Owners have the largest mortgages in history!

It’s no secret that the housing market has been unbalanced over the past few years. Prices have been rising, and with them, so have average home loans.

mw-average mortgage size

According to The Mortgage Bankers Association (MBA), the average home loan size is the largest its been in the history of its survey, which began in 1990.

Additionally, the median mortgage size was only about 3.3 times the median annual income in 1990 – now, it’s more than 5 times as big. This is likely due to the increase in housing prices, buyers getting bigger homes and lower interest rates over the years.

Here’s a look at some housing market characteristics for select years.

Housing market data points
Courtesy Realtor.com (link in text above)

According to Mike Ervin of Supreme Lending, people are just waiting and waiting for mortgage rates to go down. People who are using securitizers like Fannie Mae and Freddie Mac have to wait until the Fed buys up more mortgage bonds so that rates will go down. It is unknown if that will happen, but rates have dropped in 2017.

Multiple factors can affect the bond and mortgage markets. The most recent major event was the Trump election and presidency, which saw a large immediate increase in mortgage rates, which have since rebounded, even with the Fed raising rates.

In California, we are in the wealth-building business and real estate in the Bay Area is going to be a good investment for years to come. I am here to advise, provide insight and help you build wealth through real estate.

Pending home sales are down in CA – what does it mean?

According to the California Association of Realtors, pending home sales have dialed back and marked the weakest February in three years.

Courtesy mcar.com.

Low housing inventory, eroding affordability and rising interest rates made pending sales on a year-over-year basis for the month of February suffer after a good start to the year in closed escrow sales. Also, sellers simply aren’t selling.

They did see elevated market activity, but the Bay Area pending sales specifically were down year-to-year for the fifth straight month. According to the release, the Bay Area has been plagued by a shortage of homes on the market and poor affordability.

We have seen an increase in listings starting in April, but with pent-up demand, buyers are getting frustrated losing out in multiple-offer scenarios and with ever-increasing prices.

If you want to know more about the market, give me a call!

Market tidbits, inspired by The Big Short

The other day, I wasn’t feeling well and ended up on the couch for most of the day watching The Big Short. It was much more insightful the second time around – I highly recommend watching if you haven’t already!

After seeing the movie and getting a spam voicemail market update from a lender (that was a first; the phone never even rang), I was prompted to blog about these tidbits:

  • Did you know that for every 8 applicants for home loans, 1 does not get approved? That proves the importance of getting pre-approved prior to house hunting.
  • Mortgage Rates saw a small decrease the week of Feb. 6th-11th and the stock market is showing signs of stalling. In speaking with my Degalis Advisor about my SEP, I asked if I should get out of Bonds. His advice was that we are due for a correction, so keep the Bonds for now.
  • The MCA index (which stands for “mortgage credit availability”) increased for the 5th month, which means we have looser mortgage standards. This has been needed because of strict regulations after the crash (we went from one extreme to another), but it still makes me nervous after re-watching The Big Short.
  • The 2017 year in real estate has been coined as “Modernization” and we should see a continued strong pace of growth and above average appreciation.
  • The West will lead the way in appreciation at 5.5 percent, compared to 4.5 percent nationwide.

So on that note, Have a Happy Valentines Day

How rate increases affect your payments

We’ve seen rates increase since Donald Trump won the election. Now, the Fed is saying they’ll do three rate hikes instead of the expected two in 2017. This caused rates to bump up about half a percent. What do interest rate increases mean in regards to a buyer’s payment and the overall market?

interest-rate-hike

According to The Wall Street Journal, if we adjust for inflation since 2006, housing prices are actually 16 percent below their 2006 peaks in most areas.  Many economists are saying the demand for housing remains as strong as ever and that recent rate increases will have a minimal effect.

However, people usually make home purchases based on payment. So as interest rates increase, somebody thinking of purchasing should know a 1/2 percent increase in rates for a $500,000 loan, increases the payment about $140-$150 (and even less after “tax benefits”).

bear-and-bull-market

Should buyers and borrowers wait to see if rates fall before moving forward with transactions? Jay Voorhees of JVM Lending says absolutely not. Borrowers can easily take advantage of no-cost refi’s if rates fall.

And, as Gary Shilling wrote in a Forbes column on Dec. 6, he thinks the markets massively overreacted to Trump’s election. He points out that the root causes of weak economic growth (that have kept rates low) will remain. He also says that Trump’s proposed tax cuts and stimulus programs will be watered down by Congress; the expectations of an economic boom are overblown.

What do you believe? Are you bullish or bearish? This election reinforced the notion that nobody has a crystal ball and sitting on the fence waiting for one outcome or another may be the worst thing you can do.

December/January housing market is stronger than you think

December and January are usually busy months with holidays, vacations and school breaks. But, contrary to popular belief, that does not mean the housing market slows down. On the contrary, actually!

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Based on 2015 numbers, listing your home in December and January actually give you a benefit. You can garner multiple offers and close above list price. In Spring, you get the price increase but also more houses listed, which lead to many more choices for buyers, making multiple offers rarer (or, you’ll get fewer offers at least, like 3 vs. 8 in Dec./Jan.).

If you’d like to take advantage of this market in December and January, reach out to me. I’d love to help you navigate the holiday season weather you are selling or buying a home or just consult with you on the best overall strategy for you!

East Bay housing market is shifting

housing-marketLately, we’ve started to see a “shift” in the Walnut Creek-area housing market. Price appreciation growth has slowed and we are now seeing more price reductions. Home price appreciation has generally declined to single-digit annual appreciation with estimates in the next year of 3-5 percent.

In the 24/680 corridor, homes are sitting on the market longer than they did in the Spring (20-26 days, as compared to 15-20 days). I am receiving 1-3 offers  with a final sales price of 4 percent over the asking price on most of my listings.

The Federal Reserve Bank will not increase interest rates this month. Currently, the best mortgage interest rate for a 30-year fixed rate is approximately 3.5 percent. In the big picture, global growth concerns remain the driving force behind the long-term trend toward lower rates.

Kitty Cole, who coaches many Bay Area agents, has noticed two distinct Bay Area markets. Many of them are side by side. Check out her insights:

Some of the market (still a seller’s market) is hot, with low DOM’s, high Sales Price to List Price ratios, low inventory, no contingencies, multiple offers and buyers aplenty. This market is going on in Oakland, Berkeley and surrounding cities.

It looks similar to the last 4 1/2 years. The only thing that is quite different is the number of offers that was 10-25 a few months ago, and is now 2-6 (and occasionally higher). This market requires savvy pricing and negotiating to get your seller the highest price. san-francisco

The other part of the market (a buyer’s market) has slowed with these factors in place: price reductions (up to 10 percent, and sometimes two before it brings an offer), contingent offers (contingent upon the sale of another property), high DOM’s, few offers (sometimes only one!), expired listings, cranky sellers and demanding buyers (because they can be!).

In the city, one client whose specialty is high-rise condos, literally slowed overnight and now the DOM’s for her listings are more than 30 days. Another San Francisco agent has had three listings expire in the past three months. One agent in the East Bay (Pleasant Hill) is stymied by her listings that sold within seven days and are now sitting for weeks. Many newer agents are not prepared to have the “I need a price adjustment to sell your property” conversation.  In three months, it will be different … how, I don’t know, wished I had that elusive crystal ball.

Why your credit score is important to your home purchase

Did you know your credit score can affect your home purchase? In Keith Loria’s BHG story recently, he discussed this idea.

credit score 2As he points out, “having a good credit score can be the difference between obtaining the mortgage you need to buy your dream home—or settling for less because you didn’t qualify for the money you need.”

This is important as many buyers don’t consider their credit score until they’re already involved in the process. At that point, it’s usually too late to fix anything that might be wrong with your score. So think ahead and monitor your credit score!

Don’t like your credit score?   Paying off debts is the fastest way to up your score, but if you are in the process of applying for a loan, check with the lender first. Missing deadlines on your credit payments are huge hits to your credit score!

credit score 1
Image by www.CafeCredit.com: https://www.flickr.com/photos/cafecredit/27321078025/

I also spoke with my local lender, Jay Vorhees of JVM Lending, about this, and he gave me a few benefits to having a high credit score :

  1. Borrowers with higher credit scores usually get lower interest rates (especially when loan-to-value ratios are higher)
  2. Borrowers are allowed to make smaller down payments, if necessary
  3. Underwriting requirements become less onerous because there are fewer conditions and requirements
  4. Second mortgage financing is easier to obtain, if necessary

If you have any questions about credit scores, purchasing a home, or the market in general, please feel free to reach out. I’m happy to help or guide you to the right person!

How to Ensure a Smooth Home Purchase

5 steps 3If you’re planning on purchasing a home this year, you’ll will want a transaction as smooth as possible. That’s what us agents are for! We want to help you find the perfect home and then ensure the process becomes as pain-free as possible.  You don’t realize how important this is until you have the transaction from Hell!

Taken from a Better Homes and Garden’s article and repurposed with some of my insights, here are five tips for a smooth home purchase:

Tip 1: Communicate with Your Agent

You spend a lot of time with your agent in a finite window, so, you should work with a real estate agent you are comfortable with. They should be straight up and express everything you want and need in your new home. By communicating your desires from the beginning, your agent won’t waste time showing you homes that don’t fit your criteria. If you know you want an updated kitchen or two baths, make that clear. It is also a process; sometimes what you want and what your budget can afford creates a discovery process, but when it comes to finding that perfect home, clear communication is key. And if you run into any problems along the way, be sure to speak with your agent to iron out any issues.

Tip 2: Be Reasonable with Expectations

If you’re searching for a three-bedroom home located in a certain neighborhood that has the right schools, and your agent shows you a property with a color you don’t like that only has 1.5 baths, don’t simply write off the home. When searching for the home of your dreams, you may have to give something up or make some changes once you move in. No home will be perfect and, again, it is a process to find that out.

Tip 3: Don’t be Discouraged

Don’t expect to find your dream home overnight. Buyers often get frustrated because nothing pops up in their price range for two weeks or they have written five offers and none of them were accepted, but remember, it is a process. And, this is the Bay Area! 5 steps 2Buyers usually course correct, change their expectations, get a quick education on the market and – voila! – the universe unfolds, the right house pops up and your offer is accepted! Woo-hoo! Now the rubber hits the road and you are in contract!

Tip 4: Play the Money Game

If you offer $375,000 on a home that’s listed at $400,000 and the seller refuses to budge, be prepared to negotiate. Wait!!! This is the Bay Area! When you offer $650,000 on a home listed for $620,000 and you are one of nine offers, you need to have some wiggle room for a counter offer. Before making an offer, discuss your strategy with your agent as he or she will be able to tell you whether your offer is fair or not. It’s also important to check out comps in the neighborhood so that you can make a reasonable offer from the get-go. Don’t forget how important a good lender is and the reputation they have with other agents. This may make the difference in your offer getting accepted over the other eight.

Tip 5: Get Your Mortgage Pre-Approved

This could be the smartest thing you do all year. By having a mortgage approved before you even begin looking at houses, you’ll be ready to make an offer as soon as you find the home of your dreams. Not all lenders are equal, and a good lender may give you the upper hand over other buyers who may be interested in the same house. Can they closer faster than 30 days? Do they get all the paperwork upfront and desktop underwrite you so there are no surprises? Are they responsive to your calls?

If you have any interest in purchasing a home this summer, and are looking for an agent who can guide you through the process smoothly, I am at your service and I have a great lender or two to refer!

Hot Housing Market This Summer

It is unlikely the Federal Reserve will be increasing interest rates this month after a weak May job report (only 38,000 jobs created, 117,000 less than expected and the worst month for job creation in nearly six years). According to experts, the likelihood of a rate hike is down to a measly 4 percent, and that trend may carry over into July.

Thus, this summer could prove to be the hot time to buy or sell a home. In California – specifically the East Bay – selling season tends to be in the spring. Once we move into the middle of May, buyers and sellers become distracted with graduations, weddings, etc.

And once school is out everyone moves into vacation mode through mid-August, before families start getting ready for going back to school. Usually, we see an uptick in the number of homes that are on the market in the summer compared to the  the spring. With continued low rates, this summer might buck that trend with buyers out to purchase.Beautiful white, blue and beige living room.

To prepare, buyers should be pre-qualified for a mortgage before they start shopping and, ideally, desktop underwritten. It is best if buyers don’t make an offer contingent on the sale of their own home. For sellers, they should be ready to make themselves and their homes available for show. At minimum, have a staging consult done. Try to have your home staged before a showing.

 

Statistics show clean and pristine homes that are staged properly sell faster and for more money than ones that are not. Necessary improvements, such as new painting, replaced fixtures and refreshed house plants are huge for staging.

It is about getting it show and picture-worthy and keeping it neutral, not spending a lot of money on upgrades. As is the case with personal preferences, “What you think is a nice improvement is another man’s gold shag carpeting.”

The State of Convenience

The California Association of Realtors (C.A.R.) report that 69 percent of Americans are looking for ways to simplify their lives. Furthermore, they say, 74 percent of Americans will walk out of a store – even if they have exactly what that person is looking for – if the service is poor. And 45 percent of U.S. consumers say they are likely to pay for a service that provides extra convenience in their lives. See their graphic below:

StateofConvenience.jpg

So, what’s the conclusion here? Consumers value time, and therefore convenience. This also translates to buying a home. Home buyers these days, especially millennials, want updated and move-in ready homes. They want properties conveniently located nearby public transportation or in an area with a high walking score.

As a seller, taking care of deferred maintenance, updates or remodeling will appeal to these convenience consumers.  Though you can’t change the location, you can highlight positive conveniences. As a buyer, know that living without some of these things may either get you a home or a better deal.