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Thursday, May 13, 2004

Hilton Head Island Home Sales Make Waves

by Blanche Evans

With the exception of the high-end homes, home sales in Hilton Head Island are up significantly, particularly ocean-view properties, say local Realtors.

"Hilton Head Island is a semi-tropical island with a strong primary market as well as resort rentals and investment," says Realtor Chris Spirer. "The market has definitely picked up. We are seeing sales in most parts of the market including the very high end which had been a bit sluggish. Our inventory is down, with less properties available than last year at this time. Buyers, don't wait in hopes of a softening market and don't expect to 'steal' properties. It just isn't happening. Our sellers are patient. Take advantage of the low interest rates and buy now!"

Say Realtors Linda and Gary Mullinix, "What started out as a vacation/resort community has grown into an island filled with diversity. Not only will you find fabulous resort accommodations, golf, tennis, swimming, biking, horseback riding, hiking, shopping, and many of the finest restaurants in the country, you will find a plethora of home styles to choose from. From modestly priced villas, single-family homes of all sizes and price ranges, to elaborately furnished ocean-front properties, it is all available on the island. From small to large, views of all types, and a home to meet everyone's budget, the island's variety of home options is almost unlimited."

They advise, "As the economy continues to improve, and despite a somewhat uncertain stock market, real estate sales have improved dramatically since January. Year-to-date figures show improvement in just about all areas with total sales up around 63 percent over the same period last year. One significant gain is in homesite sales which have improved by 100 percent over last year. Although this equates to only 10 percent of the total market, it is a good indication that confidence in the economy is growing.

"Equity growth in the area continues to be higher than other coastal resort communities," observes the Mullinix team. " Investors in the condominium (villa) market are finding cash-flow problems eased by low interest rates, especially interest only loans. Even if there is some negative cash flow, the return on investment is proving just too good to pass up. Now with low interest rates and aggressive interest-only loans, investors are seeing even more reason to purchase, resulting in lower inventories and rising prices. Premium ocean-oriented properties are in fact significantly up and indicate a strong seller's market.

"In the primary home market," they suggest, "the real winners continue to be the new developing communities on the mainland. In addition to the lower interest rates which attract many first-time buyers, new production homes are showing up, providing a lower entry point. These have proven to be quite successful and sales are brisk. As inventory continues to shrink and the glut of new homes from last year is diminished, prices could move from neutral to an upward trend this year. Homes sales in some of the private golf communities continue to be sluggish and more of a buyer's market. Given the different products offered in this diverse and expanding area, we really have a blend of market conditions, buyer's, seller's, and some neutral. We had anticipated that we would be moving into a seller's market by this time but we are not there yet in spite of strong sales. Inventory is still readily available in most areas."

Explains Realtor Andre Cilliers, "Hilton Head is a sub-tropical resort island community, located just off the coast of South Carolina. The island is regarded as a world-class golf and tennis destination. The number of sales is accelerating. This is a very encouraging trend for anyone wanting to build equity in their real estate holdings. It is also beneficial for a property owner having to sell soon after buying and not being forced to take a loss. If you want to upgrade to a larger home you will likely get a good sale price and will be able to buy much more house at a great new low rate and possibly not even increase your monthly payments."

Published: May 13, 2004

Market Conditions City Reports

Blanche Evans is the publisher of Agent News and the associate editor of Realty Times, the Internet's largest independent real estate news service. She is the author of two best-selling real estate books: The Hottest e-Careers In Real Estate, Real Estate Education Company, an Internet marketing primer for real estate professionals, and homesurfing.net: The Insider's Guide To Buying And Selling Your Home Using The Internet, Dearborn, a consumer homebuying and selling guide. In 2000, she was recognized by the editors of REALTOR(r) Magazines as one of the "25 Most Influential People In Real Estate," and in 2003 when the "Most Influential" list was updated, she was recognized as one of nine "Notables." She is also a frequent contributor to "Your Money" on CNN fn.

Copyright © 2004 Realty Times. All Rights Reserved.

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Taking An ARM When Rates Are Rising? Are You Crazy?

by Henry Savage

Well folks, it appears that interest rates are finally headed north. Since last December, economists have been predicting that interest rates will rise in 2004. Up until only a few weeks ago, the experts have been wrong. Mortgage rates fell sharply in early 2004 but have since spiked up after a series of positive economic news. Last February, thirty-year fixed rates were hovering around 5.50 percent. Today, you might find 6.25 percent.

This is the subject of today's column. Is it unwise to take an adjustable-rate mortgage during a period of rising interest rates? I hear it in the news, I see it in the papers -- "Lock your rate now before it's too late".

Understandably, people tend to press the panic button when interest rates rise. They don't want to be caught with an adjustable-rate mortgage for fear of a higher rate in the future. This makes plenty of sense in some cases, but certainly not in every case. The situation regarding a recent client of mine perfectly illustrates the notion that everyone's situation is different.

These folks just finished remodeling their home in Baltimore. The project took many more months than originally anticipated and cost $30,000 more than their budget, creating a nasty credit card balance.

Here are the basics: The property is worth about $410,000 and their current balance is about $322,000. Their rate is 8.25 (fixed) and they're paying private Mortgage Insurance (MI) of $267 per month. Excluding taxes and insurance, their mortgage payment is $2,686 per month.

These folks come to me with the idea of refinancing to a new lower fixed rate and eliminating MI. I tell them I can lower their rate to 6.25 percent and indeed eliminate the MI. This will save them about $700 per month. It makes plenty of sense, but is it indeed the best plan of action?

Probably not.

The first logical question a loan officer needs to ask before determining the best mortgage program is how long the borrowers plan on owning the property. They tell me that it's very likely that they will sell within five years.

So instead of a fixed rate at 6.25 percent, I suggest a 5/1 ARM at 5 percent. This rate is fixed for the first 5 years and adjusts annually thereafter. If you are going to sell within 5 years, why would you take out a 30-year loan? That's akin to taking out an insurance policy that you know you'll never need.

At 5 percent, they save an additional $255 per month over the next 5 years. That's a total of $15,300.

But this situation requires a bit more analysis. They have racked up $30,000 in credit card debt during the construction of their home. I hate credit card debt -- it has no tax advantages and is generally very expensive. Therefore, this debt must be taken into consideration before making a refinancing decision.

Eliminating credit card debt should always be a priority. So I suggest a monthly LIBOR ARM. This may sound crazy in light of the rising rate environment, but hear me out.

A monthly ARM tied to the LIBOR index (that's London InterBank Offering Rate, and can be explained in a separate column) is currently hovering at about three percent. What's more is that most LIBOR-based ARMs offer an interest-only payment option. The combination between a low rate of three percent and an interest only feature allows for a very low monthly payment. Three percent of $322,000 equals $9,660 per year, or a monthly payment of only $805. This would drop their mortgage payment from its current level by $1,881 per month.

Applying the $1,881 per month to the credit card debt will eliminate it fairly quickly. Moreover, the mortgage balance doesn't rise by $30,000.

The downside? It's a monthly ARM. Two years ago the LIBOR ARM was carrying a rate of about four percent. It has steadily declined since. By most accounts, however, you can expect this rate to start rising.

As I said, obtaining a monthly ARM during a period of rising rates may sound crazy, but let's look at the facts. First, it's a slow moving ARM, meaning the rate is not likely to spike up quickly. Second, with a current rate of about three percent, it has to double before it hits the current fixed rate of six percent. This will surely take a long time, perhaps more than five years. Third, interest rates may rise a bit, but are not likely to skyrocket. And last, my clients will very likely eliminate their insidious credit card debt, thanks to the LIBOR's low rate and payment.

The only thing that history has proven about interest rates is that they are dynamic. When they fall, they will eventually rise. By the same token, when they rise, they will eventually fall.

Published: May 13, 2004

Henry Savage, the president of PMC Mortgage Corporation in Alexandria, VA, is a mortgage columnist whose work has appeared in numerous consumer, real estate, and mortgage publications. Mr. Savage welcomes your questions for possible use in this column, however because of the volume of mail received, Mr. Savage cannot answer questions individually.

Copyright © 2004 Realty Times. All Rights Reserved.

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