Interest rates: is the latest increase a deal-breaker?

My friend Jay Vorhees at JVM Lending had a fun blog about the 1/4% rate increase recently. He compared it to be equivalent to just less than four lattes per month, to put it into context. You can see the highlights of that blog below, and then our fun take on it!

From Jay: There have been a lot of rumblings in the news lately about rate increases…mostly b/c rates have been increasing :).

The Fed recently announced an increase in the Fed Funds rate with more on the way, and rates have been increasing in general in response to positive economic reports, as most everyone knows. As a result, rates are now back at levels not seen since 2011. The good news is that rates remain very low by historical standards, as we remind everyone over and over (6% was a “gift” in 2006; 7% was awesome in the 1990s; and 9% was unimaginable in the 1980s).

The other good news? Rates affect payments much less than most people think. Here is the rule of thumb: for every 1/4% increase in rates, a mortgage payment increases by about $15 per $100,000. That’s less than four Starbucks Lattes per month. So, in a “Starbuckian economy,” a 1/4% increase in rates will increase the payment on a $500,000 loan by about 20 Lattes per month. That’s not too bad, especially when you consider that those lattes may be tax deductible too.

From Kristin: So, let’s compare a 6-pack of beer, an average cost of which is about $9, to the 1/4% rate increase. You could get almost two 6 packs for that increase. Or maybe a new shirt on sale at Old Navy. A decent bottle of wine at Trader Joe’s will run you about $15. Eating out at many restaurants in downtown Walnut Creek might cost about $15 per person before tip.

So, before you get too worried about the rate increase, consider that what you’re really losing is just a new shirt, or a couple of beers, or one lunch out with friends. Or, god forbid, a handful of lifeblood, I mean lattes, before work! All said, this increase won’t have too much of an effect on your life.

Of course, it’s not all sunshine and rainbows. According to this article, mortgage rates are fast approaching 5 percent, which is a fresh blow to the housing market.

Are homebuyers going to hit the pause button?

Mortgage Consultant Bob Schwab posed an interesting question on his blog recently: is purchase demand softening? He writes that over the last several years, buyer demand has far exceeded the housing supply. This has led to home prices appreciating by an average of 6.2 percent each year since 2012.

The Foot Traffic Report, Realtors Confidence Index (both National Association of Realtors), The Showing Index (ShowingTime), and The Real Estate Broker Survey (The Z Report by Zelman and Associates) are the four major reports used to measure buyer activity. Three of the four have revealed that the purchase demand may, in fact, be softening:

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The Foot Traffic Report

Latest reports say buyer demand remains strong, due to supply and new construction remaining unable to keep up with buyer demand – despite a healthy economy and labor market.

The Showing Index

In July 2018, the Showing Index recorded buyer interest deceleration compared to the previous year for the third month in a row. They think buyer demand is softening.

Realtors Confidence Index

This measure reported slower homebuying activity in July 2018, down from the same month one year ago. It is the fifth straight month they’ve seen a decline, so they agree buyer demand is softening.

The Real Estate Broker Survey

The Z Report also finds buyer demand to be softening, stating that “a level of “pause” has taken hold in many large housing markets.” Their buyer demand rating of 69 (1-100 scale) is above average, but down from 74 last year.

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When most of the major measures of buyer activity report that demand is softening…it may just be true. According to Bob, the strong buyers’ market directly after the housing crash was followed by a six-year stretch of a strong sellers’ market. If demand continues to soften and supply begins to grow, as expected, there will be a return to a more neutral market. Though that wouldn’t favor buyers or sellers immediately, it is a better long-term look for real estate.

A direct quote from Bob: The era of cheap money might be coming to an end. Interest rates on mortgages are up three-quarters of one percent in the last year. The Federal Reserve is expected to raise short-term rates one-quarter of one percent at their September meeting and another one-quarter of a percent in December. Come October, bonds will have to stand on their own feet again as the Fed will officially end its “quantitative easing.” There are also some early signs of wage inflation as the unemployment rate continues to improve and businesses struggle to find employees. As I always remind my clients, mortgage rates are still fantastic from a historical perspective. They are still sitting in the mid to high fours. If you are considering buying a home or refinancing a mortgage this would be a great time to make a move.”

And my take: As rates and prices have increased, we are starting to see homes sit on the market longer and sell for less than they did six months ago. It really depends on the home and location. In Parkmead, buyers seem to want single story homes with current updates and a flat yard, as with the sale of 1691 Lilac. We still have an inventory shortage, but buyers are now taking their time, and a shift isn’t necessarily a bad thing. We will see if the lull is seasonal, but it most likely we will see the rate of appreciation slow down and sellers may have to adjust what they believe the value of their home is and buyers may not get as good of a deal as they expected. 

Real Estate is a GREAT investment!

Buying a house can be terrifying. Selling a house can be equally as difficult. The entire process is stressful, but the end result is often worth every second of the struggle. Bob Schwab, a mortgage lender in our office, often shares great information, and points out this is because investing in real estate is a solid decision!

For the fifth year in a row, a Gallup poll showed that real estate is the best long-term investment out there. This year, 34 percent of Americans chose real estate as the best long-term investment, followed by stocks (26 percent). You can see the chart, stolen from Bob’s blog, below:

Just five years ago, gold was the most sought-after long-term investment with 34 percent of votes. Even back then, real estate was in second place, though the economy was recovering from the economic crash that preceded it. Overall, the real estate market is in good shape and people seem to agree that it’s a stable, long-term investing option.  Rates are rising, so now may be a good time to buy check out this graph that shows how much buying power you lose as rates go up.
You can always give me a call to help you make that investment – it is, after all, my job!

What to know about the new tax bill limits in 2018

The GOP finally pushed through its tax package, and the reaction has been interesting to say the least. While some seem to love it (The Wall Street Journal said the bill is the best thing to ever happen to our economy), many others hate it. Regardless of how you feel about the bill, it is signed in now and it’s time to see how it affects you, as a homeowner, seller or buyer.
My friend Jay Vorhees at JVM Lending put together a blog detailing some main points about the GOP tax bill and how it may affect real estate. Here are the main thoughts:
1. Current homeowners will be grandfathered in and still allowed to deduct interest against $1 million of mortgage debt. In 2018, buyers will be limited to $750,000 and interest against home equity lines will not be deductible.
2. State and local tax deductions will be capped at $10,000. This will be difficult for people in California.
3. Standard deductions are doubling to $12,000 for single filers and to $24,000 for married filers, so many homeowners won’t have to deduct their interest and property taxes anymore.
4. We have no idea what exactly the bill will do for the market when all is said and done, but for now, we can expect the low-inventory, high-demand market to suffer in high-end areas down the road, while remaining neutral in the short term.
5. To fully understand the bill’s impact on you, see a CPA. Defer your commissions. And if you’re planning an out-of-state move, consider relocating to a low-tax state like Florida, Texas or Nevada.
I’d like to expand on #5 quickly – as Jay mentioned, there will be a new $10,000 cap on tax deductions starting in 2018. If you paid off your property taxes before January, you should be able to save thousands of dollars on that by avoiding the new rule for a year. And if you are planning a move out of the Bay Area to another part of California or another state, you should be consulting a realtor or a CPA to see what kind of savings you can get!

Don’t hold your breath for another recession

According to an Inman.com article, Kevin Thorpe (Global Chief Economist at Cushman & Wakefield) says we are going to have a very long economic expansion.

At the National Association of Real Estate Editors conference, Thorpe said, “The U.S. will not be going into recessions anytime soon. Recessions don’t just happen. First, we need to see imbalances somewhere in the economy — too much credit, too much exuberance in any particular sector.”

A frequent speaker in the local real estate arena, Carol Rodini and some Bay Area economists agree that some changes Donald Trump’s Republican cabinet will make – redoing the tax code, trying to replace Obamacare, etc. – will be good for the economy.

Carol recently noted the top 10 tech companies in Silicon Valley are sitting on about $3 trillion in cash between their domestic and foreign accounts. Those companies grew about 7 percent last year and they believe that will continue this year.

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So, if and when we end up in a recession, she believes it will be about a 4 percent dip. The Bay Area, because of Silicon Valley, will not feel it like the rest of the nation. For those buyers who are hoping for a dip so housing will be more affordable, you might want to buy now, before interest rates go up. For sellers: now and the near future is a good time to list!

Just Be Yoga is my go-to spot in Walnut Creek

About 1 1/2 years ago, I joined Just Be Yoga after I went on a Just Be and Dragon Fly Yoga retreat to Nosara, Costa Rica. I went with my favorite yoga teacher who I originally met at Forma Gym, named Kelli.

The owner of Just Be Yoga, Jenny Wendell, has created an amazing community. The people and the instructors there are incredible. The yoga studio itself has a 2-door glass garage that opens and shuts whenever necessary. They have heated classes, a little courtyard outside of the studio, and multiple yoga retreats per year from Yosemite to Hawaii, among other domestic and international locations. Another of my favorite instructors, Malia Hill, even offers an occasional SUP (stand-up paddleboard) yoga class in Alameda! This summer she is headed to Croatia for a SUP/Yoga retreat.

Courtesy of Just Be Yoga’s website.


I think my favorite thing about going to Just Be Yoga and the retreat in Costa Rica, were meeting all the great people and instructors and just feeling like I belong. The benefits of learning to breathe, sweat and get that afterglow/relaxed feeling is a big release from the stress of daily life as a real estate agent.

A big benefit to yoga, in general, is that they really get you in touch with your body. I had no idea how much I lacked in range of motion and flexibility. Kelli’s classes often focus on areas I never knew I could stretch like hips, IT bands and sides. These tend not to be the Deep Yoga class, but they have some great Vinyasa flow and I love the Yin classes. Just Be Yoga is located right behind Wish downtown. Check them out, try them out and come be part of this wonderful community. You can do an introductory trial month for $39.

Courtesy of Just Be Yoga’s website.

As for the retreat, we stayed at Blue Spirit and I stayed in the Eco Hut. I thought it meant “eco-friendly hut,” but I was wrong. Oops! It had no A/C, it was a shared room, and it was more than 100 uphill steps to get to the yoga studio and it meant economy hut ;-).

Despite all that, the experience was unforgettable! There was evening meditation, yoga twice a day and plenty of time to enjoy the beach (which was right next to our resort), horseback riding, surfing and more. Check out this slideshow below!

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What the most recent rate hike means