The Summer Spike - How Long Will It Last?

After a dismal real estate winter and very lukewarm summer start......August and September are proving to be quite worthwhile regarding home and land sales in Anacortes and surrounding communities.

Instead of 'working my sphere', which for me would be flying more at the base, I have set aside my instructor hat for some good 'ole new homebuyer education, home viewings and purchases.......With the depreciation tweaks in home values, new tax credits, and low rates.....home buyers have hit the streets and new first time buyers are leading the pack.

Prior to August, typical sales had centered in the below 300k range and vacant land sales were practically non-existent. But the flatline of summer was shocked back into a slow but steady pulse as my phone starting ringing for appointments and website contacts came in from the cyberspace abyss.

With three homes under contract for the month of September alone....I feel this trend will continue at least to Thanksgiving. Buyers have been watching, waiting and viewing the net for the homes of their liking to slowly churn downward in price....then, having been patient, they pounce on them with quickness and decisiveness.....leading to quick negotiations and fast closings. Lenders have been expeditious and accurate and so the real estate world on our quaint northwestern island has come to life.

My question though is for how long? I firmly believe that people will always buy and sell. If rates hike up, prices may come down.....the market always has an answer so that the cycle continues.

With this however, here is my concern....2005/2006 still had quite a few of the option arms being sold to buyers which allowed many to get into homes they otherwise would not have been able to afford. The downfall of this is that many were 5/1 adjustable rates and that five year mark starts coming due now!! Assuming rates remain low.....no big deal. Some of the loans had percent hikes regardless of the prime rates. Once it comes due, there is an automatic x percent increase per month in the loan amount....payable each month. This coupled with a future major spike in rates could leave us all holding the bag....or should I say....mailing in our keys.

Now most of us are upstanding individuals who pay our bills on time and do not wish to lose our homes. However, if your home value is now at, below or extremely below what you paid on the home....what is your incentive to continue to pay an interest- only monthly payment that doesn't pay down the home and, in turn, breaks your financial back. You rid your savings to hang on for a year or two only to then ..... mail in the keys.

All in all, we do not know what will happen. If rates stay low....the economy turns around....jobs become more available, future rate increases might be easily dealt with. If they do spike and banks, in turn, can balance out the increase with other terms.....things may be dealt with. Regardless, something will have to give, and as I stated previously.....the market tends to correct itself......a tit for tat so to speak. At least, that is both my belief and my hope.

So, for now, my recommendation is to try to refinance if able with as little money down as you can. Hound your mortgage lender or bank, religiously. If you can afford some money out of pocket, then keeping mortgage insurance out of the monthly payment will be worthwhile. If not, at least by consolidating two mortgages into one, or getting rid of the arms for a set payment even with PMI....you will be better able to mantain a solid consistent budget without the burden of worrying where we and this real estate market and economy are truly going.

That's a wrap. Good Luck.