rewrote their business model. Consumers felt that once the rate and terms were locked in, they did not receive enough attention (service) that was warranted. In many cases, the "hand holding" had to be done by the closing agent, supposedly and independent third party in the transaction.

"The fundamental reason is that it has proven very expensive to attract and retain the Internet consumer and it has been difficult to convert Internet shoppers into buyers, said Nick Karris, an online real estate analyst with Gomez Advisors. "For instance, less than 1 percent of Web mortgage shoppers actually close on a loan."

Analysts believe that while online originations will increase, the rate will not be as fast as anticipated. In addition, volumes are expected to come from lenders with established locations and an online presence - commonly known as "clicks and bricks."

Reverse Exchanges: While many housing followers did not see this as a big deal, the ability to buy a new investment property before the old one is sold - and defer the capital gain - will be a useful strategy. Previously, the Internal Revenue Service had blessed only exchanges where a property was sold before a new property could be purchased. All "Reverse Exchanges" had been excluded. As of Sept. 15, a reverse exchange is permitted when a new property purchase must close before the old property sale closes.

Yes, it can be confusing! But do the research, even if it seems overwhelming. Find the best options for you in the New Year.

Previous columns:

• Teachers get home buying help, 12-21-2000
• A-Rod could have made a lot on housing, 12-14-2000
• Westphal home yours for $2.8M, 12-07-2000
• New NAR chief sold on the Net, 11-30-2000
• Realtors caught in election confusion, 11-16-2000
• Pick up your commission at an ATM, 11-09-2000
• Insurance quotes now at the curb, 11-02-2000
• Auctions enjoying new-found popularity, 10-26-2000