Just the other day, one of my clients asked me what I thought would happen with interest rates this year and whether or not she should lock in a rate now or wait a little longer. She is buying a new construction home that will settle in January/February of 2009. To get an answer, I contacted Richard Miller of Capital Mortgage Finance. He lives with this question day in and day out and here are his thoughts:

It's not as simple as stating a number that applies to everything.  There are rates for banks, rates for consumers, some for new, used, personal, homes, etc.  There are many different rates for different items.  When talking about mortgage rates, all lenders follow a similar guide, which is the bond market.  The 10 year and 30 year bond markets are a general guide to where rates will be any given day for a 30 year fixed mortgage.  Of course this rate can change at any time, so trends are sometimes difficult to find.
 
Historical data show that rates tend to move down in a recession and move up when inflation is high.  This coincides with the flow of money via the Federal Reserve in connection with the economy, and whether the economy is slow or hot.
 
Our current situation is unique.  Inflation is rampant with gas and food prices moving upwards, but the economy is slow and house prices have slipped.  At no other point in history have these three things occurred together.  The Federal Reserve is trying to figure out the next move, and no one is sure what it is.  Should rates go down, go up, or stay the same?  Let's look at all three.
 
Go down:  The Federal Reserve has set the Prime rate at one of the lowest levels ever to combat the slow economy and help shore up the financial industry which was hit with too many sub-prime loans and foreclosures.  The lower rates have helped, but rates are very unlikely to go lower, since lowering rates more would make inflation an even greater issue.
 
Go up:  Rates should go up to fight inflation and strengthen the dollar, all things that are hitting the pocketbooks of Americans today.  The down side is that if rates go up, the financial industry will have a more difficult time keeping the money flowing while they're trying to shore up the loan loss side of the balance sheet.  Obviously more expensive money to the Bank means a lower spread.  An unfortunate Catch 22.
 
Stay the same:  This is the likely outcome in the short term up to the Election.  Today and tomorrow (August 5 & 6, 2008) the Fed meets and we’ll have a better idea after they speak.  The best reason for status quo is that in the short term, Banks still need the lower short term funds rate, even though inflation is very high. Gas prices have moved downward by 20% in the last 30 days, which will help the inflation front.  Home prices are still shaky, and mortgage rates already include a risk premium making long term rates for a 30 year fixed fairly steady at @6.50%. 
 
Richard’s best guess is that mortgage rates will hover between 6.50%-7.50% through the election and then all bets are off, depending on who wins in November.

1. Location is number ONE. If you want a premium location on a golf course or on a pond you may find a resale home in a better location than the builder can provide.
2. Quick settlement. You’re ready to move and don’t have to sell another home before you buy. With a resale home, you can negotiate a 30 – 60 day settlement. With a “to-be-built” home, you may have to wait 6 – 9 months.
3. Freedom to choose a mortgage company and settlement company without losing “incentives” from the builder. Often the savings are balanced by higher fees.
4. No construction zone. Builders usually concentrate on one section at a time. If you buy in a section that is already complete, the streets will have the final paving and there won’t be the dirt and noise of construction.
5. Lower settlement costs. Typically, settlement costs are lower on a resale than they are with new construction. In Delaware there is a 3% transfer tax on each and every real estate transaction. On a resale that 3% is split between the buyer and seller; with most new construction, the entire 3% is paid by the buyer. You can also save on surveys and other costs.
6. Punch List complete. Every new home ends up with a punch list at about one year. If you buy a home that is a year or two old, those items have already been taken care of. Even major design flaws or construction errors are generally uncovered and dealt with in the first year.
7. Time to decorate. Builders usually recommend that you wait at least a year before painting or wall papering. That way, any nail pops or repairs that have to be made at that one year mark will be made before you do custom painting.
8. Model or elevation. If you know what model home or specific elevation or floor plan you want to buy, the builder may not have that particular home available within your time frame.
9. Price. In a buyers market, the price you pay for a resale may include a premium lot and upgrades that would cost you more from the builder. And, don’t forget about the expensive blinds and custom window treatments you won’t have to purchase.
10. Choice. When you look at the builder’s models, you may make a decision based on upgrades or décor and then find that the home you can afford looks nothing like the model. With a resale, you see exactly what you are buying and what is around you.

Dual Agency is not as interesting or as mysterious as it sounds. Under the new Statutory Law of Agency, adopted by Delaware in 2007, it is also less complex. First, let's start with an explanation of a brokerage organization and the positions within a typical real estate business.

Brokerage Organization - the company and/or the local office of a national company. For example, RE/MAX Realty Group, Lewes, Delaware, is a brokerage organization. The local office of Coldwell Banker is another brokerage organization but so is the RE/MAX Realty Group in Rehoboth Beach, Delaware.

Broker of Record - the Broker of Record is responsible for the business and all transactions of a specific group of real estate agents. Generally, there is one Broker of Record for each real estate office; however one Broker of Record may be responsible for more than one office. The Broker of Record may or may not be the owner of the Brokerage Organization; within an office there may be several Broker Associates that do business as salespersons.

Designated Agent - an independent contractor working with you under statutory agency as a Buyer Agent or a Seller Agent (Listing Agent). He or she may be a broker or an agent.

A dual agency relationship can exist at one, two or all of the above levels in a typical real estate transaction. For example,

1. If the same salesperson represents both the buyer and seller in a transaction, then that salesperson, his or her broker of record and brokerage organization are all dual agents. This can happen when your Buyer Agent also happens to have a Listing that you want him or her to show you. It can also come about if your Listing Agent finds a Buyer for your home that is not working with another agent. Because the Agent is working with both the Buyer and with the Seller, a dual agency relationship exists at the salesperson level, the Broker of Record level and at the Brokerage Organization level.
2. If the buyer and seller are represented by two different salespeople working for the same broker of record, then the broker of record and the brokerage organization are both dual agents, but the salespersons are not. So, if your salesperson were to show you a home listed by another salesperson who reports to the same Broker of Record, your salesperson remains your “Designated Buyers’ Agent” and the listing salesperson is the “Designated Sellers’ Agent”. Dual Agency begins at the Broker of Record level in this example.
3. If the buyer and seller are represented by two different salespeople working for different brokers of record under the same brokerage organization, then the brokerage organization is a dual agent. This is very similar to the above example, except the Brokerage Organization has more than one Broker of Record.

What does this mean to you? When you become a client in a statutory agency relationship, your salesperson and his or her brokers are bound by a duty of confidentiality. They may not disclose certain information UNLESS the affected party has provided informed consent. For example:

• The buyer is willing to pay more for the property than what has been offered. Your agent may know that you would actually pay more but may only convey that to the seller or to the seller’s agent with your specific consent.
• The seller is willing to accept less than the asking price. The same applies in this case. If you are the seller, your agent may know that you are willing to negotiate and accept less than the price listed but he or she cannot reveal that unless authorized by you to do so.

The next time you ask “Why are they selling?” or “What do you think they'll really take for this property?” remember that your agent may not be at liberty to answer.

If you still have questions, ask your agent for a copy of the Consumer Information Statement (CIS). By Delaware law, you should receive a copy at your first meeting or the first showing of a property.

What was innovative financing in 2005 or 2006 is no longer available today. Interest only ARMs, stated income with a wink loans and no money down options have vanished in the midst of the sub-prime meltdown. Without impeccable credit and an even higher credit score it may be difficult to obtain any mortgage financing; even with it, the rules have changed. What does that mean for the Boomers looking to take advantage of the current market to lock in their future retirement home? It takes a different kind of creativity and a carefully crafted plan to be one of the beneficiaries of this real estate market. These innovative purchase options may be just the incentive you need to take advantage of today's buyer market.

There is always more than one way to make a deal. Many builders of new communities have gone back to the drawing table to find ways to help buyers make a purchase decision. The biggest problem in many cases is the inability of buyers to sell a home elsewhere. A typical home sale contingency doesn’t work when it can take many months to sell a home. So what have they come up with?

Construction Financing. This method of financing is normally used by Custom Builders but it is now being adopted by Production Builders. Instead of a standard contract of sale with 20% down, payment in advance for all upgrades and options and settlement within 60 – 180 days, construction financing can be stretched over a longer period of time. It operates on a draw schedule, with the first draw paying for the lot. During the construction period, you pay interest only on the amount of the total draw to date. You could actually pay cash for the lot and incur no interest payments until construction actually begins. The draw schedule outlines exactly what amount is paid when and the final draw occurs when the house receives a Certificate of Occupancy. At that time, you go to settlement and begin regular mortgage payments on the total amount you financed. The time from initial contract to final settlement may be up to 18 months and the builder hopes that will be enough time for you to sell your current home.

Guaranteed Purchase. At least one builder is offering a Guaranteed Purchase. When I heard it described, it sounded just like a Relocation Package you might be offered in a corporate move. Based on an appraisal, a third party company will agree to buy your home at a pre-determined price if you are unable to sell it yourself. The contract includes a pre-determined sales price at which you will list your home with an approved Real Estate Agent. It also includes specific price reductions over a set period of time until the house sells or the price reaches the bottom price that the third party had agreed to pay.

Lot Purchase. Another option is to negotiate to buy the lot with no restriction telling you when you have to begin construction of your house. There is still a builder tie-in, which means you have to hire the builder who owns the lot or the community when you are ready to build. If you are not yet ready to move or have a house to sell or both, this option allows you to finance or pay cash for the lot and then wait until your house has sold before building your new home.

Before the ink is dry, there will be other new ideas coming from the builders and the mortgage companies. So, if you need to buy time, we can find ways to negotiate just the right kind of agreement that makes it all possible.

Is it time to buy real estate? When there are more properties for sale than buyers buying is often the best time to be a buyer. Prices are lower now than they were 2 or 3 years ago. Interest rates go up and down fractionally but are still historically low; with good credit, financing is available. All of this creates an opportunity to avoid the shoulda, woulda, couldas when the market has rebounded, prices have risen and the best deals are a thing of the past. Don't we all have a parent or grandparent that "could have bought waterfront property for ...". Just fill in the blank. One of my grandparents always talked about the opportunity he let pass to buy lakefront property on Lake Winnipesaukee in New Hampshire for some ridiculously low price. If he had, and if he had held onto it until his grandchildren were grown, we'd all be a little richer or at least we would have a lakefront vacation home.

Right now, you have some great choices in all price points and types of properties. For the first time in years, you can buy an investment property that might generate positive cash flow. First time homebuyers may actually find affordable homes in neighborhoods that had previously been out of their reach. Boomers planning for retirement have a choice of new and resale homes in communities catering to their every whim. So, is it time to buy?