Conforming ARMs From 2004-2006 Are Adjusting To 3 Percent

When a mortgage applicants chooses an adjustable-rate mortgage over a fixed-rate one, he accepts a risk that -- at some point in the future -- the mortgage's interest rate will rise. Lately, though, that hasn't been the outcome.

Since mid-2010, conforming mortgages have adjusted below their initial "teaser" rate consistently, giving homeowners in New York and nationwide reason to ride their respective adjustable-rate mortgages out.

For example, this month, conforming 7-year and 5-year ARMs are adjusting near 3.011 percent based on the most common loan terms of 2004-2006. It's because of how adjustable-rate mortgages are structured.

Adjustable-rate mortgages follow a defined lifecycle. First, the ARM's mortgage rate is pegged; held fixed for a set number of years. This period ranges from one year to 10 years; periods of five and seven years are most common.

When the initial fixed-rate period ends, the mortgage rate then adjusts based on a pre-set formula. The formula is established by contract in the mortgage closing paperwork, and is commonly defined as:

(Adjusted Mortgage Rate) = (2.250 percent) + (Current 1-Year LIBOR)

Next, every 12 months, based on the same formula as above, the ARM adjusts again until 30 years have passed and the loan is paid is full.

It's important to recognize that in the above equation, LIBOR is a variable so as LIBOR goes, so goes your adjusted mortgage rate. And because LIBOR is ultra-low right now, adjusted mortgage rates are ultra-low, too. LIBOR is expected to stay this way until the global economy has recovered more fully. Analysts predict a higher LIBOR by mid-2012.

So, if you have an adjustable-rate mortgage that's due to reset this season, don't rush to refinance. For at least one more year, you can benefit from low rates and low payments.  As for the next adjustment, though, that's anyone's guess.

What To Fix Before You List

With housing prices down across the country, there are a lot of homeowners in Greece barely breaking even on their respective home sales. Some are even losing money.

You may find yourself in that position, too; wanting to sell, but worried about bringing cash to your own closing.

It creates an interesting dilemma. You want your home to "show nicely" relative to comparable properties, but you don't want to invest big dollars that may never be recouped into upgrades or renovations. So what do you do?

The answer is simple. Do the bare minimum.

From an advice piece in the Wall Street Journal, we learn of 10 basic home improvement projects that will help your home have better showings. The advice requires almost no technical skills, and the projects be tackled in a weekend.

The theme? Handled your home's delayed maintenance.

1. Repair or remove screen doors with holes and tears
2. Pressure wash windows, sidewalks, and siding
3. Paint your front door and polish the doorknob
4. Pull weeds, seed bare spots, and lay down mulch
5. Touch up holes, dings and cracks in paint
6. Clean grout and re-caulk sinks, bathtubs and showers
7. Buy new cabinet hardware
8. Fix leaky faucets and toilets
9. Spray lubricant on squeaky doors
10. Get clutter into storage and out of the way

Now, you'll notice that none of these projects can be considered "major". By contrast, each is minor; they're the items you'd add to your to-do list for work on "another day". However, they're extremely important for a home that's about to be listed.

Here's why. A prospective buyer doesn't notice that the above repairs were made. He only notices if they weren't made. When a buyer sees ripped screens or chipped paint in your home, it makes him wonder what else hasn't been cared for. This is the why you should also hire an exterminator prior to selling your home. If a buyer spots a trail of ants in your home, it's unlikely you'll get an offer.

You don't need to spend big bucks to get your home ready for sale, but you may to use apply elbow grease. The good news is that time spent up-front can be worth it in the end. Homes that show better tend to sell faster, and at higher prices.

Getting More Educational Bang For Your Housing Buck

A recent joint report from Forbes and GreatSchools debunks a powerful myth in housing. There's little correlation between Public School Quality and the Median Price Point for a home.

In other words, the most expensive districts don't always have the best schools. And spending per pupil seems only loosely correlated, too.

The study, titled America's Best Schools For Your Housing Buck, puts tiny Falmouth, Maine at the top of its 2011 list.

Falmouth is a city of less than 11,000 people, and its school system educates roughly 2,000 children. With a median home sale price of near $350,000, Falmouth is the only city to score a 100 on the Forbes/GreatSchools list.

The complete Top 10 Best Schools For Your Housing Buck list follows:

1. Falmouth, ME (Score: 100; Median Price: $351,550)
2. Mercer Island, WA (Score: 99.12; Median Price: $708,740)
3. Pelle, IA (Score: 98.25; Median Price: $148,200)
4. Barrington, RI (Score: 97.96; Median Price: $296,010)
5. Bedford, NH (Score: 97.96; Median Price: $293,730)
6. Manhattan Beach, CA (Score: 97.69; Median Price: $1,278,980)
7. Moraga, CA (Score: 97.69; Median Price: $722,010)
8. Parkland, FL (Score: 95.98; Median Price: $426,390)
9. St, Johns, FL (Score: 95.98; Median Price: $181,700)
10. Southlake, TX (Score: 95.74; Median Price: $476,880)

One reason why Falmouth, Maine, tops this list is because the area's Unemployment Rate is low, and so is Teacher Turnover -- just two teachers have left for jobs in other districts since 1998. In fact, each of the ranking cities boast similar strengths.

To see the Top 10 areas in a variety of price ranges, visit the Forbes website.

Foreclosures And Short Sales Distorting "Home Price Trackers"

In an echo of February's Case-Shiller Index report, the government's own home price-tracker -- the Home Price Index -- showed home values slipping between January and February 2011.

The Federal Home Finance Agency data had home values down 1.6 percent nationwide in February, on average, marking the fourth straight month in which prices fell. 

Furthermore, all 9 regions posted losses from the month prior:

• Mountain Region : -3.7% from January
• East South Central : -0.6% from January
• South Atlantic : -0.9% from January
• New England : -2.0% from January

Before you draw conclusions, however, note that the data at which we're looking has several major flaws to it.

First, it's old. We're now in the first week of May and the FHFA's most recent release only covers through February, a time period ending roughly 60 days ago. That's a long delay and today's purchase market in Rochester looks much different from the one of February. 

Just ask a real estate agent and they'll tell you -- purchase activity is rising.

Second, the FHFA Home Price Index reports on home value changes between consecutive Fannie Mae or Freddie Mac-securitized transactions only. This might be creating an overweight of "distressed properties" in the index which, in turn, drags down valuations.

Distressed homes account for 40% of all home resales and typically sell at 20 percent discounts.

And, lastly, although the Home Price Index is a national report, real estate as a market is decidedly not national. To the contrary, it's extremely local. As an individual, you don't buy, sell or own homes in all 50 states. You buy them in a specific state, and a specific neighborhood. 

The national data is useless to you in that respect.

We can't discount the Home Price Index data entirely, but should remember that it paints a clearer picture of where housing has been versus where housing is going. As a home buyer or homeowner, it's the future of home values that matters more.

Job Growth Returning To "Normal" Levels -- A Bad Sign For Mortgage Rates

Be prepared for Friday morning. Mortgage rates and home affordability could worsen quickly. At 8:30 AM ET, the Bureau of Labor Statistics releases its April Non-Farm Payrolls report and momentum has been strong.

The monthly jobs report is a market-mover and analysts expect that 196,000 new jobs were added last month. If those expectations are exceeded -- by even a little -- Wall Street would take it mean "economic strength" and the stock market would be boosted.

Too bad for rate shoppers, though; a move like that would also lead to higher mortgage rates throughout New York. This is because, coming out of a recession, reports of economic strength tend to push mortgage rates up. We've seen it happen multiple times in the last 8 months.

Since losing more than 7 million jobs between 2008 and 2009, employers have added 1.3 million jobs back to the economy. And we're learning that there's plans for fewer job cuts in the future. It's clear that the jobs market is improving and this is why tomorrow's Non-Farm Payrolls report is so important.

A "weak economy" helped keep mortgage rates low for a very long time. A strengthening economy will reverse that tide.

So, consider your personal risk tolerance today, in advance of tomorrow's Non-Farm Payrolls report. If the thought of rising mortgage rates makes you nervous, call your loan officer and lock in a rate today. Once tomorrow's data is released, after all, the market might look changed.

How To Screen For A Good Home Contractor

Home remodeling projects are expected to top $130 blllion this quarter, their highest total since Q1 2008. A likely catalyst is that the average cost of a home improvement project is falling fast.

With the economy loosening up and contractor costs on a downswing, some in Greece homeowners are choosing to put money back into their respective homes, and making home improvements. If you're among them, you'll want to make sure you've properly screened your contractor. 

In this 4-minute piece from NBC's The Today Show, you'll learn tips for picking a good home contractor. The advice is mostly common sense, and worth heeding. For example:

• Only select registered/licensed, and insured contractors for work in your home
• Don't automatically select the lowest bid; you may want to discard it instead
• Communication skills matter. You must be able to express your wants, and have that message understood.

And lastly, if this is your first time working with a particular contractor, be sure to ask for references and follow-through on them, too. Sometimes, past customers can tell you more about a contractor than you can learn yourself.

Geopolitics Have Mortgage Rates Poised To Change

Among the most challenging aspects of shopping for a mortgage is how rates change constantly. It's hard to pin them down.

For example, in 2011, mortgage rates have expired every 3-and-a-half hours, on average. That's fast.

There's two main catalysts for changing mortgage rates.

The first can be grouped as "scheduled events"; the planned release of market data which includes the Existing Home Sales report, or a scheduled government statement such as when the Federal Open Market Committee meets. When the outcomes of these event-types either exceed, or fall short, of Wall Street's expectations, mortgage markets react.

Home buyers and rate shoppers in Rochester realize this as higher (or lower) mortgage rates.

Then there's the other type of catalyst -- the "unscheduled event".

Unscheduled events take many forms and are often called "surprise developments". The Federal Reserve's plan to inject $750 billion into mortgage markets in 2009 was one such surprise. Most geopolitical events fall into this category, too. 

Unscheduled events are often unsettling to Wall Street because investors don't have specific contingency plans for them like they would if, say, this month's jobs report comes back exceedingly strong. For example, investors didn't expect North Korea to fire missiles over Japan in 2008, nor did they expect a volcano to erupt in Iceland last spring.

When unscheduled, unexpected events occur, the market's first -- and natural -- reaction is to scramble to make sense of it. Mortgage rates get jostled as a result and can take days to settle back to normal.

We're experiencing an "unexpected event" right now.

In response to Sunday's evening's presidential address, markets are now upended. The dollar is strengthening, oil prices are falling, and stock markets are rising. Each of these items are altering mortgage rates across New York. 

Even today, markets remain unsettled.

Therefore, if you're shopping for a mortgage rate, keep one eye on the news and the other on the rate-lock trigger. During periods of unexpected activity, mortgage rates can change quickly so be ready to shop, and be ready to lock.

Mortgage markets wait for no one.