QUESTION: For the last 12 years, I've sold houses as a real estate agent. So far, 1989 has been my best year ever for sales commissions. In fact, I've earned more in 1989 than I earned in 1988, which was a record year for me. Although interest rates were higher a few months ago than they are today, my sales volume was better then than now. I've noticed a slowing down within the last few months. As one of your avid readers, I know you religiously stay away from predicting interest rates and I respect you for doing so, since the economists are often wrong, but how do you think declining mortgage interest rates will affect home sales and home prices?
ANSWER: You asked the million dollar question. If I or anyone else knew the answer for sure, we would be retired and living on Easy Street.
The general rule is when mortgage interest rates decline, home prices rise. The reason is that more prospective home buyers can afford to purchase homes. But, just to confuse the situation, the economy is slowing down.
However, additional factors become important. For example, you said the first six months of 1989 have been very profitable for you. Spring is usually the strongest home buying season and, although mortgage interest rates were high, it was a good selling time in most cities. However, now we are in the summer season when buyer demand normally drops.
Home buyers currently have the advantage of more affordable mortgage interest rates and less competition from other prospective buyers than just a few months ago. As a perennial investor in single-family homes, I think lower interest rates will result in more houses coming on the market for sale, due to a variety of reasons, such as move-ups and profit taking.
However, I don't expect price reductions, because home sellers are very resilient and they usually won't sell unless they can get their price. The exception, of course, is the motivated seller who must sell and will accept any reasonable offer.
To summarize, lower mortgage interest rates will enable more people to buy homes, home values should stabilize even though the economy is softening and the next few months should be a great time to buy a home.
Offer Mortgage as a Down Payment
Q: When we sold our home a year ago we took back a $30,000 second mortgage at 10% interest. Since then the payments have come in from the buyer on time every month. But we want to buy some investment property. We tried selling our mortgage but the best we can get is only about $24,000. I hate to see us take a $6,000 loss. Yet, there is no other way we can raise cash for a down payment on investment property. Any ideas?
A: That's easy. Instead of selling your mortgage at a discount, offer it at the full face value as down payment on an investment property. If the seller won't accept it, sweeten your offer with a little cash. This technique is called "lemonading."
Public Adjuster Can Help With Insurance
Q: A few weeks ago you wrote about not over- or under-insuring homes. I fully agree the amount of the mortgage balance has nothing to do with the replacement cost of the home if it were destroyed by fire. But I wish you had gone further to expose how unfairly some insurance companies treat their customers.
Last spring our home was heavily damaged in a strong wind and rain storm. Shingles were ripped off the roof and we also suffered flooding damage. I realize flood damage is not covered by homeowner's insurance. But our insurance company tried to argue that the water damage which originated at the roof was caused by flooding. Although we have been insured with the same company and same agent over 20 years, they offered to pay us practically nothing.
Fortunately, my wife knew a public adjuster. He came out, got estimates of repair costs, and negotiated a settlement with the insurance company that was more than $16,000 higher than their initial offer to us. Why don't you mention that public adjusters often can help homeowners receive insurance payments that are far above what the homeowner can obtain alone?
A: Your letter is the first I have received about insurance public adjusters. Most people don't know these folks exist.
But as you know, public adjusters often can help insured property owners obtain a higher settlement than the homeowner can receive alone. Most public adjusters charge a percentage of the insurance payment, but it is worthwhile if the adjuster gets more from the insurer than the homeowner was offered.
However, there is another viewpoint. Insurance companies often feel public adjusters are not necessary. I have never had a need to use a public adjuster because my insurance company has always treated me fairly. However, if I was ever unhappy with an offered settlement I would contact a public adjuster. If he or she couldn't obtain a satisfactory settlement, then consultation with an attorney would become necessary.
Lease-Option With 50% Credit Good Deal