Saturday, January 14, 2006

Experts weigh in on market direction, interest rates

By Liz Garone
Special to Valley Homes

As the old adage goes, "All good things must come to end."

As is the case in much of the state, the valley's runaway real estate market finally appears to be taking a rest from its record run.

The classic signs of a slowdown are there. Homes are staying on the market longer, multiple offers are no longer the norm, prices are inching downward and inventory is way up, according to Marya Pimentel, sales manager for Century 21 M&M and Associates in Modesto, and a member of the board of directors for the California Association of Realtors (CAR). "We have seen some softening," she says.

But not all of it should be attributed to a weaker market, Pimentel notes, adding that seasonal adjustments need to be considered. "We always see an upswing in February and March. People get cabin fever," she explains. Pimentel says she doesn't expect 2006 to be an exception.

Cheryl McFall, manager of Re/Max Executive, Manteca, and a CAR board member, doesn't either. "Two thousand six is still going to be a great year for real estate," she says. "I'm not predicting any doom and gloom or bubble-bursting scenario. Just some softening."

While valley homesellers and some Realtors may be mourning the bygone days of multiple offers, speedy sales and top dollar paid for their properties, prospective buyers are in a good position to take advantage of what is fast becoming a buyers' market, according to McFall and others. Currently, there are 206 homes for sale in the Manteca, Lathrop, and Ripon area, not including newly constructed homes, McFall says. This number compares to fewer than 100 a year ago. In Modesto and Ceres, there are more than 1,400 homes on the market, Pimentel says, compared to fewer than 900 a year ago.

"In the last several months, I've seen a lot of inventory come on the market," McFall says. "Here in the Manteca area, it's a great opportunity for buyers, because they have so much to choose from."

Also on the market are slightly higher interest rates. Last month, the California Association of Mortgage Brokers (CAMB) issued projections for 2006. According to CAMB President John Marcell, rates are expected to reach 7 percent for 30-year fixed-rate mortgages by the end of the year. "A moderate increase in mortgage rates should not

concern homebuyers," Marcell says in issuing the predictions. "However, it is alarming that the housing affordability crisis will continue, making it difficult for first-time homebuyers to qualify for adequate financing."

The association is also predicting that 40-year fixed-rate loans will increase in popularity in 2006 as homebuyers try to find innovative ways to deal with the higher rates.

On a $400,000 loan, the monthly payment for a 40-year mortgage is about $200 less than on a 30-year loan, Marcell says. "That figure can make all the difference for some first-time buyers," he says.

Other popular mortgage products expected in 2006 are reverse mortgages, 100 percent financing, and adjustable loans with low "start rates."

For those people who already have adjustable-rate mortgages, now is the time to refinance, adds Marcell, who is also a broker and owns Better Mortgage Brokers Inc. in Upland in San Bernardino County.

"I know that it's very hard for someone to give up a 4.5-percent loan for a 6-percent loan," he says. "But it's better than playing Russian Roulette with rates that are obviously going up." Marcell advises anyone with an adjustable loan to sit down with a licensed mortgage broker and analyze the available options.

Even with rates hovering between 6 and 7 percent, Realtor McFall still sees good times ahead for buyers. "A loan in the 6-percent range is still a fabulous rate," she says. Marcell says he likes to remind people that in the late 1980s rates hovered around 18 percent, so this is still an excellent time to purchase a home at a fixed rate.

While buyers may be able to relax a little more and not jump on the first home they find, agents are the ones who are going to have to start doing more work, Pimentel notes.

"Agents need to be more proactive," she says. "They just can't sit at their desks and wait for buyers to come in the door."

Pimentel is also convinced that the San Francisco Bay Area's continued lack of affordability is still a big factor in the valley.

"As long as we're a better buy than the Bay Area, we'll continue to see growth," she says.

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