Steven Kruschke

By Dian Hymer

Why agents, appraisers have upper hand over industry reports

Getting an accurate sense of the current market value of your home is more of an art than a science. If you live in a housing development where all the homes are similar to one another, it's easier to establish value than it is if you live in an area with extreme variability in home size, style, quality, amenities and condition.

To add to the mix, the real estate and finance markets are continually changing. As these markets change, so does the value of your home.

The statistics quoted in the media don't offer much help in terms of understanding the current value of a single home. The National Association of Realtors (NAR) tracks the sales of existing homes in terms of median sale price. During a period of time, half the homes sold for more than the median price, and half sold for less.

When the median price increases, this can reflect higher overall home values. Or, it can simply mean that more expensive than inexpensive homes sold during a period. This was the situation in San Francisco last year when luxury properties outsold starter homes.

A decrease in the median price usually indicates that more inexpensive than expensive homes sold during that period. Many foreclosure properties are in the lower price ranges. In areas where the median sale price is declining dramatically, a higher volume of lower-priced foreclosure sales could be a contributing factor.

Regardless of price range, foreclosures tend to sell for about 15 percent below the rest of the inventory, according to Andrew LePage, an analyst with DataQuick Information Systems, a real estate information service.

HOUSE HUNTING TIP: Changes in median price at the national level gives you little information about changes in home values in your area. According to NAR, the national median sale price of existing homes declined 7.7 percent in March from a year ago. The California Association of Realtors reported that the median sale price of homes in the San Francisco Bay Area was down 10.2 percent from March 2007.

DataQuick came up with a different number. According to DataQuick, the median price of resale homes in the Bay Area declined 20.4 percent in March from a year ago. However, in Contra Costa County, one of the nine counties that comprise the Bay Area, the median sale price dropped by almost one-third from a year ago. This was attributed to that fact that 44.7 percent of the sales in March were foreclosures.

The S&P/Case-Shiller Home Price Index uses a different method for measuring changes in the housing market. Rather than report changes in median sale price, S&P/Case-Shiller uses a repeat sales method that compares sale prices of individual homes that have sold at least twice over a period of time. This is thought to be a more reliable way to assess actual changes in market value. Corrections are made for such things as major renovations and deferred maintenance.

According to Robert Shiller, a Yale University economist who pioneered the S&P/Case-Shiller Home Price Index, home prices have declined 25 percent in the Bay Area since the market peaked in May 2006. Interestingly, Bay Area homes priced below $513,218 dropped 33 percent since February 2006. Higher-priced homes, above $756,420, declined only 6.8 percent.

The residential housing market is so localized that you need to consult with local professionals to get a realistic gauge of the current market value of your home. One approach is to have your home appraised by a knowledgeable local appraiser.

THE CLOSING: Or, have a local real estate agent who knows the market well prepare a comparative market evaluation for you.

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By Dian Hymer

Consider long-term plans, inflation before taking leap

Borrowers assumed when the conforming loan limit increased from $417,000 to $729,750 in high-priced areas like New York City, Los Angeles and the San Francisco Bay Area that lower rates on jumbo financing would follow. Unfortunately, the conforming jumbos (also called jumbo lights) were initially priced considerably higher than the conventional conforming loans.

For example, on May 2, 2008, a $417,000 conforming loan was available with a 5.38 percent interest rate and one point. Points is the term lenders use for the loan origination fee. One point is equal to 1 percent of the loan amount. At the same time, a jumbo light was priced around 6.25 percent and one point.

Mortgages are offered with or without points. The mortgage interest rate will be about one quarter percent lower if borrowers pay one point than it would be if they paid no points.

On May 8, pricing on the jumbo light conforming mortgages was brought in line with the conventional conforming loans. This is good news for both home buyers and homeowners who need to refinance.

A 30-year jumbo light fixed mortgage was offered at 5.625 percent and one point and 5.875 percent with no points on May 9. Conforming loans in amounts to $417,000 were offered for the same interest rate, with a 1/4 or 3/8 percent discount on the origination fee.

Nonconforming jumbo financing is still running about 7 percent. With the recent rate reduction on conforming jumbos, borrowers searching for larger mortgages will be able to achieve a lower blended rate by combining a $729,750 conforming first mortgage with a home equity loan of up to $500,000 with an interest rate as low as 5 1/8 percent.

Homeowners who purchased four to five years ago using a fixed ARM mortgage product have been worried about refinancing in today's difficult financing arena. It was anticipated that when the mortgage reset from fixed to adjustable, much higher mortgage payments would follow.

Fixed ARMs are mortgages that have a fixed interest rate for a period of time (often three, five, seven or 10 years). At the end of this period, the loan converts to an adjustable-rate mortgage (ARM) with an interest rate and monthly payments that fluctuate. ARMs are tied to an index, which is a cost of funds. A margin -- usually in the 2-6 range -- is added to the index rate to determine the current mortgage rate.

HOUSE HUNTING TIP: Many fixed ARMs are tied to either a Treasury or London Interbank (LIBOR) index. Thanks to the Fed's rate-cutting campaign, these indices are relatively low today. You may find that it makes more sense financially to keep your mortgage for now even though it converts from fixed to adjustable, particularly if you plan to move soon.

On May 8, the 1-year LIBOR rate was 2.99 percent. If your mortgage reset on May 8 to an ARM that was tied to the 1-year LIBOR and had a 2 percent margin, your interest rate would have adjusted to 4.99 percent.

To find out if it makes sense to refinance or not, look at your note. It spells out the terms of the loan such as the interest-rate adjustable schedule, the index that your interest rate is tied to and the margin. Your lender can provide you with a copy of the note.

There are risks involved in waiting to refinance. If market values decline, your home might not appraise for enough at a later date to pay off your existing loan balance. Also, the Fed is watchful for any indication that inflation is getting out of hand.

THE CLOSING: If inflation fears rise, the Fed will stop lowering interest rates, and could start increasing them again.

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