Historical rates and the current market

The Kiplinger Letter is the most widely read business forecasting periodical in the world, and lender Bob Schwab sent a recent one that gave me a lot of interesting information. It says:

“We don’t think a recession is imminent, despite a recent warning sign from the bond market. But that doesn’t mean the economy is fine. A substantial slowdown is in the works. “

The letter also hints at the recent slowdown in the European economy, which we touched on in a recent blog. I recently mentioned the inverse yield curve and the Kiplinger Letter noted the rate on short term bills briefly topped long-term yields last month, a situation the presaged recessions in recent decades, though long term rates soon rose again. Bob also mentioned that it was the 1-year treasury note that had a higher yield than the 5-year. It is when the 1-year and 10-year inverse that has led to a recession in the past.

Suddenly, the U.S. doesn’t appear immune to a recession.

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Kiplinger

Here are the reasons for guarded optimism, as Kiplinger see them…facts about the underlying strength of the U.S. economy that ought not to be overlooked:

  • The jobless rate is low. Inflation is modest.
  • The housing market is starting to rebound. (I feel our area is rebounding, just not as robust as a year ago)
  • Consumers continue to feel fairly confident, though their mood varies as stock prices rise or fall.
  • A trade deal with China still appears likely to happen later this spring, which would give a badly needed boost to global trade.
  • The stock market isn’t pricing in a recession yet. Nor are corporate bonds, whose yields relative to safe Treasuries indicate investors aren’t afraid of defaults.

It is also interesting to look at in the context of historical rates, which for buyers is a key motivator to whether they will buy or not. At the end of the day, we still look great, as shown below:


Fed halts rate increases (JVM Lending)

Jay Vorhees at JVM Lending shared an interesting blog recently about the Fed halting rate increases. We’ve posted about the Fed and how it affects the housing market many times in the past, so I wanted to break it down for you again. First, Jay’s blog:

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Yesterday, the Fed announced that there will be no more rate hikes in 2019. And many people in the mortgage and real estate industries cheered. But a lot of economists and Fed-watchers are more worried than ever.

Here is just one of many articles (from the WSJ) I read today illuminating serious concerns. The Fed has the toughest job in the world. It needs to build up enough ammo to fight the next recession without actually causing the next recession.

The problem for the Fed is that it needs to lower rates 4-5% to effectively help the economy when a recession hits. But, the Fed Funds rate is only 2.5% today, and if the Fed raises rates any more, they could cause a recession.

So, that leaves more Quantitative Easing as a likely option when the next recession hits. But that too may be less effective because the Fed still holds almost $4 trillion in MBS and Treasuries, down a little from, but still close to, its peak holdings of $4.5 trillion.

So, what does all this mean for those of us in the real estate and mortgage industries? It means the sun will shine a little brighter this year for all of us. But, the more the Fed artificially induces bright sunshine now, the longer the sun will be behind a cloud in the future.

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So, like the Portuguese biscuit maker who just keeps making buscuits no matter what the economy does, we should all do the same – as fast as possible. Because our current economically-sunny weather won’t last, and we need to be ready for the cloudy weather that is certain to come and that will likely now last even longer.

Okay, that’s a lot to take in, right? Here is my takeaway: cash is king and save your money to buy when the market dips. Europe is already in a slowdown, we are seeing the tech stocks take a hit, and this past week we now have an inverse yield curve, which in the past indicated a recession in the next year or so. Who knows what will happen (nobody has a crystal ball, but you can save)?

Why curb appeal is so important

My friend Jay Vorhees at JVM Lending wrote a blog about the importance of curb appeal for marketability and “appraisability.” I’ve shared with you below!

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I live near a home that was on the market for nearly three months before it finally ended up selling for over $200,000 less than its original list price. In contrast, I live near another home that is the same size as the home I just referenced, and it recently sold over asking on the same day it hit the market; it also sold for over $200,000 more than the house I referenced in the first sentence!

One of the biggest differences between the two homes is curb appeal. The home that sold for less than asking has a front yard that consists mostly of 40-year-old junipers while the more expensive home has far more appealing landscaping. What is most interesting to me is that the nicer home’s landscaping was not elaborate or expensive; it was merely fresh and very well-maintained.

If the lower priced home had spent $15,000 to take out the junipers and refresh its landscaping, I think they would have made back that money many times over. As most agents know, it’s all about “Curb Appeal.”

According to a survey, what really sets a house apart is a nice yard, a new mailbox, exterior lights, and a welcoming front porch. In contrast, having a dirty exterior, unmown lawns, dead plants, weeds, overgrown flower beds, a garish house color, a tacky mailbox, no trespassing and beware of dog signs, or chain link fencing can really reduce curb appeal.

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Most agents are well aware of these factors and do a good job of coaching their clients. The above factors significantly affect marketability of a home, and it often takes a surprisingly small amount of time and/or money to enhance curb appeal. It also influences appraisers! They are more likely to correlate to the higher range of a price point if the curb appeal of a house is better – even if the interior isn’t as nice.

-Kristin’s wrapup: Overall, it is amazing how some small improvements can help the sale. Whether it is staging, putting in fresh bark and potting some flowers, painting the kitchen cabinets, or adding a stone countertop, I believe this helps a home get more showings, sell faster and ultimately get more money.

Divorcing and selling a home

My friend Jay Vorhees at JVM Lending put out a good blog recently about a tricky subject: divorcing and selling a home. Apparently, March tends to be the peak divorce-filing month because it’s after the holidays but before summer.

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Jay has some go-to advice for those who need to know about mortgages and divorces:

  1. The only way a spouse can get “off a loan” is with a full refinance.
  2. Stay cordial before the divorce, because if you want to buy before it is finalized, the non-buying spouse must sign a quit-claim.
  3. It takes 6-12 months of court-ordered payment history before spousal support income of any kinda can be used.
  4. There need to be at least 3 years of future payments before one can qualify for spousal support (i.e., can’t use income if support ends at age 18, and the kids are currently 16 and 17).
  5. Lenders must have a court-approved settlement agreement before a transaction can close, once they find out about a pending divorce.
  6. Divorcing spouses can hire private judges to expedite settlements in order to close mortgages sooner. This can be an affordable alternative (as little as $500 sometimes).
  7. Increasing a mortgage to buy out a spouse is not considered “cash out” as long as all cash proceeds go to the spouse getting bought out.
  8. All marital debt must be accounted for when qualifying, unless there is a court order or decree that specifically states which spouse is responsible for which debt.
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Okay! That’s a lot of information that I hope none of you ever have to use. However, it is good information if you do or are thinking about it. Call me if you have any questions.

How is the housing market changing?

According to a Zillow Senior Economist, the housing market is changing: “The number of homes on the market is hesitantly inching higher — now approaching the highest level in a year and a half. The first quarter of 2019 is shaping up to be more competitive than the lull we saw as 2018 come to a close.”

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I have some thoughts about this! We are seeing the market pick up locally, but I am still seeing price reductions and then some that surprise me. Overall, homes priced right and in turn-key condition will always fare well over the competition.

The number of homes for sale has increased in four of the last five months after years of decreases, but that doesn’t mean there’s suddenly a huge amount of houses available. Don’t get fooled into thinking there is a hot, new market while you’re buying.

Further, mortgage rates are trending downward over the last year, according to Freddie Mac’s Primary Mortgage Market Survey (Feb. 14 week). They cite a “combination of cooling inflation and slower global economic growth” for this drop.

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My take on this is that we are truly operating in a global economy and the softening of Europe with their various issues has had an impact. The Fed has stated they now have the least amount of control over mortgage rates than in their entire history. I have no crystal ball on rates, so enjoy them while they stay low. That may be why we are having an uptick since the winter of 2018.

Another closing at Tampico!

I recently closed a townhome on Tampico, and I’m so happy to have helped Tyler and Yana. They relocated about a year ago and decided to rent in San Francisco for a year and get a feel for the area. Tyler works down in Pleasanton and their San Francisco rent recently went up. They were very motivated to move back into home ownership.



We met one day over coffee and talked about the market, what they were looking for, timing, and the area they were most interested in. They loved Walnut Creek with Broadway Plaza, all the restaurants and overall vib. Since I had a previous appointment, we looked over some open houses in Walnut Creek and they decided to go look at a few. He called me later that day and said they really like a home on Tampico and wanted more information.

This home had been bought in July by an investor who flipped it. Timing is everything and the seller had the unfortunate experience of a soft second half of 2018. There had been a handful of price reductions until January where it was listed at $699,000, down from $775,000 – an opportunity for a buyer! It took a few days to get the financing and all the details, so about three days later we submitted an offer less than asking. In the beginning of January, the market again began to shift, this time upwards, and another offer was submitted and countered to $715,000. Their offer was accepted and then we started the inspections. They ended up with a $5,000 credit and some things that HOA needs to fix. Overall, it was a very smooth process and they are excited to be living in Walnut Creek with a yard for their dog and a nicely updated home! Congratulations!!!!

Congrats on the closing!

I met Lisa and Grant in the middle of November and by the middle of January, we closed on their new home. They lived in Daly City, work in San Francisco and just had a baby and decided it was time to buy a house – the East Bay is more affordable than the city or the Oakland area.

They were initially not in a hurry, but were very active right out of the gate; then I found out that it made sense for them to purchase before Lisa’s maternity leave was over in February, thus a couple of weeks later we were in contract! There was one other offer, we got a Seller Multiple Counter and in the end their offer was accepted.

After all the inspections were completed, they received a credit and a slight price reduction because of a couple of unfinished portions of a recent remodel job. I have to give a big shout-out to Tobi, the Escrow Officer at Fidelity, on this transaction. She went above and beyond to work through a title issue. Overall, the process was smooth, JVM (the lender) was on point, and they got the house before Lisa goes back to work.

They now are in the process of doing some repairs prior to moving in and putting their personal touches on the home. They were so excited! I wish them many wonderful memories and happiness.

Why I only refer clients to lenders I trust!

I won’t be pasting the entirety of Jay Vorhees of JVM Lending’s blog about this here. I’ll just hit the major points. But this is a perfect example of why I only refer clients to lenders I trust. Read on:

Last week, a borrower came to us to discuss her refinancing because she had lost trust with the lender she was working with (America’s largest non-bank lender). She was trying to refinance the house she lived in but it was owned by her Dad and she was not on the title, so a refinancing was impossible.

In any case, she was trying to refinance the house she lived in but it was owned by her Dad and she was not on title.  So a refi was impossible – something the other loan officer failed to comprehend – and it had to be structured as a purchase.

Further complicating things was a “gift of equity” down payment, the need for “cash out” for improvements, and the need to avoid capital gains taxes for the seller – all issues that the other loan officer had zero understanding of.

In any case, one of our Mortgage Analysts quickly figured out how to structure the loan and then re-locked the same borrower with the same lender via our correspondent relationship but at a 1/2 percent lower rate. 

I share this story not to make JVM the hero but to once again warn buyers away from the big call center mortgage companies. The call centers stuff bodies into cubicles to do nothing but sell.

Those “bodies” often do not have the skill to close transactions when there is even a small amount of complexity, and…their rates are way higher to boot.  

That’s Jay’s horror story about call centers. It does a great job of explaining why I prefer to refer specific lenders I know who will always get the job done. It creates a smoother process for everyone that way. Most banks or Quickens of the world don’t fully underwrite upfront; it requires a lot of paperwork initially, but it creates a very smooth process to closing. This way the buyers are aware of any potential issues before you ever write an offer. They also don’t tell you that once you are in contract, you are handed off to loan processor who you have never spoken with and many loan agents are on to the next approval and are no longer in the immediate loop. Communication often falls apart at this point. Your loan officer may be local, but the processor could be in a different state.

I currently have a new home buyer who is shopping three different lenders looking for the best rate. With two of them, I expect possible delays and a questionable overall experience for my buyers. One is fantastic, but a first-time home-buyer doesn’t understand those nuances far outweigh an eighth of a point difference in an interest rate. Hopefully whoever they choose will do right by them and it will be smooth sailing.

I just closed on a house (blog to come on Thursday). When we first met, they were talking to one of the largest non-bank lenders. I recommended they speak to JVM and just compare the experience and decide who they would like to work with. They closed with JVM and when I handed them the keys, they remarked at how smooth the overall process was for them and when compared to their friends who recently purchased and had a loan with one of the big banks, they said their lending experience was horrible.

The Fed lost control over interest rates – so now what?

My friend Jay Vorhees of JVM Lending had a great blog recently about The Fed and interest rates. Here is the article below, with my two cents included:

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Rates are at an eight-month low right now – about 1/2 percent lower than they were at their peak in October. I should add though that they still remain about 1/2 percent higher than they were last year at this time. So, did the Fed finally achieve its stated goal of pushing up rates?

Not in the way anybody expected.

According to former Senate Banking Committee Chairman Phil Gramm, the Fed now has less control over interest rates than at any other time in its 105-year history. I won’t go into all the details, but it has to do with its massive bond holdings (almost $4 trillion) and the excess reserves in the banking system. You can read more about it here.

The Fed can influence rates in the short term with its actual policies and statements, but the markets now seem to have much more say in the matter than the Fed. We are watching this currently, as the Fed’s short-term rate increases are not resulting in long-term rate increases like we have seen in the past.

What this means is a repeat of what I have been saying repeatedly over the last several years – nobody really has any idea of what will happen with rates (or anything else for that matter – remember Mr. Trump’s election?). A slowing world economy could continue to bring rates down, or a resurgence in bank lending (according to the article referenced above) could spark an inflationary spiral that will send rates through the roof.

Suffice it to say that we will see a lot more volatility in both the stock and bond markets for a long time to come. What is really scary though is what will happen when everyone figures out that there is no way that the world can ever pay back the $250 trillion in worldwide debt that has built up over the last ten years. When that happens, today’s environment will seem like very calm sailing.

Bond Market

Lastly – despite the uncertainty, many pundits are now predicting low (and even declining) rates throughout 2019.

Great stuff from Jay, right? So, here are  my thoughts: The Fed came up with four rate hikes last year, and now the mortgage rates are lower than expected as stock market sways are leading people to bonds. What that means for the real estate market, especially locally is that more buyers maybe taking advantage of getting in now.  I am starting to see the market pick back up, but this year it didn’t happen on January 3rd, didn’t really see it until the weekend after January 7th when the kids returned to school from their holiday break.  January has been interesting the last few years, as buyers have been out, but sellers want to wait until March and they often loose that burst of lots of buyers and no inventory.   At any rate, nobody has a crystal ball and I believe we will be on a wild ride as the stock market will have more volatility (as it is suppose to).