I mentioned in yesterdays Market Memo that although the Fed lowered it’s rates by 1/2% it didn’t seem to change long term mortgage interest rates.  In fact, fixed mortgage rates went higher last week.

Howard Nugent at Wells Fargo sent me two interesting articles with a little better explanation about how mortgages work and what causes the interest rates to rise and fall.  The Fed And You, and Mortgage Saga are excellent informative articles for anyone looking for a mortgage or helping someone else to find a loan on their home.

If you are looking for a home…give us a call.  If you call 907 373–0999 it will ring on Jay’s cell phone and my cell phone at the same time.  You get whoever picks up first…try it.

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An important guage of housing prices in any area is a comparison of the average sales price to the average income in the area.

The closest figure I could find was $56,084 as a median income for the Matanuska-Susitna Borough as a whole in 2004. So I am making a couple of assumptions to come up with a working figure.  First, I assume that the household income is higher now than in 2004 and, second, that it is higher in Wasilla and Palmer than in the whole borough. 

Let’s use $60,000 for an average household income, I think that it is a reasonable number…plus, it’s nice and round.  For you in the Mensa Society, I do realize that median and average are two different things. 

$60,000 divides nicely into $5000 of income per month.  If we use the old standard that your monthly housing payments, (PITI), should be 30% of your monthly income or less, that leaves $1,500 per month to pay your Principle, Interest, Taxes, and Insurance, (PITI).  This 30% standard has been stretched in recent years but it is a good safe standard to use.  Pushing beyond that amount often puts people into financial difficulty.

Taxes are running at about 13 mils which equates to $1,300 for every $100,000 of assessed value, or about $2,990 for the average Wasilla-Palmer home.  You can check out the taxes on any particular house on the Mat-Su Borough website. 

As you can see from the following two charts, (click on them to expand), the average sales price for Wasilla and Palmer is about $230,000

.

You should be able to get insurance for about $900 per year for an average house in Wasilla or Palmer. 

That equals $3,890 for taxes and insurance…plug it in to the mortgage calculator in the right column.  You need to put the total amount for taxes and insurance in the tax slot.

The default on the calculator is 6.5% interest on a 30 year fixed loan.  Don’t choose anything but a fixed loan unless your have very good reasons for doing so.  You might be able to get a little better than 6.5% if you shop around.  I mentioned an attractive quote just the other day in this post.

That equals a monthly PITI of $1770.93…oops…a little high.  If you get 6% interest you can get it down to $1703.14 but you are still high.  Play around with the mortgage calculator and you can find a price that equates to our magic 30% of monthly income figure of $1,500 per month.

Depending on how you play with the numbers the average price for the average household should be between $190,000–$200,000.  Hmmm…no wonder most of the sales are under $200,000.  But we certainly aren’t as high on the affordability scale as many parts of the country are.  A starter home in Los Angeles for example is higher than $500,000 with an average household income of only $75,000.  No wonder their prices are coming down to reality so quickly.

Can you get a house in Palmer or Wasilla for $200,000?  You certainly can.  Jay and I recently did a final walk-through on a just completed brand new three bedroom, two car garage home that we recently helped someone buy in Palmer for only $175,000.  We both commented on how nice a home it was for the price.

Here’s a nice one on one acre for $179,900.  You can get a lot of house for less than $200,000. 

Give me a call on my cell (907) 232–7900 if you need help finding a home.

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USA Today recently published a state-by-state comparison of mortgage delinquencies and foreclosures.  Some of the other states are seeing loans go delinquent at a rate that is 2–3 times higher than Alaska. 

I had a loan officer tell me this week that they need to provide more documentation than they needed previously to complete the loans. That has held up a few loans and caused us to extend closings, but they are still closing. 

Alice Roe of US Bank mentioned that the volume of loans at US Bank is increasing due to closure of many mortgage brokers across the country.  Their current rates, (as of today), are 5.875% for a fixed 30 year note with a 1% loan origination fee.  You can get a 0% loan origination fee at 6.25%.   Those are some of the best rates I have seen for awhile. She has an online loan application here.

Dave Johnson at Fishhook Realty, sent me a link to this article by Peter Toner in San Diego.  In it, he recommends ensuring that you are working with quality professionals from quality companies.  It is in these kinds of times that the solid companies do well. 

Speaking of quality: I have mentioned before some of the experienced lenders here in the Matanuska Valley.  These people know what they are doing and will point you right.

• Alice Roe: US Bank
• Jo Oxentenko: Wells Fargo
• Howard Nugent: Wells Fargo
• Annemarie Weiland: Residential Mortgage

This is not an all inclusive list.  There are other good lenders in the valley as well and I will add to the list later.

By the way, I know a quality Realtor:  You can call him on his cell phone at (907) 232–7900.

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I often talk with people who are interested in purchasing “fixer-uppers” as an investment in Wasilla and Palmer. 

Problem is, usually these properties are so degraded that they don’t qualify for financing and the investor is stuck in a catch-22.  It is the kind of house that you can make money on, but you need cash to purchase it.

I recently discovered from Jo Oxentenko that the rehab loans work for investors as well. I thought these loans were only available to people that were going to occupy the home themselves but she informed me that investors can use them as well.

The difference is that there can be no self-help on the investor loans.  That means that you will need to have all the rehab work done by a qualified third party, not yourself.  One of the most successful rehab investors that I know never does any of the work himself other than the basic clean-up.  He makes good money on almost every house.

How do you find these houses?  Well, that’s one in the upper left photo.  Only $115,000 on one acre.  It needs a little TLC but someone could make some money on it.  Here is the info if you want to do a drive-by.

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I want to thank Kirsten Forbess or Alaska USA Mortgage in Wasilla,(907–352–8306), about this information on Mortgages.  It is a good reminder that most people have mortgages on their homes and that most people are not having any trouble paying their mortgages.

I had heard before that 35% of people owned their homes outright but hadn’t thought much about that.  Those people have a solid position to weather tough financial times.

Some of these facts almost seem to contradict one another.  One fact says that there is not evidence that there is no evidence that hybrid ARMs, (adjustable rage mortgages), are a cause of increased foreclosure rates, while another says that nonprime borrowers have always had a higher foreclosure rate and that they have a higher share of ARMs.

Still, investor analysts are blaming poor performing lending institutions for a slide in world wide stock markets.  We all know that they need to name something and that a higher than normal home foreclosure rate is likely only one cause of the current stock market woes.  That doesn’t mean it won’t affect buyers as they shop for homes. 

Buyers will have fewer choices in loan programs and many will have to put up higher down payments than they would have a year ago.  But people need to live somewhere and I believe that it is generally better to own rather than rent your home.  I will discuss that issue in a future article.

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Just a couple years ago I had a loan officer tell me that she almost never had to turn down a prospective home buyer.  There was almost always a way for her to get a loan for a borrower. 

If all else failed, there was always the so called “liar loans”.  These no documentation loans went entirely by the buyer’s credit report and by their statements.  If they needed to have a certain income the lender would ask them if they made that much…wink, wink.  They nodded and were off to the races.

Many loans were given to people with poor credit or with no documentation of income. Now, because these borrowers have not been making payments the lenders are losing big money.  Some of them have already gone “belly up”.  Others are in serious trouble. 

Many lenders have stopped doing anything close to sub prime loans.  If people don’t have decent credit and a down payment, they will have a more difficult time getting a loan. 

Alice Roe of US Bank discussed the situation with me recently.  She said that she feels a negative momentum building.  She feels that funding sources will dry up for many mortgage brokers. 

Some of the larger lenders, like her US Bank, Wells Fargo and others will likely continue to offer a wide variety of programs.  But they will be much more conservative than they have been in the past.

One has to wonder even about Countrywide, one of the biggest national mortgage lenders.  It’s Chief Executive Officer just exercised his options for 92,000 shares and then sold them all for $28+ apiece.  I wonder what he knows…he should know a lot.  Obviously he thinks it’s a good time to sell. 

Other parts of the country are experienced more serious real estate woes than we are seeing in our area.  We still have buyers, we still are selling houses.  In fact, we are about as busy as we can possibly be.  I believe Alaska will continue to have a relatively healthy real estate market as long as we continue to pump oil and the oil prices continue to be high.

The Mat-Su Valley is actually witnessing a boom in retail construction right now.  These stores will bring in a lot of retail jobs which helps our local economy. These people will all need places to live. Whether they live in a rental unit or a house makes very little difference, it still brings more dollars into our local economy.

If the Alaska economy holds together at all, the Matanuska Susitna Borough will continue to grow.

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