Why rates went down after 4th Fed increase?

My friend Jay Vorhees at JVM Lending wrote another interesting end-of-year blog recently, regarding rates. Despite the Fed increasing rates for the 4th time in 2017, they are still down. Why is that, and how does it affect you?

In Jay’s blog, he notes that 30-year fixed rates have fallen 1/4 percent over the last year even though the Fed has done four increases. On that note, he asks why the Fed’s rate increases don’t push up mortgage rates?

In response, Jay gives two main reasons:

  1. Short-term rates don’t always affect long-term rates
  2. Many factors (besides the Fed) influence rates

Inflation, geopolitical strife, economic news and demand for credit and bank loans are the other main factors named by Jay. Most of those are very relevant in today’s societal and political climate. Basically, the Fed helps influence rates, but isn’t the sole influencer – if investors are pushed out of stocks or bonds into the other, due to war, a poor week on the stock market, etc., rates will change just as rapidly.

So, what does this mean for you?   Rates are going to continue to fluctuate. They are still low, so if you are considering buying, it might be a good time to get off the fence and make a move in 2018!

Merry Christmas!

I hope everyone has a wonderful Christmas Eve tomorrow and Christmas Day after that. Happy Kwanzaa and Hannukah, as well!

No matter what holiday you celebrate, this is the most wonderful time of year to be with family and friends, eat good food, drink good drink, and to be thankful for what we have in life.

Enjoy your holiday season!

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Nordstrom Cafe is a nice spot to snag a quick meal

Getting hungry while doing your holiday shopping? Not to worry! Nordstrom is right in the middle of Broadway Plaza, and has a great cafe that always hits the spot.

Nordstrom Cafe has quality food. I usually get their salads, but they have great entrees and always plenty of good choices for food to take on the run.

And it’s not your standard, run-of-the-mill, in-store cafe, either. They have items like tomato basil soup, shrimp and arugula salad, freshly-prepared pizzas, and delectable sandwich options. Don’t miss Chef Todd Nelson’s daily picks, either.

You really can find fine dining anywhere in Walnut Creek these days! Nordstrom Cafe will give you an easy, quick option for your holiday shopping, especially during rush hour.

I’d highly recommend the  Mixed Berry Chicken Salad or the Chicken Apple & Goat Cheese Salad, but I’ve also tried their soups and salmon entree. It is reasonably priced for the food they serve, too. Can’t beat that!

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Newest must-see boutique: Filthy Gorgeous

Can one city have too many boutique stores? Not when it’s the holiday season, and definitely not when the newest redo boutique store in town is one of the coolest ones I’ve seen!

Filthy Gorgeous took over the space on S. California Blvd. and Botelho Dr. next to the Site for Sore Eyes and Jinny’s. It is a small corner that was previously vacant. It is just a few steps away from Broadway Plaza, where it had a store prior to the Broadway Plaza remodel.

Besides the ideal location, Filthy Gorgeous has some truly stunning home decor in their store. You can get anything from furniture, to art, to lighting to the basic home decor. They also run an interior design business, and you can see pictures of ongoing local projects on the website.

The brother-sister team of Jonathan and Tirzah created Filthy Gorgeous together and have grown it into a massive business that has been featured in multiple national outlets and on TV. And now they are back in Walnut Creek!

When I visited, I was really impressed by the style and choices in the store (my favorite items was a Buddha Goddess Head). Someday, I’d like to redecorate certain parts of my house with items from Filthy Gorgeous. Once you visit, you’ll probably want to do the same!

Filthy Gorgeous gets a perfect 5 out of 5 Mt. Diablo’s from me!

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Have you been to the Capital One cafe?

Have you noticed the new little cafe next to the Apple Store in downtown Walnut Creek? It’s a Capital One banking cafe – a new concept they’ve imagined in cities around the country.  It took me some time to stop by as it was such an odd concept; banking in a cafe? Here is the company’s blurb about who they are:

Ready for a reimagined banking experience? You’ve come to the right place. Capital One® is a new kind of bank, one that’s built on digital tools and human connections. People are at the heart of everything we do, so we keep the banking experience simple and straightforward

This location gives customers access to financial planning and banking options while grabbing a cup of coffee or tea. The cafe also hosts community events (This Friday, Dec. 15, is Ugly Sweater Day!) and does some philanthropy in the area. Nonprofits, alumni associations and student organizations can book their Private Community Room for meeting space during regular business hours.

They’ve teamed up with Peet’s Coffee and Tea to provide Walnut Creek residents with a great little place to relax while they’re banking or working on their laptops. Now that I have stepped into it, I find it is really a brilliant idea and marketing strategy by Capital One. There is also a cool lounge area with interesting artwork.

They also have a more private nook and conference room should you need it. Jason (pictured below) was very helpful about their concept and even gave me a ticket for a free drink. If you are a Capital One card holder, you get half off your purchases at Peet’s, and everyone can wander in and use the ATM with no fees and get free Wifi.

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It is also serving a niche for those self-employed folks who need to get out of the home to have a meeting or a quiet  place to work. It is a cool space where you can snag a great cup of coffee, tap free wireless, and work, which might make it worth getting a Capital One card.

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Why it may be a really good time to be a borrower

You may have heard of the wild events at the Consumer Financial Protection Bureau (CFPB) recently. My friend Jay Vorhees of JVM Lending had a few words to say about it on his blog, the main points of which are summarized below:

The departing director of the CFPB, Richard Condray, named his deputy, Leandra English, to be his successor. President Trump named his own acting director, Mick Mulvaney. Both claimed to be head of the CFPB, and English sued to nullify Trump’s appointment, but lost.

So, from a real estate perspective, this is what it means for the industry. The CFPB is extremely powerful and was created by the Dodd-Frank Legislation in 2010. It is funded by the Fed and mostly outside the control of Congress. So, the CFPB is well known for being aggressive in auditing and fining, even when offenses had no effect on borrowers.

On that note, Mulvaney – Trump’s appointment – has been openly anti-CFPB, and will likely try to roll back some of the agency’s enforcement efforts. If this holds true, there are two takeaways, or perspectives:

  1. A strong CFPB is necessary to keep the mortgage industry in check and avoid another meltdown like in 2008. It can be countered by pointing out that there are already other factors in place to prevent those abuses, including scrutiny from agencies such as HUD and state agencies.
  2. Lenders and loan officers spend an inordinate amount of time and money to make sure they never endure a CFPB investigation. These efforts often do little to help consumers, and only increase the overall costs of obtaining financing.

A weaker CFPB could result in more free time for lenders and loan officers, and lower borrowing costs for consumers.

Fannie Mae and Freddie Mac also announced their 2018 loan limits, which went up significantly. The “Low Balance” limit for a one-unit property jumped from $424,100 to $453,100 and the “High Balance” limit increased from $636,150 to $679,650.

These jumps allow more borrowers to take advantage of conforming loan guidelines when buying properties in areas with increasing home prices. Combine this with the CFPB appointment, and we may be looking at an incredibly good time to be a borrower!

Also, note the Fed is most likely going to raise interest rates on the 13th and then again in the first quarter of 2018. The market has already taken it into account, and we might see rates drop slightly after the 13th.

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Art Town: Master Study, Mount Rosalie

One of the best things Downtown Walnut Creek has accomplished in their art scene is making the electrical utility boxes you see scattered throughout any town look pretty. This is a popular trend in various cities and Walnut Creek  has jumped on the bandwagon!

This particular box is in front of Talbot’s on the corner of Main St. and Olympic Blvd., and is a nice piece of work by Mary Anne Kluth. It is called “Master Study, Mount Rosalie,” and was commissioned in 2014.

Kluth was born in Colorado but lives and works in the Bay Area after earning her MFA at the San Francisco Art Institute in 2008. Her piece was installed as a digital print on this box (as many are), but the original work used a hand-cut archival photo collage and acrylic paint to get this sort of apocalyptic, bizarre but beautiful nature painting.

Mount Rosalie of course is located in Colorado and is now called Rosalie Peak. I used to interpret this as a religious interpretation, but now that I have more knowledge about the piece, I want to go back and look at it in more detail. Note: Gott’s Roadside (future blog) opened Thursday. If you end up there, walk a block over and check out Mount Rosalie.

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Are millennials looking for homes or glorified dog houses?

Everyone loves dogs! I love my dog! You love your dogs, too! It seems that millennials especially like their dogs, as a recent Time article explained that “space for a dog” is the third-most common reason cited by millennials for buying a home in today’s market.

What really struck me about the article is this: “space for a dog” is listed ahead of “children” or “marriage” as reasons for purchasing a home. It came in only behind “more living space” and “building equity.”

Now, isn’t that interesting?  We know millennials are getting married later and having fewer children than previous generations, and the housing market has become so expensive across the county that it prices out people who have spent money on marriages and providing for children, but it’s still surprising to see it behind a reason like “space for a dog.”

The rental market prices have also skyrocketed, which makes me think that millennials would rather pay a mortgage in some cases and have their own home with ample room for their four-legged friends, than pay a monthly rent in properties with strict pet policies.

I guess you can always buy a home first, let your dog break it in, and then bring in a partner and children! Whatever works! It’s just funny to see the difference between their generation and mine, and why they pursue home-buying.

How the tax bill potentially will affect homeowners

This past weekend, the GOP passed its tax plan along party lines, despite heavy opposition against it in CA. I was wondering how the new plan might affect homeowners, and my friend Jay Vorhees at JVM Lending had the perfect answer. See his summary below!

The bill has a provision to cap the mortgage interest deduction to loan amounts of $500,000 or less. To be clear, borrowers will not be ineligible for the mortgage interest deduction if they owe more than $500,000; borrowers will only be able to deduct interest that accrues against $500,000 of their mortgage, no matter how large it is. Here are some observations:

1. Only 5% of all mortgages are over $500,000. And the vast majority of them are in California. Hence, it is unlikely that we Californians will get a lot of sympathy from middle America. But this also explains why there is so much concern in California.

2. How much will it actually hurt borrowers? For a $1 million home (not a lot in coastal California) with 20% down, a borrower will have an $800,000 mortgage. This means that $300,000 of that debt will be ineligible for the mortgage interest tax deduction. If the interest rate is 4%, the borrower will not be able to deduct $12,000 of interest from his or her income for tax purposes. If that same borrower is in a 40.5% combined tax bracket (33% Federal, and 7.5% State), he or she will lose $4,860 in direct tax savings. That is real money for anyone.

3. Current borrowers will be grandfathered, meaning they will be able to continue to deduct interest against a $1 million mortgage (or $1.1 million if they have an equity line). This provision will likely hurt inventory, as this will create another disincentive to sell. 

4. Standard Deduction Doubling: This is the bigger issue for real estate in general, as most lenders and Realtors aggressively sell the tax benefits from buying a house. If the Standard Deduction for married couples doubles to $24,000, most taxpayers will not be eligible to take advantage of the mortgage interest deduction (it would only make sense if their mortgage interest and other itemized items exceeded $24,000; a $500,000 loan at 4% would only accrue $20,000 of interest). 

5. The real estate lobby is extremely powerful. This is the biggest factor of all. The real estate lobby (that includes builders) is exceptionally powerful, and most of the lobby is opposed to the above-referenced provisions.

I always find Jay’s perspectives insightful with helpful information. Jay wrote this prior to the bill being passed by the Senate. Now that it has been passed, here are a few of my own observations:

  1.  There is a lot of jockeying of blame between the two parties (status quo).
  2.  If it was so negative, why did the Senate Bill get passed so quickly?
  3. The Senate and House will now go back and forth on all the details to get final approval before it goes to President Trump. Changes can still be made or it could possibly fall apart.
  4. Back to Jay’s last point – there is a very strong lobby that still can push change.
  5. I see this continues creating a disincentive for people to sell. It used to be that on average people moved every 7 years; that number has now increased to approximately every 20 years, thus the continued low inventory.

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