Mortgage Matters

peppersI’ve been really impressed with a daily column (blog?) by Holden Lewis put out by Bankrate that discusses issues related to mortgages.

I find the section he gives on the numbers to be particularly useful in putting a little perspective on how (and why) mortgage rates are changing.

If you in the market for a home loan (refinance? new home?), a few minutes reading his site could quickly bring you up to date on current market conditions.

The miracle mortgage? or not?

Bison GrazingInterest-only mortgages are all the rage right now… Money magazine claims that as many as 70% of new home loans are interest only (in hot markets).
Here’s how money magazine descibed the workings of an interest-only loan:

What people commonly call an interest-only mortgage isn’t one particular type of loan. Rather, interest-only is an option that can be attached to any mortgage.

And in every case, after a certain time (usually five, seven or 10 years) the mortgage becomes fully amortizing, and you must pay both interest and principal. Because you’re repaying the principal in 20 or 25 years, not 30, those principal payments are higher than they would have been.

Other than that, the terms are as varied as those on any other mortgage — anything from a one-month adjustable rate to a 30-year fixed. IOs generally have a slightly higher rate (about a quarter of a percentage point) than the same loan without the interest-only feature (one reason lenders like them). But for most borrowers, that’s a small price to pay for the deep savings that interest-only payments represent.

Jack Guttentag (a professor at Wharton) had a much more skeptical (and I think more interesting) article on interest-only loans that dived a little deeper into the history of these types of loans. He describes how interest-only loans were all the rage in the 1920s…

However, the drop in real estate values during the Depression pushed a large proportion of interest-only loans into foreclosure. Lenders switched entirely to fully amortizing loans, and that has been the standard mortgage loan since.

Mr. Guttentag concludes that interest-only loans are “gimmickry, misdirection, and misperception” and that “if you don’t need an interest-only mortgage to qualify for the house you want to buy, it is not the best choice. ”

Of course, this is only one perspective on interest-only loans, but I find it highly interesting. If you are thinking of using an interest-only loan, I’d be interested to know why…

Older Homes Appreciating Faster

Hurley and Patterson CousinsThe Seattle Times had an interesting article that describes how home values of older homes have increased at substantially faster rates than new homes:

New homes may have the latest of everything, but as an investment, a new house simply does not bring the returns that an older home does. Countywide over the past five years, new houses have posted 4.8 percent annual appreciation, while older homes saw about 7 percent. In the past year, new houses appreciated 7.5 percent compared with old houses’ 10.4 percent.

I don’t think many Seattle agents would find this information surprising as most homes as so many of the homes around here have increased in value substantially over the past few years. My experience has been that there is a large subset of home buyers that are looking for homes with character in established neighborhoods. In an area like Seattle with very few new homes being built each year, people are finding ways to fix up old homes in ways that make them shine beyond a typical “old” home.

Most importantly, assuming an old home is located in a nice neighborhood, it is relatively easy to add $100K to $200K through straightforward improvements (update kitchens, build out basements/attics, etc), whereas the opportunity to substantially increase the value of new homes is more limited.

This same report included data on the medium home values for Seattle/King County. If you drill down through their menus, you can find out how many homes were sold in your neighborhood, along with the percent that were new and median price.

Fantastic, spacious, and charming article on Wired regarding the real estate industry!!!

ImagineWired News has an timely article regarding on the real estate industry and provided some examples of situations where professionals (not limited to real estate agents) might not have your best interests in mind. I think they could have taken their limited analysis of “real estate information” a step further. In reality, there is so much real estate information that gets locked up in proprietary databases at the expense of the consumer. And to add insult to injury, even this locked up data is riddled with errors.

“Information can be a beacon, or information can be a cudgel; it depends on who wields it and how. In any transaction, it’s common for one party to have better information than the other. In the parlance of economists, this is information asymmetry. There’s value in asymmetry; it’s the reason why someone, such as a consumer, will pay someone else, an expert, for his knowledge.

Of course, sometimes an expert might manipulate his advantage for his own benefit. If your doctor suggests that you have an angioplasty – even though current research suggests that angioplasty often does little to prevent heart attacks – your first thought won’t likely be that the doctor is using his informational advantage to make a few thousand dollars for himself or his buddy”

While I can’t change the industry overnight, I’m trying to do my small part with gHomes by opening up the data and presenting it in a useful way for my potential clients. Just like most industries, the real estate industry lives and dies by references and referrals. By providing the best possible information and service to my clients, I think I will more than earn my commission (and their future referrals).

gHomes — Seattle Area MLS on Google Maps

gHomesIn my continual quest to give my clients better and more useful real estate information, I’m experimenting with posting the home sale data over Google Maps and I’ve finally got an alpha version ready for limited public consumption. There are no forms to fill out or hoops to jump through, all you have to do is click on this link:

http://www.RainCityGuide.com/gHomes/

Some notes on the the project:

  • MLS data includes all of Seattle, Kirkland, Bellevue and Redmond
  • The coding is not very advanced stuff (I’m not much of a coder at all!), so be merciful in your comments!
  • The database is missing some MLS listings for a variety of reasons and is only updated once a day. Some listings are missing because the agent filled in the address wrong, while other listings are missing because the agent purposefully did not include the address (this is very common on VERY expensive listings)
  • This is meant to be a fun toy to test out the limits of what’s possible in the real estate industry. Please use it accordingly.
  • Make sure you turn on the “Satellite” view
  • The easiest way to zoom in on an area is to select and icon from that area and then use the scroll bar to zoom into it!
  • Initially, I plan to update the data on a daily basis

Other great google mapping sites include:

Improvements I’d like to make:

  • Add higher quality aerial images a la DASNET
  • Add condos
  • Provide a link to additional listing information directly from google minipages
  • Add more areas in the Puget Sound

Thank you Louis, Ken, Phil and Paul for your help and inspiration!

Of course, if you are interested in seeing any of these homes (in person!), just let me know! Enjoy!

http://www.RainCityGuide.com/gHomes/

Commuting in Seattle

[photopress:wroll07.jpg,thumb,alignright]I just found a nifty tool on the Washington State Department of Transportation’s website that allows you to calculate your commute time if you live in the Seattle area. If you are interested in how long it should take you to get to/from work from your potential new home, this will give you a pretty good feel of how long it will take to drive!

This got me thinking about all kinds of commute-related issues for Seattle area residents. Here is some of the commute-related info I dug up:

Trip Planner
For comparison purposes, King County Metro’s Trip Planner allows you to estimate how long it will take to commute via transit. Not only that, but the trip planner site will also tell you what routes to take!

Commute Costs

Finally, Metro also provides a commuting cost calculator that allows you to estimate the cost of driving vs the cost of commuting via transit. Of course, the calculator is biased toward convincing you to take transit, but it is none the less interesting to see all the costs of commuting.

The Future of Commuting to Downtown Seattle

My recomendation? If you are thinking of relocating to Seattle for work (and you are going to be working Downtown) then make sure that there is a convinient transit line that will get you to downtown. The daily grind of sitting in Seattle traffic will likely wear you down. Especially as traffic conditions in Downtown Seattle are likely to get much worse before they get better.

Why do I think traffic going to get worse before it gets better?
There are a bunch of plans in the future to improve the transportation network in Seattle. Ten years out, things should be much improved. But until then:

  • a major highway running through downtown (Alaskan Viaduct) will need to be rebuilt
  • a monorail line will be built in Downtown along 2nd Avenue
  • the I-5 reconstruction project calls for rebuilding parts of I-5 through Downtown
  • the transit tunnel (that runs under downtown) will be closed to construct a light-rail line forcing hundreds of buses a day on to Downtown Streets
  • SR 520 will need to be rebuilt

(Dustin’s bias: As an employee of DKS Associates, I’ve been paid to do transportation consulting for three of these five projects)

Am I missing something?

The good news is that a lot of money was just allocated to pay for some of these improvements, so while there will be some down time in the near future, the long-term prospects look very good for Downtown Seattle!

Choosing the Right School

[photopress:banker_1.JPG,thumb,alignright]While 10 public schools will be closing in Seattle in next year, there are still lots of great options for education in Seattle. I would highly recommend checking out the Seattle Times School Guide and in particular the article on choosing the right school for you. .

The site has links to just about every public and private school in Seattle, although I noticed that the site didn’t include the Bright Water Waldorf School (which is the school my daughter attends!).

Title and Escrow. What do they do?

Rick's HouseThe title and escrow companies are two important players in a real estate transaction. Are you wondering what they do?

A title company provides you with an insurance that guarantee that you are receiving real property in exchange for your money when you buy real estate . Title insurance guarantees that the the ownership of the property you are buying is just as stated in recorded documents.

Whenever you buy any real estate , you expect to acquire use of the property as well as the property “title