I’d agree absorption rate should be looked at, in part because you don’t know what the market will be like when you want to sell. But I don’t agree with the last part. If market prices in an area are volatile they will be volatile up and down. And if the absorption rate is bad, prices will be volatile downward.

Take Magnolia. I haven’t run absorption rate numbers, but just from my memory of the listings, I’d guess they’re pretty bad. And prices have been falling significantly In a hot market those prices would probably rise faster than prices in an area with a low absorption rate.

So, a low absorption rate now would mean you’re more likely to sell at any point, but that you might not get the same appreciation going forward.

All that said, I’m not sure worrying about future appreciation is the best basis on which to buy a house. Using Magnolia as an example, I wouldn’t buy there hoping for great appreciation. I’d buy there if I actually wanted to live there! That in my mind is the more important part of the process. The low absorption rates would be a concern, and I’m not sure that would be outweighed by the potential for greater appreciation in the future.

I like listening to your podcasts on the Optimistic Bear. You might want to take out the stock wording on the “About” page.

This is the loud siren sound of deflation. Who wants to buy a depreciating asset even if the interest rate is 0%? Just look at Japan. They’ve had EXTREMELY low rates for almost 20 years, yet that hasn’t done much at all to stoke inflation. Tokyo area homes are still some 80% less than they were during the ‘89 peak.

I have a podcast that explains why low mortgage rates are something to fear. http://msurkan.podbean.com

There’s never been a better time…to buy in the best area you can afford. Defining best area = lowest absorption rate. A market that can hold it’s own in the worst of times also rises more in the best of times.

Frankly, at conventional loan levels, no one. I haven’t had a discussion about ARMS in many months, at the conventional level.

The advantages of an ARM these days (for conventional loan sizes) is nowhere near enough to compensate for the additional risk.

However, the difference in pricing for Jumbo loans (between ARM and fixed) is such that it would be irresponsible NOT to discuss those options with borrowers.

There’s considerable debate whether today’s conditions and policies are going to lead to catastophic inflation or deflation, or neither.

I’ll make my bet on the inflation side, and substantially higher future 30 yr fixed rates, but no prediction on exactly when that occurs.

I’m certainly advising anyone that can qualify, to get into a fixed rate now.

That should be part of the questions on a mortgage application: “Are you interested in an ARM?”

If they answer yes, that should then be a bigger disqualifying factor than answering: “Have you ever filed bankruptcy?” or “Have you ever had a property foreclosed?” Yes answers to those other two questions could be explained.

Makes me wonder what things will look like in these areas once the Alt As and Prime Arms start resetting.

Question for Roger:

Who on earth would be interested in an ARM loan at all these days?

We may have a different definition of spread.

To be more specific regarding my definition: I am talking about the differing costs of money to the borrower from different lenders at different terms, not what the broker is charging.

Par rates for Jumbo loans are all over the place in wholesale. Here is just one example, and by no means the most expensive, or the least .

A major lender is offering rates using the smallest discount points available charged, but no payment to broker from lender, assuming good credit, purchase, 80%LTV, as follows

30 yr fixed, conventional ($417K) 4.875%
30 fixed, jumbo conv ($506K) 6.75% (.5 pts)
30 yr fixed Jumbo ($506 and up) 7.875% (.5pts)

A different lender is offering

5yr ARM 5.125% (.125),

assuming good credit, purchase, 70% LTV (80% not available from that lender at any price, nor is a 30 yr fixed), loan amount up to $850K.

I’m not saying that someone should pay 7.875% for a fixed Jumbo loan, I’m simply saying that is what at least one major lender is charging. I cannot imagine that they have many takers.

It is a market with very uncertain rules, right now.

Bring back Olga!

Seattle or Eastside? I’ll give you a few tips, but those for Seattle are different than Eastside, so point me in the right direction.

“Charm” can be hard to come by in any new construction at reasonable cost, not just townhomes. Owners can add charm with built in corner cupboards, built in storage/window seats in bay window areas. Recently saw a condo in Bellevue Manor with arched cutout in the dining area wall recessed slightly into the closet in the next room. Some amazingly creative small touches can add “charm”. On a large stair turn landing you can add a fake window with lighting behind it.

Small improvements create big charm and set your townhome apart as different. In a sea of all the same…a little imagination goes a long way at little cost.