The New Year has begun and before us we find another interesting year of real estate adventures. According to the December 29 issue of Realtor Magazine Online (, in an article entitled Mortgage Rates Climb for Third Straight Week, “Home-loan interest moved north for a third consecutive week, according to Freddie Mac. The mortgage financier reported the 30-year rate at 6.18 percent, up from 6.13 percent last week but still a far cry from this year’s high of 6.8 percent set in July.” “Rates for 15-year fixed products, meanwhile, climbed to 5.93 percent from 5.89 percent,” Realtor Magazine continued, “while five-year, adjustable-rate mortgages bumped up to 5.98 percent from 5.96 percent. One-year ARMs also rose to 5.47 percent from 5.44 percent.” As we enter 2007, the real estate market experts are making predictions and fear seems to be on the horizon. However, fear doesn’t indicate the market trends, hard facts do, and there are many to take into consideration.

Realtor Magazine also states, “The market data also is being interpreted by the financial community as a sign that the Federal Reserve will not move quickly to lower rates early next year to prop up a softening economy. Many economists speculate, in fact, that the Fed will keep rates in a holding pattern until mid-2007.” This holding pattern will be to help stabilize the ebb and flow of the current real estate market. A harmonious ebb and flow is essential to a strong market, this is why a period of adjustment experienced around the country was necessary in 2006. One of the contributing factors many buyers are unaware of is the ARMs index, which affects all Adjusted Rate Mortgages.

Did You Know?

As a buyer or homeowner interested in refinancing, it is essential to understand the mortgage basics, especially when choosing an ARM. First, make certain to ask the lender what index your ARM is tied into before committing. The real estate market affects each index differently and all have advantages and disadvantages. There are a wide variety of ARMs indexes available, but three are most frequently used and approximately 80 percent of all ARMs are based on one of these three indexes. The first is the Constant Maturity Treasury (CMT). The CMT index is volatile and changes with the market. The CMT is a reflection of the economy and shifts quickly with major economic changes. The 11th District Cost of Funds Index or COFI is also popular. The COFI is the slowest moving and most stable ARMs index. According to, this index reacts slowly to market changes and adjustments to your ARMs interest rate will lag behind other indicators. Many lenders believe COFI-indexed ARMs are some of the best deals on the market today.

The third index most often applied to ARMs is the London Inter Bank Offering Rate (LIBOR). The LIBOR index, as defined by, is an average of the interest rate on Eurodollars traded between banks in London. The LIBOR is an international index directly following the world economic condition. Similar to the CMT this index is more open to large fluctuations than the COFI, however, borrowers are also protected by periodic and lifetime interest rate caps. According to, all indexes have advantages and disadvantages. “Generally, a loan tied to a lagging index (COFI, e.g.) is better when rates are rising. Leading index loans, like those tied to CMT, are best during periods of declining rates,” states the site, “The best way to judge an index is to study its past performance.”

The Power of Building

In addition to the prime rates and indexes that affect mortgage rates across the country, there are many other factors that influence the real estate market for 2007. One of the major issues is the plight of the builder. Currently, a number of builders are overextended and now offering huge incentives, even waiving closing costs, to move their products and new homes. Builders have been left with inventory and it is hard to compete with new construction, so keep this in mind when you are reselling your home.

When builders have finished spec homes that are ready to move in and you have to resell it is possible the spec home with incentives will win.

If you are a seller, also keep in mind that when you price your home you shouldn’t price it up and then lower it. Price the home to sell or you will give the impression that something is wrong with the property. Don’t use a gimmick just offer a fair selling price and buyers will appreciate you. Also, according to What’s In, What’s Out 2007 by Mark Nash, avoid “as is” marketing since buyers often see it as a red flag. Plan no more than one open house per month as well; to keep buyers from thinking you are desperate. For more information and updates on the real estate market visit the articles section of my web site at