Insights From Seawright Homes

My 1981 Mortgage Payment Tables: They Help Explain Why Now May Be the Opportunity of a Lifetime for Homebuyers

2011-08-09T05:25:00.000-07:00

If you’ve read my previous blog postings at http://seawrighthomes.blogspot.com/ you’d have noticed that a number of them deal with the subject of home “value,” and how it is the product of much more than a home’s “initial purchase cost.” A high performance home, though costing initially more than its opposite (one of low-performance), typically will prove to be the best “value” because the high performance home will produce the lowest “total cost of ownership” over the planned period of ownership.

To simplify my point I did not mention how mortgage rates will vary depending on the time of purchase, and how the effect of that variability can have a significant impact on “value” as measured by the concept of “total cost of ownership.” Therefore, the purpose of THIS post is to address the role of interest rates on housing “value,” making a re-discovered 1981 Mortgage Payment Table of singular interest.

When skimming the 1981 mortgage payment tabulations, one can not help but be struck by the range of interest rates for which monthly payments and amortization schedules were presented. Totally missing was any interest rate below 10%, with data actually being provided only for interest rates spanning from 10% to 20%. It was as if the financial institution publishing the payment tables concluded that mortgage rates never again would be lower than 10%; so, why waste pages and ink on information that no one ever again would have reason to consult?

Throughout much of the 1980s, the need to look for information related to interest rates lower than 10% did not exist. But now…how the cycle has turned and note the term, “cycle!” If mortgage payment tables were to be re-produced today, and not obtained so readily off the Internet, such a booklet likely would cover rates spanning only from 2% to 10%. The rare publisher of interest calculations who experienced 1981 interest rates, though, might have the wisdom to cover tabulations for interest rates ranging into the high teens.

Our unfortunate propensity to ignore history and the predictable repetition of economic cycles (and we are somewhere off the bottom of a cycle now) makes for poor economic choices. And, if one is unaware of how much the mortgage interest rate applicable to a particular home purchase affects the “total cost of ownership/value” of that home, the resulting home value for the home buyer becomes a matter of random chance.

Consider this example of possible changes in loan amount, interest rate and monthly payment on two 30-year fixed rate mortgages as follows:

Scenario	Loan Amount	Interest Rate	Monthly Loan Payment
1	$350,000	4.4%	$1,752
2	$315,000	5.4%	$1,768

Scenario 1 reflects monthly P & I on a $350,000 mortgage at the currently prevailing, 30-year fixed rate of 4.4%. Scenario 2 reflects the higher $1,768 P & I payment that would result if home prices and the related mortgage amount were to decline by an additional 10%, but the mortgage interest rate were only 1% higher, at 5.4% instead of 4.4%. What Scenario 2 shows is that combining a 10% reduction in loan amount with an interest rate increase that is only 1% higher than the current 30-year fixed interest rate results in a home that costs $16/month more than its Scenario 1 alternative, acquired at a greater cost, but lower interest rate. Pick an interest rate 2% higher, 3% higher, etc. for the lower loan amount and the comparison only becomes worse for the home having the lower loan amount, but higher mortgage interest rate.

While the quip likely is true that, “If you laid all the economists in the world end-to-end, they never would reach a conclusion,” there is unprecedented unanimity within their ranks that interest rates must, and inevitably will, rise. Among the principal reasons are: politically driven economic irresponsibility at home and abroad; the unprecedented downgrading of U.S. debt credit worthiness by Standard & Poor’s; and the fact that too much money has been printed in our country and across the globe in a failing effort to maintain an artificial, low interest rate environment that credit markets no longer appear prepared to support.

Can interest rates fall further? Anything is theoretically possible, but only 4.3 percentage points stand between today’s mortgage rate and zero. By contrast, only the market will limit how high interest rates might rise, with the mortgage peaks of 1981 foretelling the potential for upward movement that already has happened before.

What does this discourse, prompted by a 1981 Mortgage Payment Tables, mean for you? It means that between the variables of a home’s initial sales price, high performance home characteristics (or lack thereof) and interest rates, a low interest rate has the greatest potential for impacting, for better or worse, the “total cost of ownership/value.” It also means that there is considerably more pressure for and likelihood of steadily rising interest rates, which inevitably must result in there being a higher “total cost of ownership” in store for those who either are unable or who choose not to act on today‘s historically low combination of mortgage rates and home prices.

For those who end up waiting, whether by choice or ignorance, and gamble to see if both home prices and interest rates will decline further, one must hope that the price paid for a poorly considered wager will not be too high. For those who understand that today’s low home prices and mortgage rates favor the astute home buyer, congratulations! In acting on that knowledge you will have achieved the “lowest total cost of ownership” for your next home and that is the true measure of having obtained the best, optimum value.

If you understand what is important about interest rates in determining true housing value, you will recognize that now, today, will prove to have been the opportunity of a lifetime for any current generation to own their next home and be supremely confident that the present combination of home prices and interest rates will result in the lowest total cost of ownership, guaranteeing an unbeatable housing value.

A Double-digit Rate of Return in This Economic Climate?

2011-08-08T10:47:00.000-07:00

Are you so financially secure that you can’t be bothered by A NO RISK, DOUBLE-DIGIT, GUARANTEED rate of return? If your answer is “yes,” congratulations! You are part of the “lucky gene pool.” If not, and you live in a home built prior to 1990 and have not commissioned an Energy Audit of your home, then what are you thinking!?

A no risk, double-digit, guaranteed rate of return from commissioning and acting upon an Energy Audit? It might seem like I’m channeling Bernie Madoff, but I’m not. I am, however, passing along this advice: “Obtain a full Energy Audit of your home through your local electric utility, which probably is heavily subsidizing the audit cost, and invest in implementing the Audit’s most cost-effective recommendations for energy conservation.” Do this and you are assured of having a “no risk, double-digit, guaranteed” rate of return on your investment for as long as you own your home.

Energy Audit? Wasn’t that “Bubba with a clip board,” who walked around the house, made a few notes on a check list, said “Uh-huh” a lot, grunted a little ands left me with the check list before disappearing?

While that may have been an apt characterization of a so-called energy audit 15 years ago, that was then and this is now. Today an energy auditor will be a licensed, certified professional, schooled in advanced building science and equipped with $12,000 - $15,000 in testing instrumentation. This high-tech hardware enables the trained technician to measure and document all of the characteristics of your home affecting energy efficiency and all of the correctable, factors that result in energy loss. At the same time the energy auditor will check gas or oil furnaces for combustion efficiency, will check flues for proper draft and will check for detectable levels of carbon monoxide.

The underpinning of an energy auditor’s complete audit of your home will be 1) a “blower door test”; 2) a “duct blast test”; 3) “thermographic imaging” (a camera that sees and can photograph “heat signature”, showing precisely where heat inappropriately is being either lost or gained, which affects both energy consumption and indoor comfort); and 4) crawling into and visually examining portions of your crawl space and attic that you probably never have seen before.

While a duct blast test typically would not be part of an Energy Audit subsidized by a utility company, the duct blast test is necessary for a full understanding of a key factor (ductwork air infiltration) that may be affecting home energy use adversely. Although a “Blower Door Test” will measure whole house air infiltration into the home as a system, it does not specifically measure the results of poorly installed ductwork, which is the sole object of the duct blast test.

As to the cost of an Energy Audit, the first thing to understand is that, “It does not cost. It pays.” An Energy Audit more than pays for itself by a wide margin if you implement only a few of the most cost-effective recommendations for energy conservation improvements made by the energy auditor.

If you are a Potomac Edison or PEPCO customer, your present, subsidized Energy Audit cost will be $140 or $100 respectively. This same audit would cost the builder of a new home (which does not qualify for the audit subsidy) between $400 and $500.

For Energy Audit draft-stopping recommendations that can be accomplished by a handy homeowner, the investment of another $50 - $100 in caulking, foaming and taping materials readily can result in reductions in energy consumption of $50 - $250 each month during peak heating and cooling seasons for your remaining period of ownership.

Three take-away points are 1) An Energy Audit and energy conservation home improvements are the closest things to a “guaranteed return” that ever will be available to you; 2) you work hard for your money and you should make what you earn work hard and smart for you; and 3) if an Energy Audit will not address the most important things you would like to change about your present home, invest in a new “high performance” home (a verified HERS Index of 70 or less), where the incorporation of advanced building science and energy conservation testing already have been accomplished for you.

The HERS Index Made Easy

2011-05-06T05:57:00.000-07:00

No, a HERS Index number is not a reflection of how much of a home’s closet space is occupied by women’s clothes. Nor is it a gauge of femininity.

“HERS” is short for Home Energy Rating System. As explained in Wikipedia, a HERS Index number is a relative energy use index making possible energy consumption comparisons among homes built during different years, with different building components and methods and governed by different, ever-evolving building codes. Just as EPA Estimated Mileage Ratings for all types of vehicles facilitate fuel efficiency comparisons, HERS Index numbers enable the relative energy efficiency of different homes to be compared.

Unlike the EPA gas mileage rating, where higher is better; lower is better under the HERS Index system. For the HERS system, the index number of “100” is assigned to a home built to the standards of the 2006 International Energy Conservation Code (IECC). For pre-2006 homes, which typically would have been built to significantly less strict energy efficiency standards than those of the 2006 IECC, the HERS Index number will be greater than 100. For homes built to standards that will produce more energy savings than a home built to the building code standards of the 2006 IECC, the HERS Index will be lower than 100.

For example, for a home to be Energy Star certified, the home must be at least 15% more energy efficient than a home built to the standards of the 2006 IECC. In the next paragraph, you will see that a home having a HERS Index of 85 or lower will confirm compliance with the Energy Star energy efficiency criteria. For a home that employs renewable energy resources and produces as much energy as it consumes, such a home is referred to as a “Net Zero” home, reflective of it having a HERS Index of “zero” and requiring no net consumption of energy in its operation.

Knowing the HERS Index number for comparison homes, you determine the percentage by which one home is more energy efficient than another by subtracting the lower HERS Index number from the higher HERS Index number. The difference between two HERS Index numbers is the percentage by which the home having the lower index is more energy efficient than the home having the higher index.

By way of example, if you compared a 31-year-old home built to 1980 building code standards against a 5-year-old home built to 2006 IECC standards, the older home likely would have a HERS Index of 130 or greater and the home built in 2006 would have a HERS Index of 100. Subtract the lower index of 100 from the higher index of 130 and the difference of 30 means that the home having the lower HERS Index should consume 30% less fuel. Viewed another way, if the 31-year-old home were to have a $4900 annual energy bill for heating, cooling, lights and hot water, you could expect the home with the lower HERS Index to consume $1470 less per year in energy costs (30% x $4900). Using the HERS Index for home energy consumption comparison purposes and approximating differences in annual energy costs is that easy.

While a verified HERS Index of 85 or lower is mandatory for a home to receive EPA Energy Star certification, the highest HERS rating permitted for a home to be described appropriately as high performance in energy efficiency is 70. Since the average age of all homes in the US is 34.6 years and a home of average age typically would have a HERS Index at or above 130, the HERS Index difference of 60 (130-70) and an energy efficiency advantage of 60% in favor of the high performance home, bears out what any builder of a new, high performance home will attest. “We indeed do not build homes like they use to. We build them better!”

If you contemplate remaining in your present home many more years and you want to know your HERS Index number and how to improve your home’s energy efficiency, retain a BPI-certified or RESNET-certified energy auditor. This energy specialist can provide a full energy audit of your home, with the audit providing a tested and verified HERS Index number and a listing of recommended energy conservation improvements in order of cost effectiveness. If you are planning your next home investment, knowing the HERS Index number of the home you are considering is essential. If obtaining an energy audit and HERS rating for that next home means paying for an energy audit yourself, do not hesitate to do so. And, having a contract contingent upon obtaining satisfactory energy audit results is at least as important as having a home inspection contingency. If you plan to acquire a new home that will be third-party tested and verified as being high performance in energy efficiency, the initially greater expense of high performance will not be an unrecovered expense. Rather, that cost will more than pay for itself. Making that type of home investment, though, takes us back to the question first posed, “What’s your HERS Index?”

How to Recognize a “High Performance Home”

2011-03-28T08:36:00.000-07:00

Two homes appear outwardly identical, but one home is described as a “high performance home”. How can you recognize when the “high performance” claim is justified? The answer to that question is found in the aphorism, “You can’t judge a book by its cover.” It’s what is inside that counts.

Perhaps the easiest measure of a high performance home is whether the home is third-party certified as meeting one of several nationally recognized green building standards. For residential construction, those voluntary national standards include:

Energy Star certification through the U.S. Environmental Protection Agency (EPA),
Builder Challenge certification through the U.S. Department of Energy (DOE)
U.S. Green Building Standard, which is the only ANSI-approved national green standard
LEED for Homes certification through the U.S. Green Building Council.

EPA’s Energy Star and DOE’s Builder Challenge program concern themselves primarily with whole-house energy efficiency. An Energy Star home must be tested and verified that it is built to be at least 15% more energy efficient than the same home built to current International Energy Conservation Code (IECC) standards. For certification under the Builder Challenge program the energy efficiency bar is raised, requiring that a home must be tested and verified to reflect energy efficiency that is at least 30% greater than the same home built to current IECC standards.

Representing more broadly defined green building standards, both the U.S. Green Building Standard and LEED for Homes encompass independently certified energy efficient construction and verify higher standards for water conservation, indoor air quality, environmental site design, sustainable building practices and consumer education.

Each program includes a verifiable aspect of energy efficient construction among its threshold criteria for green certification, implicitly recognizing that this is the single most important and compelling aspect of green building for most prospective home buyers. For each national standard the same frame of reference is used to reflect the extent of a home’s energy efficiency as compared to a new home constructed to current IECC standards. That frame of reference is a nationally accepted HERS Index calculated by persons trained and certified in those aspects of building science affecting a home’s energy performance. HERS stands for Home Energy Rating System. A HERS Index of 100 reflects a new home built to the standards of the currently adopted energy conservation code. A home built to energy efficiency standards that exceed the adopted energy code will have a calculated index that is less than 100. The difference between a home’s calculated index and 100 represents the percentage by which the home is more energy efficient than a home built to current energy code standards. Thus, a home that is certified as meeting Energy Star or Builder Challenge standards, the HERS Index for the Energy Star home must be 85 or lower and for the Builder Challenge home 70 or lower.

A future blog post will identify tests that a certified HERS rater will apply in calculating a home’s HERS Index and will address other objective standards used to gauge water conservation and indoor air quality. For now, though, it is important to understand that the starting point for a high performance home is one independently certified by a qualified HERS rater as meeting at least Energy Star standards and that a home with the lowest HERS Index will be the highest performance with respect to energy efficiency.

Foreclosure Statistics…The Bottom Line

2011-02-16T07:36:00.000-08:00

As President of the Frederick County Builders Association (FCBA), I recently was asked about expectations that foreclosure statistics, while lower than 2010, are expected to rise because the restrictions on foreclosures caused by “robo-gate” are being cleared. Here are my comments:

It should come as no surprise that with “robo-gate” drawing to a close, the removal of impediments to foreclosure could result in a bulge of foreclosure sales coming into the re-sale market.
With respect to predicting future foreclosures, past statistics are not in themselves a predictor of the trend or direction of future foreclosures. Rather, if foreclosures temporarily run at a higher level, the only meaningful prediction is that temporarily there could be greater pricing pressure on existing and new home sales.
Note in the preceding sentence use of the word, “could” instead of “will”. The Regional Manager of MetroStudy, the nation’s largest residential economic analysis consulting firm, recently spoke before FCBA membership and forecasted solid job growth for both Frederick County and the Washington metropolitan area. That job growth will prove beneficial in limiting the duration and intensity of any unusual pricing competition from foreclosure properties.
The risk for anyone who gets lost in the weeds of foreclosure data is that they are likely to lose sight of the real factors most affecting housing value and affordability. Instead people find themselves misguided into believing that what matters most is achieving the “lowest initial acquisition cost” of a home. One key consideration that matters more than lowest initial acquisition cost is interest rates. For the home of average sales price, a 1% rise in interest rates affects the cost of ownership as if there had been a $12,000 sales price increase. Thus, since interest rates today, compared with those prevailing 60 days ago, have risen over ¾% to today‘s still low historically low level of 5+% (30-year, fixed rate), anyone waiting for the “lowest initial home cost” already has experienced an effective price increase of $9,000. And, in a related vein, according to MetroStudy home prices have firmed up and are regarded as being more likely to increase as the local and metropolitan area economies gain strength.
A second significant pitfall for prospective homebuyers who pursue the “lowest initial purchase price” is that far more important is the “lowest total cost over the planned period of ownership“. These two very different standards of cost (lowest initial, versus lowest total over the intended period of ownership) can lead to decidedly different home purchase decisions. The former criterion ignores considerations of operating costs, maintenance costs, indoor comfort and indoor air quality, with the result often being that “lowest initial purchase cost” frequently equates to “highest cost of ownership“, not lowest.
Consider that the average age of the U.S. housing stock is 34+ years. In Frederick County alone, the building code differences between a home built to today’s code and one built to codes existing in 1977 are akin to the differences that one would experience if buying a new state-of-the-art computer versus buying one that is 10 years old. No knowledgeable consumer would opt for the antiquated computer. And, comparing one of today’s third-party certified, “high performance homes” against the older re-sale, the performance and value difference is all the greater.
My conclusion as a builder, self-serving though it may read, is that any person considering acquiring their next home risks making an unfortunate decision, if they regard foreclosure statistics as anything other than merely “interesting”. In making a home purchase decision, more important to any buyer than a low initial home purchase cost are both obtaining the best available mortgage rate and achieving the over-arching goal of attaining the “lowest total cost ownership over the planned period of ownership“.

From the foregoing you will see that foreclosure statistics simply are an “interesting distraction” that can lead homebuyers off course for achieving their most important home investment objectives.

So, Why is it That…

2011-02-08T12:33:00.000-08:00

When most people are looking to purchase an appliance, consumer electronics or a car they think “New”, but when looking for a home, they think “Used/Previously Existing/Previously Owned”? One inescapable conclusion is that we homebuilders who build high performance homes have done an exceedingly poor job of informing homebuyers that today’s new, high performance home and even today’s new home built to current code is not, as once was said, “…your father’s Oldsmobile”.

Certainly it is true for consumer electronics, cars and appliances that advances in technology, performance, design functionality and style predictably from one year to the next make us want the “latest and greatest” rather than a previously owned product whose dated features and performance lack that “wow factor”. And, of course there is the accurate, often repeated and almost always misunderstood aphorism applied to newer homes_ ”They don’t make ‘em like they use to.” That’s true, “We don’t make ‘em like they use to.” We build homes better than we used to, better by orders of magnitude.

While construction methods and materials remained relatively unchanged for decades, the latter quarter of the 20th century saw noticeable improvements in building science. Building science advances then accelerated sharply since 2000, prompted by ever-rising awareness of energy efficiency and sustainability, trends that only will maintain and gain momentum. The result is that today’s, third party tested and certified, new high performance home typically reflects levels of energy efficiency, water efficiency, improved indoor air quality, concerns for environmental preservation and characteristics of sustainability that the builder of the average previously owned U.S. home never could or would have imagined.

The average age of America’s existing housing stock is 34 years. That means choosing to buy a home of average age over a new high performance home is the technology equivalent of choosing to acquire a 10-year old computer instead of a new one. Opting for an existing home of average age over a new home built simply to current code is akin to purchasing a 5-year old computer instead of its most current counterpart. In neither example should the “old” be preferred. What almost all consumers regard as folly in acquiring electronics should be regarded as an even greater mistake in the purchase of a home because of the magnitude of investment and infrequency of its replacement.

My conclusions from the preceding musings are that:

Every builder of a new high performance, independently certified home needs to become more effective and proactive in communicating the benefits of homes that are reflective of advanced building science.
REALTORS® need to become much better informed and more aware themselves of how a high performance home best serves their clients’ interests and
Clients owe it to themselves to seek out those builders and REALTORS® who truly understand that the comparison between “old and new” is far more than differences in cost or age and that what may prove to be the higher initial cost is in reality the lowest total cost of ownership cost and thus the greatest value.

“So, Why is it That….?” You tell me.

Home Value: How Do You Know it When You See it?

2011-02-03T06:04:00.000-08:00

It seems obvious. Every homebuyer’s goal should be to obtain the best value for his/her money. But, “value” itself is a relative concept represented by the relationship between the desired features and benefits of a product or service and the cost associated with those features and benefits.

The basic concept of value is much easier to understand than compute because certain benefits of a product or service can prove difficult to quantify. For example, how do you put a number on the benefits of “comfort”, “potential for improved health or longevity”, “reliability” or simply “how a product might make you feel”? Value becomes even more challenging to compute when one recognizes that the cost component of the value equation depends on which type of cost you are quantifying-- simply “initial cost” or “total cost over a planned period of ownership”. This complexity no doubt accounts for why so many homebuyers make a poor purchase decision by comparing two or more homes on the simplistic basis of “initial purchase cost per square foot”. The math is easy and the resulting decision often is unfortunate.

Purchasing a home on the basis of “initial purchase cost per square foot” makes as little sense as purchasing a new car on the basis of “cost per pound” or “cost per cubic inch of car volume”. One understands readily that the features and performance contained in one pound of luxury car typically are not found in one pound of economy car. And by contrast, while almost every purchase decision begins with cost being one evaluation criterion, the smart auto shopper consciously considers other equal or more important criteria such as fuel efficiency, vehicle performance, comfort and quietness of ride, vehicle weight and safety features, custom features that meet a want or need, warranty, vehicle and dealer performance and service ratings and history of trade-in value. This frame of reference entails recognizing every vehicle feature of importance to the car buyer, while also evaluating all factors that will comprise the vehicle’s “total cost of ownership”.

A similarly thorough assessment of a home’s value will include initial cost, home size, floor plan functionality and adaptability, location benefits (such as proximity to schools, parks, shopping, employment, friends or family), energy efficiency, ease of maintenance and maintenance costs, custom features that meet a want or need, indoor comfort, features promoting occupant health and/or safety, seller warranty, seller service performance as evaluated by prior customers and how well a home or neighborhood is likely to hold value over time.

By understanding home value as thoroughly as a smart car shopper would approach car value, the home buyer will recognize value as being a function of the least total cost of ownership, all factors of ownership being considered. It’s this approach to understanding home value that provides the greatest assurance of a sound, intensely satisfying and rewarding investment.

Approach Buying Your Next Home Like a Smart Car Shopper

2011-01-28T08:42:00.000-08:00

In thinking about how well-informed, smart car shoppers compare with most home shoppers, it occurs to me that too many home shoppers have much to learn from smart car shoppers. And this is especially true in a market where too many prospective homebuyers and real estate agents appear unduly pre-occupied with short-sales and foreclosures.

While car shoppers, like home shoppers, start off with “price” being an important criterion for ownership, the knowledgeable car shopper recognizes that “total cost” is much more than merely a particular model’s sticker price plus cost of all custom features, delivery and dealer prep costs, license tags, and taxes. The smart car shopper’s total cost also includes the operating expenses of mileage, insurance and vehicle maintenance and likely residual trade-in or re-sale value at the end of ownership.

In the example of a “Hummer”, drastic mark-downs in initial sticker cost are insufficient to overcome a smart shopper’s understanding that the costs associated with extremely poor gas mileage, a poor maintenance record and even worse re-sale value result in the long-term “Total cost” of this vehicle being much greater than that of alternative higher performance, higher mileage and higher re-sale value vehicles with a higher initial sales cost.

What this suggests for smart home shoppers is that they should be even more concerned for life cycle “total costs” than smart car shoppers. The least lifecycle “total cost” is often associated with an initially more expensive home that accurately can be described as a high performance, third-party certified new home--one designed and built with energy efficiency, sustainability, environmental preservation and indoor air quality in mind. For starters, a $150/mo energy savings advantage for the high performance, new home over the older home now, only increases as utility rates rise over time. Thus, the money home shoppers can lose through the lack of energy efficiency in an initially less expensive short sale or foreclosure property readily can equal or exceed the higher initial cost of the higher performance choice. At the same time, the third-party certified, high performance home will provide comfort levels typically not found in initially less expensive alternatives, will experience less maintenance expense as the result of incorporating more durable materials, and will facilitate a more healthy level of indoor air quality. These latter qualities decidedly translate into higher re-sale value because the home qualities will continue providing these same benefits for successive owners.

Just as achieving the best value in a vehicle typically is not found in the initially least expensive alternative, home shoppers will find that same result born out as they consider one of the most momentous investment decisions of their lives.

Historic Low Mortgage Rates and You

2010-08-30T13:51:00.000-07:00

This writer’s customary commentary on green building and sustainable site design and construction is being pre-empted by the “green”, as in $$$, that may be available to you as the result of recent record low mortgage rates. These record-setting rates now are as low as 4.25% for 30-year, fixed rate financing, below 4% for 15-year fixed rate mortgages and as low as 3.6% for an adjustable rate mortgage. And while financial analysts and commentators have reported this news, none that I have seen have “connected the dots” to explain the significance of this temporary gift from the financial markets for anyone considering refinancing an existing home or purchasing another home.

Historically and as a rule of thumb, re-financing to save interest expense over the remaining term of the loan generally has made sense if the new mortgage rate is ½ percent or more lower than the mortgage rate being replaced. The ½ percent difference is the threshold that typically offsets the refinancing transaction costs over the first several years of the new loan. The interest savings after that point are all gain to you.

This rule of thumb, though, doesn’t answer the specific question, “Should I refinance or buy a new home now?”. The answer to that question is, “It depends”. It depends on your credit worthiness (after all, terms of credit are considerably more stringent today than 3-4 years ago) and whether there is sufficient equity in your present home, if you’re refinancing, or cash resources available to you, if you’re buying another home, to satisfy the equity requirements of your new lender. If your answer to both financing pre-conditions is “yes”, you should waste no time in acting on your desire to refinance an existing home or purchase a new home.

The potential financial significance to you from acting on these unprecedented interest rates can be seen in contrasting your financial position if you had qualified for a 30-year, 4.75% fixed rate mortgage three months ago and also received the $6,500 tax credit (now expired) for buying a new home versus where you would be financially simply with a ½ percent lower interest rate of 4.25%.

For purposes of this example, a net present value analysis, assuming an opportunity cost for invested funds of 4.75%, is used for comparison purposes to state in current dollar value the net result of future incremental interest expense costs or savings.

I’ve chosen $200,000 and $390,000, 30-year, fixed rate mortgage amounts, respectively, for contrasting the two mortgage rate scenarios. For a $200,000 loan and the 4.25% interest expense you will be better off, in today’s dollars, by $7,000 after 10 years and by $20,600 after 30 years as compared to having received the now expired $6,500 tax credit and a mortgage loan of 4.75%..

For a mortgage loan of $390,000 your incremental, current dollar gain over 10 years would be $15,500 and $37,700 over 30 years, in favor of the lower interest rate mortgage when compared against the aforesaid tax credit and a 4.75% mortgage interest rate.

Bear in mind also that another benefit to low interest rates is that they enable a borrower to use the same amount of funds available for payment of principal and interest to support a larger loan amount.

What is important to recognize is that the record low mortgage rate opportunity is an offer that is only valid “as long as the market says it is”, which means that it could expire any time during the coming weeks or months. And, in that circumstance the ones who reap the rewards are those who understand how much can be gained by such low rates and who make loan application for a refinancing or new home purchase and lock in an advantageous interest rate before the market says, “offer expired”.

While “opportunity” typically does not announce its arrival and call to action by shouting, today’s record low interest rates appear to be an exception to the rule.

Chesapeake Bay Water Quality Polluted by Feckless Politics

2010-08-11T07:27:00.000-07:00

Understanding Maryland’s approach to improving Chesapeake Bay water quality is made easier if you put yourself in an alternate fictional scenario related to vehicle fuel efficiency:

Imagine that you live in a state that has decided to become the national model for vehicle mileage efficiency. A substantial majority of fellow citizens in your state drive Hummers, whereas you are among a small minority of state residents concerned with fuel efficiency and you drive a Prius.

State elected officials, fearing voter retribution if Hummer owners were required to cease driving their Hummers and purchase a more fuel efficient alternative, have decided to make improving fuel efficiency and reducing carbon emissions voluntary for Hummer owners. And, although having eliminated the major contributor to vehicle fuel inefficiency from being part of the fuel economy solution, state officials have determined that any vehicle more fuel efficient than a Hummer must be replaced with the newly introduced, all-electric Tesla, a car having a purchase price in excess of $60,000 and the owners of already fuel-efficient vehicles must pay the Hummer drivers a financial incentive for them to consume less fuel. When you object and demonstrate that the politically motivated non-solution will result in no perceptible improvement in overall state vehicle mileage efficiency, is inordinately costly and bears not even a remote resemblance to a rational, fair and effective solution to the problem, you are told, “Tough luck. That’s politics.”

Now, recognize that in the scenario described above, the analogous participants in the real life effort to improve Chesapeake Bay water quality include the following:

“Agricultural Interests”, who according to the EPA water quality model, contribute 46.5 % and 40.9 % of the phosphorous and nitrogen loading, respectively, and 62.7 % of sedimentation in the Bay. These are the “Hummer” owners and

“New Construction Interests”, who according to the EPA water quality model, contribute 1.4 % and 0.3% of the phosphorous and nitrogen loading, respectively, and 4.7 % of Bay sedimentation. These are the Prius owners

As in the mistaken approach to fictional problem solving in the Hummer tale, Maryland officials currently are preparing to act in exactly the same manner to address EPA-mandated, Chesapeake Bay water quality goals. Maryland officialdom now is poised to permit Ag Interests, the largest single contributor to deteriorated Bay water quality, to participate voluntarily in efforts to diminish Agricultural nutrient run-off into the Bay. By contrast, New Construction Interests, contributing the smallest level of pollutants to Bay water quality of all major types of land uses, will be required to satisfy site run-off requirements so low that they will be impossible to meet and must be financially mitigated. This financial mitigation will entail paying certain Ag Interests to pollute less at a cost calculated as a substantial multiple of the actual, materially lesser effect on Bay water quality of new construction sedimentation control practices. The simple fact is that Maryland’s irrational, unfair and feckless political expediency will not and can not result in the desired improvement to Chesapeake Bay water quality even if there were to be a total ban on new construction throughout the entirety of the Maryland portion of the Chesapeake Bay watershed. If you are not deeply troubled and outraged by what passes for political and environmental leadership in Maryland, you should be. And, at the same time you should let Maryland’s Governor and Director of MDE know that their planned program for Bay clean-up is diametrically opposite of what would constitute forthright, fair and effective leadership on this vital matter.

"Peak Oil" and Us

2010-06-17T12:28:00.000-07:00

Separate threads from articles appearing over the past two weeks in the “The Economist”, “Bloomberg Businessweek” and the Wall Street Journal tie together the conclusion that recent trends in energy costs again are lulling us into a misplaced sense that there is plenty of time to get our collective energy act together.

If one makes energy decisions simply based upon current headlines and the price of gas at the pump it is easy to act as if there is no urgency to upgrade home energy efficiency substantially or make changes in lifestyle based upon the cost of energy. Gas prices are touching on the $2.50 per gallon range and may fall lower and electricity rates may even decline slightly in 2011. So, am I, and others who believe there is an imperative to live a more green and sustainable lifestyle, simply doing a good impression of “Chicken Little”?

Consider the concept of “Peak Oil” and its consequences. Peak Oil is a term that defines the point in time when the amount of oil being found in new oil fields equals the losses from drawdown of existing fields. Past the point of Peak Oil, a country is consuming more than it is producing. The U.S. was the first oil producing country to “peak” in 1970. Since then domestic oil consumption has exceeded new finds and we now import 67% of all our oil, in the process giving financial and political strength to petro dictatorships and interests inimical to our own around the globe.

Unfortunately the business of “Peaking” is now all too commonplace and reasonably predictable. In the May 27th article, Barreling Toward Peak Oil, “Bloomberg Businessweek” reported that of 30 non-OPEC countries with significant oil production, 13 have peaked or are about to peak and together they contribute 52% of world oil volume outside of OPEC. Including OPEC the forecast is that global oil production will “Peak” between 2015 and 2020, a point in time only 5-10 years off.

What are the significant factors contributing to this timetable? Look no further for causes than our own unbridled energy consumption, combined with the 1-billion+ populations of China and India. China and India each have an emerging middle class that exceeds the total size of the US population and their nouveaux middle classes want to live and consume like Americans. It should give anyone pause to recognize that in 2009, a period of global recession, Chinese auto purchases increased by 56% over the prior year.

What are the anticipated results from the process of “Peak Oil” rolling through the world’s oil producing countries? A number of energy analysts predict that by 2015 the price of oil will be $150 per barrel, versus today’s cost in the $70’s/barrel.But, some analysts predict that price could move as high as $300 per barrel when demand for oil far outstrips supply. If we did not like the price of gas when oil ran up to $140/barrel, the price of oil between 2015 and 2020 could make that seem like the inexpensive “good old days”.

The combined message of the foregoing facts and predictions to you and me is that we must seize every opportunity to make the homes we live in and buildings we work in as energy efficient as possible and to elect lifestyle choices that reflect understanding that living in a manner that is more sustainable for ourselves and others is an absolutely essential key to a more abundant, secure and healthy future for our children and ourselves.

(Image courtesy futureatlas.com/blog, Flickr)

Chesapeake Bay Water Quality Degraded by Politics

2010-06-08T06:11:00.000-07:00

There is perhaps no better example of political failure to address a real issue in a meaningful way than Maryland officialdom’s politically driven regulatory approach to Chesapeake Bay water quality. It professes its deep commitment to long-term improvement in Chesapeake Bay water quality, while ignoring the principal current source of Bay water quality problems. Remarkably, the Maryland legislature, the Maryland Department of the Environment and the State’s governor have embraced and adopted new storm water regulations, the sole measurable effect of which will be the radically increased cost of any form of land development within Maryland’s Chesapeake Bay watershed, with an imperceptible effect at best, on Bay water quality.

Maryland has elected to ignore that new construction of all types consumes less than 0.146% of Maryland’s 5,900,000 acres annually (that is less than 15/100ths of 1%). By comparison, forest use comprises 49% of the land area, agriculture – 26% and existing urban/suburban land uses – 25%. And in terms of nutrient loads that degrade Bay water quality, new construction accounts for an incremental 0.28% and 1.07% of nitrogen and phosphorous loads, respectively, whereas forest land uses contribute 9% and 8%, agriculture accounts for 36% and 38%, waste water accounts for 25% and 20% and urban/suburban land uses contribute 20% and 32% of total nitrogen and phosphorous loading in the Maryland waters of the Chesapeake Bay.

In the face of these facts, it is inexplicable, without resorting to political calculus that Maryland regulators and elected political figures choose to ignore and act as if the contribution and effects of uncontrolled agricultural run-off have no effect on Chesapeake Bay water quality. This would be the equivalent of Louisiana officials acting as if the leaking BP deep-water well will have no impact on the shores and wetlands of the Louisiana coast.

If Maryland’s politicians and water quality bureaucrats are the doctor for the Chesapeake Bay patient, the doctor is determined to address only the mild case of acne associated with run-off from already heavily regulated new development, while acting as if the water quality cancer being fed by continuing unregulated agricultural run-off does not exist. In real life, such a doctor would be sued for malpractice and lose their license, but the consequence in Maryland for refusing to take meaningful steps to solve real problems seems to be re-election. Go figure. Political calculus simply is not intended to make sense, except in terms of the office holder and even then only when the ability to think clearly is materially impaired.

What “Climategate” Means for Us

2010-05-11T12:36:00.000-07:00

Does the revelation of falsification of carbon dioxide data by renowned climatologists diminish the necessity for radically more “green”, sustainable living? In a word, “No”!

Does the false data on carbon dioxide that created an academic scandal for certain climatologists undermine the case for global warming? Not necessarily, though it certainly causes some conclusions of the most ardent believers in global warming to be regarded as premature, if not called into question. But, did the case and the imperative for more “green”, sustainable living ever depend on the premise of global warming? No! Not if you appreciate the significance of world population trends.

Here are global population data and projections as presented by GeoHive Global Statistics:
1950 – estimated global population of 2.556 billion people
2009 – estimated global population of 6.779 billion people
2050 – estimated global population of 9.538 billion people

Add to these numbers the facts that India and China each have a current population in excess of 1 billion people with emerging middle classes that equal the size of the current U.S. population. Appreciating that the emerging middle classes of these two countries alone want to live (consume and waste) like Americans; you are drawn to the undeniable conclusion that global resources are not equal to the task of enabling Americans, along with all who wish to live like us, to do so.

It’s, in part, that unquenchable demand for unrestrained access to resources that gives rise to global conflict and results in our engaging in resource extraction operations, whether in drilling or mining, where mistakes may prove catastrophic in terms of loss of lives, livelihood and environmental quality. Last time we checked, we have only one world on which to live and it’s beginning to look must less like the one we collectively aspire to pass on to our children and their children.

Deceased American cartoonist Walt Kelly, speaking through the persona of “Pogo”, had it right when Pogo said, “We have met the enemy and he is us”. Global warming or no global warming, we are compelled to embrace “green and sustainable” as the only path to a future that is far preferable to one which results if we and our fellow global citizens continue acting as if there are no constraints on what we and the world’s societies consume, deplete and discard.

The Green MLS Tool Kit

2010-04-30T06:08:00.000-07:00

An article in the April 21, 2010 edition of the Frederick News Post reports on “The Green MLS Tool Kit” initiative of the National Association of Realtors, which was a national collaboration on which I had the pleasure of participating.

To be sure, the extent to which the multitude of nationwide Multiple Listing Services (MLS) collect and report “green” home listing data will help home buyers make more informed and better choices among the listed homes they consider for purchase. As important, the recommended collection of home listing data facilitates easy recognition of green home features which will help appraisers—all of whom rely on MLS data as the basis for appraisals—more accurately quantify the additional value associated with incremental investments in “green” home features, particularly energy efficiency and a “green” home’s operating cost savings.

Your Utility Company May Be Making You An Offer You Can’t Refuse, But If You Haven’t Been Reading Your Utility Bill Inserts…

2010-04-12T07:48:00.000-07:00

You likely are in good company. But being in good company in this case only means that a lot of Allegheny Power customers are unaware that the electric utility serving most of Frederick County, Maryland wants to give you money.

The money to be found with Allegheny Power comes from two sources:

Rebates for purchase of qualifying Energy Efficient Appliances and heating/cooling equipment and
No-cost to Low-cost Energy Performance Programs

The Allegheny Power Web site provides details for how you can receive:

Up to $600+ in rebates from Allegheny Power when a variety of qualifying energy efficient appliances or HVAC products are purchased and
How an Allegheny customer can receive their Comprehensive Home Energy Audit, which will include a blower door test and thermal imaging of the customer’s home. Allegheny Power charges $140 for an invaluable service which, if contracted for privately, would cost roughly $500. And, as a further inducement for customers using this bargain service, Allegheny is giving clients, who know a deal when they see one, a free energy efficiency kit that will include items such as CFL’s, a low flow showerhead and faucet aerators.

The Comprehensive Home Energy Audit is a must for anyone who wants to make a serious dent in their electric bill and would like a road map for how to do so cost-effectively.

Rebates:
http://www.alleghenypower.com/EngConserv/MD/WattWatchers/RebatesRes.asp and
Low-cost Energy Performance Programs:
http://www.alleghenypower.com/EngConserv/MD/WattWatchers/Performance.asp

Leaving the Myths of 2005 Behind

2010-03-29T06:25:00.000-07:00

What home ownership could not sustain in 2005 - 2007 is the myth that housing is just another financial investment in a commodity that offers a quick, risk-free return, which readily can be converted into cash; and that this commodity investment is best made through the maximum use of other people’s money and none of one’s own.

As the residential real estate bubble burst now bears out, the appropriate expectations of home ownership are achieved through an investment having a duration greater than simply a few years, with many of the rewards for that investment being non-monetary and where financial reward is not the result of “quick flips”. In the future, as in the recent past, the phrase “quick flips” should not describe things done outside of a frying pan or the gymnastic floor.

With the ruinous results that follow from pursuing false myths in home ownership being exposed, today’s home buyer can be confident that their expectations will be met when they are guided by the following:

Expect and experience intangible, but real and significant personal rewards associated with owning a home. Each of our homes is indeed our “castle”, for all that the notion of “castle” implies for security, privacy and a place of refuge from an ever-busy world outside.
Realize financial rewards that arise through the disciplined pay-off of mortgage debt on a home that represents a careful balance between what one can afford and the home one needs. If there is a conflict between “needs” and “wants”, needs should take precedence, If there is a conflict between “needs” and “affordability”, affordability should prevail. As noted above, if a successful “quick flip” is the only way for satisfying expectations for owning that first or next home, keep leasing or stay put.
Recognize that home ownership, like any goal worth pursuing, requires long term planning, preparation, commitment, and often personal sacrifice. Certainly one fallout of a burst bubble in residential real estate is that lending banks will require a higher degree of home buyer financial commitment in the forms of higher credit scores and/or down payment. For many, improving credit scores or accumulating a greater initial down payment will be a sacrifice requiring trade-offs among competing priorities. From the lender’s perspective, an increased down payment simply helps insure that there is better alignment between the lender’s belief in the value in making the loan and the home buyer’s commitment to repay the loan.
Recognize that as part of long term planning, achieving ownership of the home that embodies all or most of what one wants in a home is most likely achieved over the course of multiple “move up” purchases, each accomplished at intervals of 3-7 years. Similarly, with home ownership occurring in an era where limitations on resource availability are more widely recognized, a home’s “green attributes, those promoting energy efficiency, sustainability and indoor air quality, are features most likely to promote and sustain long-term home value.

Whether the preceding perspective reflects a new way of understanding the expectations that home ownership can satisfy or simply reaffirm what some have known all along, a home investment made with the foregoing guidelines in mind should meet with success.

Real Reasons for Home Ownership Re-Discovered

2010-03-22T06:29:00.000-07:00

Join me in considering as the silver lining that can be found in the burst real estate bubble. That silver lining is that the benefits of owning a home are as true today as they ever were--only now the goals of ownership are free of the “make a killing” investment helium that pushed the real estate bubble to unsustainable heights.

As one of humankind’s three basic material necessities, “shelter”, in the form of the American home, was comparatively free of investment hype for the greater part of the 20th century. To be sure, home owners often experienced a degree of home price appreciation, but the appreciation was modest and the notion of real estate being a corner pin for wealth accumulation was secondary to more fundamental, non-monetary considerations. Rates of home price increase generally tracked rates of increase in the replacement cost of new construction, with those increases generally reflecting inflation in the range of 1½ -3% per year.

At the same time, home owners could expect economic benefit from real estate taxes and mortgage interest expense being tax deductible and from the slow, but steady build-up of equity that arises from simply making regular monthly mortgage payments.

What 20th Century American home owners could expect and did receive from their investment in “shelter” was a home from which they derived a measure of pride and pleasure, the establishment of roots and friendship in community with others and a savings plan for which the principal balance grew each time a mortgage payment was made, augmented when housing demand exceeded supply and decreased when housing supply exceeded demand.

This perception of home ownership didn’t mean that owners bought and never moved again. It meant that a series of 2-3 succeeding move-up homes were predicated largely on growth of the owner’s income and the freeing up of equity from sale of the prior home. In order for equity to be freed-up, the prior home typically needed to be owned for a period of at least two years. And, there could be unexpected market appreciation contributing as well to making the subsequent home purchase more affordable.

Largely absent until the late 1990’s was the patently unrealistic expectation of making a “quick, risk-free killing” in real estate predicated on taking on more mortgage debt than ever could be rationally justified or serviced and leaving no margin of safety for personal economic setbacks (e.g. unemployment, illness or salary reduction). When predicated on such unrealistic expectations, no investment will be deemed successful and we are now experiencing the result.

A home satisfied the reasonable expectations of ownership during all but the last few years of the 20th century because the expectations were financially modest and realistic. Today’s home buyers can find the silver lining in the real estate market by returning to expectations based on the value of steadily accumulating savings over a sustained period through mortgage pay-down and attaching value to pride of and satisfaction in ownership and becoming part of the fabric of a neighborhood and broader community.

Land Use and Land Planning

2010-03-15T05:59:00.000-07:00

Land use and land planning architectural decisions based on the combined principles of “Less is More” and “Design With Nature”, result in:

Less disturbance of a site’s pre-building vegetative features by conscious choice, which in turn yields “more” in terms of visual aesthetics, “more” capacity for mature vegetation to process carbon dioxide and release oxygen into the atmosphere, “more” corridors, food sources, protection and shelter for wildlife, “more” biodiversity, more shade and protection from the elements for the homes of community residents and the potential for more property appreciation, which typically is characteristic of properties having more intense and mature landscaping, whether natural or planted.
Less disturbance of a site’s existing topography invariably yields a community aesthetic and street scape that is more natural and organic, imparting sense of place and uniqueness that is indispensable to sense of community
Less disturbance to pre-construction site topography also promotes more diversity in architectural design, which we commission site-specifically for each community to insure that home designs fit and blend into the land, rather than represent an imposing or alien presence on the land. We have yet to see generic house types that lend themselves to positioning on individual lots, which may slope uphill, downhill or side-to-side, unless the land has been mass graded and arbitrarily flattened to make every house site condition uniformly the same. For that reason original, site-specific architecture is viewed as indispensable for minimizing site disturbance, maximizing retention of natural features and mature vegetation and for providing character for both homes and community.
Spending less for mass clearing and grading results in more resources being available for development of street scape aesthetics, which combine consistently applied exterior architectural design principles and details, along with an overarching landscape design master plan.
Commissioning original architecture that is focused on providing homes that are ”not so big”, that are right-sized to meet more needs while utilizing less space and that are highly adaptable in how individual spaces can be utilized results in home designs more consistent with human scale, less consumptive of materials to construct and more saving of energy and water to operate. Interestingly, it is the home designs that rely less on costly exterior elevation details and materials and, instead, find their appeal through skillful application of time-tested, less expensive design principals governing the use of color, shadow, texture, massing and subtle consistency in exterior detailing that produce a preferable aesthetic result. We have found in our experience that such home designs and street scapes, built upon the time-tested design principles, are more supportive of preservation and enhancement of individual home and neighborhood property values.

The result for architectural design and community building is a community where respect for our natural environment is apparent, where both individual homes and overall community have character and where the panorama of street scape is more pleasing to the senses than any single design element viewed alone. That is when you have been successful as a steward, achieving more through less and through designing with nature.

Design With Nature

2010-03-11T12:36:00.000-08:00

That Seawright Homes takes the “Design With Nature” principle to heart can be seen in the environmental conservation and land planning awards and recognition given to our new home communities:

1982: Woods Landing on The Little Magothy, Annapolis, Anne Arundel County, MD
Grand Award, Environmental Landscaping - Metropolitan Washington Landscape Contractors Association

1988: Woodspring at New Market, New Market, Frederick County, MD
Maryland State Office of Planning

1990: Woods Landing on the Little Magothy
White Oak Award - Maryland Department of the Environment recognition for best statewide example of voluntary forest conservation.

1992: Woodspring at New Market
White Oak Award - Maryland Dep artment of the Environment recognition for best statewide example of voluntary forest conservation

1994: Timber Creek - Annapolis, Anne Arundel County, MD
White Oak Award - Maryland Department of the Environment recognition for best statewide example of voluntary forest conservation

2008: The Orchard at New Market - New Market, Frederick County, MD
Award of Excellence - Frederick County Builders Association award for best new home community

My next post on Seawright’s philosophy of home building and community design will outline how the “stewardship” concept and principles of “less is more” and “design with nature” foster communities that stand apart from the majority.

Seawright's Philosophy of Home Building and Community Creation

2010-02-18T13:59:00.000-08:00

Welcome to Seawright Homes' blog! For our first post I wanted to describe our take on home building and the environment. After reading our philosophy, which guides our approach to our work, I hope that you'll share your thoughts and ideas about sustainable home building as well.

Since 1972 Seawright Homes consistently has walked a green path. That path, now marked by "green" catchwords, is one that we have followed for more than 37 years out of a sense of "stewardship" for the land and our natural environment. As a "North Star" by which to align values and actions, the concept of stewardship has been the guiding principle for our achieving green and sustainable results in home building and community building well before a "green vocabulary" took on its present meaning and significance in a social lexicon.

With stewardship for the land and our environment being the guiding principle, it was only natural that two other related principles have assumed roles of equal importance in our work. One principle is captured in the phrase, "Less is More". These three words, contained within an 1855 poem by Robert Browning, became widely recognized when established as a precept for minimalist design by famed architect Ludwig Mies van der Rohe.

The second principle, also a three word phrase, is "Design With Nature". This is the title of a book written in 1967 by landscape architect and environmental science forerunner, Ian McHarg. When I read this book in 1973, as part of research on how best to site a seashore condominium, its title has become an admonition and underlying concept that has informed the land planning and land use decisions for each of the new home communities subsequently created by Seawright Homes.

Adhering to the concept of stewardship and the companion principles of "less is more" and "design with nature" often has made it seem that we "march to the tune of a different drummer", which indeed is the case. Being aware that we hear a different drummer, though, has no led us to change our path or direction. Rather, in my next posting you will see the variety of awards for exemplary architecture, community design and land use that our efforts have received, which add to the satisfaction and great pleasure we derive from what we do with and for our clients.