Interest rates and purchasing power

According to Certified Mortgage Consultant Bob Schwab, interest rates you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power. Check out his comments here:
According to Freddie Mac’s latest Primary Mortgage Market Survey, interest rates for a 30-year fixed rate mortgage are currently at 4.61%, which is still near record lows in comparison to recent history! The interest rate you secure when buying a home not only greatly impacts your monthly housing costs, but also impacts your purchasing power. Purchasing power, simply put, is the amount of home you can afford to buy for the budget you have available to spend. As rates increase, the price of the house you can afford to buy will decrease if you plan to stay within a certain monthly housing budget.
The chart below shows the impact that rising interest rates would have if you planned to purchase a home within the national median price range while keeping your principal and interest payments between $1,850-$1,900 a month. With each quarter of a percent increase in interest rate, the value of the home you can afford decreases by 2.5% (in this example, $10,000). Experts predict that mortgage rates will be closer to 5% by this time next year.
Jay Vorhees of JVM Lending has a take on higher rates and how they affect qualifying, too:
How Do Higher Rates Affect Qualifying? Potentially A Lot.
RATES ARE GOING UP, REST ASSURED
We’ve said that at least a hundred times over the years but this time it is a reality b/c the Fed is no longer buying bonds to push rates down, and b/c the Fed is very determined to push rates up in general. We saw a slight dip in rates recently largely b/c of economic turmoil in Italy, but rates are expected to climb another 1/2 percent this year alone.
HOW WILL RATE INCREASES AFFECT THE QUALIFICATIONS OF A PRE-APPROVED BORROWER?
Rule of thumb: A 1/2 percent increase in rate will increase a mortgage payment by about $30 for every $100,000 borrowed. Hence, if a buyer is looking at a $600,000 mortgage, her payment will increase by about $180 if rates go up 1/2 percent. In regard to qualifying, an increase in rate could easily shave off $25,000 to $50,000 from a buyer’s maximum.
For example, let’s say “Jeremy” the buyer is pre-approved for a maximum $750,000 purchase with 20% down at a rate of 4.75%. Let’s also assume Jeremy’s maximum payment (Principal, Interest, Taxes, Insurance) is $4,000 and his income is $8,900 per month, giving him a maximum debt ratio of just under 45% (all numbers are rounded). If rates increase 1/2 percent, Jeremy’s maximum qualification would drop to about $715,000 b/c that is the most Jeremy could buy in the higher rate environment without pushing his payment over his $4,000 limit.
In other words, if Jeremy’s rate increases from 4.75% to 5.25%, he will lose about $35,000 of purchasing power. What can poor Jeremy do?
A. Consider an Adjustable Rate Mortgage (ARM). Jeremy can knock as much as 1/2 percent off of his rate by considering a 7/1 ARM. Knowing that very few buyers ever keep their mortgages more than 7 years will help him rest easy with his ARM.
B. Buy now while the getting is good! If Jeremy is hellbent on a 30-year fixed rate loan, he should buy now to lock in today’s rates. BUT – we will still remind Jeremy that even if rates are in the mid-5’s, they are STILL a “gift” by historical standards.
C. Buy a $50 tent and a motorcycle, and skip the house thing. I did that in my early twenties, and it was really fun. Jeremy might want to do the same. But don’t worry, we won’t suggest it. Lastly – should Jeremy worry that higher rates might hurt home prices? According to this blog, no :).
Note:  for those living in a rabbit hole, last week the Feds raised interest rates and stated instead of one more rate hike, it will most likely be two more this year and then 3 more in 2019.

Get your groove on this summer!

There’s nothing better than a summer night in the Bay Area. We’re spoiled with perfect weather here, and it means we can spend every evening outside, enjoying the twilight with drink in our hand and a happy hour entree on our plates. It also means it’s time for Summer Concert Series season!

You don’t have to stray too far from home to get to the closest concerts. There will be four free performances outside The Lesher Center, starting with a show this Thursday at 5:30 p.m. All shows go from 5:30-7 p.m. and will sell beer, wine and snacks:

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Courtesy: http://www.lesherartscenter.org/summer-sounds-2018.html
  • June 21: Mariachi Mestizo
  • June 28: The Sons of the Soul Revivers
  • July 12: Tumbledown House
  • July 26: The T Sisters (highly recommend this one – love their sound!)

If you like what you hear in July at The Lesher Center, carry on that momentum into August with Broadway Plaza’s Summer Concert Series. These will take place from 6:30-8:30 p.m. in Event Plaza, and they are also free to the public:

Courtesy: http://www.broadwayplaza.com/Events/Details/475005
  • Aug. 16: Kalimba (The Spirit of Earth, Wind & Fire)
  • Aug. 23: Caravanserai (The Santana Tribute)
  • Aug. 30: Bee Gee’s Gold (The Tribute)

Lastly, if you want to venture a bit outside of Walnut Creek, check out our neighbors’ Summer Concert Series in Pleasant Hill’s Plaza in front of Jack’s Restaurant & Bar. The shows take place from 6:30-8:30 p.m. and are, of course, free!

  • July 5: Fleetwood Mask
  • Aug. 2: Top Shelf Classics
  • Sept. 6: Illeagles

No matter which series you choose – or if you try out all three – you’re sure to have a good time jamming to some fun music! Let me know if you visit any of these shows, and how they are!

Event Round-Up: June 16

Welcome back to the newest installment of Event Round-Up! As always, this is where we gather five of the best Bay Area events taking place over the next month or so. Let us know if you go to any of these, and if so, how you liked them!

1. Walnut Creek Uncorked (Weds., June 20)

Walnut Creek Downtown presents a brand new event, designed for the wine-lovers in our town. Tickets are $40 in advance, and get you access to wine tastings, restaurants, artisan fashion and jewelry stands, and live entertainment. You must be 21 to buy a ticket!

2. Danville Summerfest 2018 (Sat., June 23 & Sun., June 24) 

Danville has a little festival of its own that you may want to check out! Our neighbor has a cute downtown that will be filled with local music, art, and food vendors. There is a classic car show on Sunday, and the event is family and dog-friendly. Danville Summerfest will take place from 10-5 each day.

3. Alameda County Fair (Fri., June 15 – Sun., July 8)

It’s that time of year again! The Alameda County Fair at the Alameda County Fairgrounds in Pleasanton kicked into full gear yesterday, and will carry on through the weekend after 4th of July. If you don’t have larger travel plans, you can trek over to Pleasanton for this awesome annual event – LeeAnn Rimes, Blue Oyster Cult, and Sean Kingston are some of the many musical acts expected to perform this year.

4. 4th of July Fireworks (Weds., July 4)

I don’t have any particular event or link for you here. There are generally tons of good spots to choose from to watch East Bay fireworks on the 4th of July. Take the kiddos, your leftover BBQ, and a blanket to enjoy the show. My favorite place to catch them is up at Tahoe.

5. Walnut Creek First Wednesdays (Weds., July 11)

Another stellar outdoors event to celebrate all that Walnut Creek summers have to offer! There is free parking after 5 p.m. in many major downtown garages to help you get around. If you’ve never experienced a First Wednesdays celebration, it is chock-full of live music, food trucks, drinks, games and even a Kids Fun Zone. Check it out from 5:30-8:30 p.m. on Cypress St. in downtown.

JVM Lending: If appraisal comes in low…

…a buyer is not overpaying! Appraisals and market value can be a tricky math problem for buyers to figure out, but that’s why my friend Jay Vorhees from JVM Lending has put together this handy-dandy blog to explain. Take a look below:

When Appraised Value Does Not Equal Market Value

We have a buyer who was convinced she was “overpaying” for her property because her appraisal came in low. But, there were multiple offers for her property that were very close in price to hers, and there are nearby pending sales that are also similar in price. The entire issue has to do with appraisal guidelines. We repeat this often in this blog because the issue comes up so often: appraised value often does not equal market value.

Image result for house for sale

If there are multiple buyers willing to pay $850,000 for a property in an open market, then that property’s market value is $850,000. But, appraisers cannot appraise properties (in most cases) above the highest closed comparable sale in the neighborhood. So, if there are no closed sales above $800,000, that property will usually not appraise for over $800,000.

But, again, that does not mean the above property is not “worth” $850,000. Once this was explained to our buyer, she was no longer concerned about her low appraisal. This is something every buyer needs to understand in a fast-appreciating market where contract prices are tough to support in an appraisal.

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This is something I deal with constantly with my own clients. Jay hits the nail on the head here: appraisals may come in lower than expected, but it is not equal to a diminishing value on the property. For more helpful information like this, give me a call! I can talk about real estate all day 😉

You pa-gotta try Parada

Nestled in a quaint corner of the new-ish Pleasant Hill BART area – but technically still in Walnut Creek – lies a hidden gem of foreign cuisine. Parada, the latest brainchild of the Michelin rated Chef Carlos Altamirano, is a delicious, colorful display of Peruvian food that will definitely bring you back for seconds.

Chef Altamirano’s name may ring a bell; he has Mochica and Piqueos in San Francisco, Barranco in Lafayette, a fleet of Sanguchon food trucks, as well as La Costanera in Half Moon Bay, where he earned Michelin stars in 2011, 2012 and 2013. He trained under some of the Bay Area’s most renowned chefs, combined that background with an upbringing infused with Latin American culture and cuisine in Southern Peru, and created a food empire.

Now I know from personal experience that Peruvian cuisine, especially when cultivated by Chef Altamirano, is a can’t-miss eating opportunity.

The restaurant itself is quite small, but you wouldn’t know it when you’re in there enjoying your meal. Parada is open for lunch and dinner every day of the week, though hours vary. It’s a little bit pricey, but that’s what quality fine dining in Walnut Creek will get you these days!

If you haven’t been to Parada yet, I insist you do so. When you go, let me know how you liked it!

Art Town: Cost Plus globe!

We have a pretty unique art piece for this week’s Art Town. Normally, we discuss paintings on electrical boxes, or statues that everyone has seen. But this time, we’re making you crane your necks to look up!

You’ve all been to Cost Plus World Market, which shares a block with the movie theater.  I’d always noticed the big, metal globe on top of the building, but I had never taken a really close look.  It may be a tie to their logo, not unlike the circles at the back of the Target building on the corner of Ygnacio and California.  For new business construction, the city requires some sort of art work to accompany our streets and I believe this is exactly that, yet ties nicely with the business.  I may be wrong and if anybody has some insights, please share as I did not find any notations about this piece.

When you get up on the parking deck on the roof, you can actually see it up close behind the gate they have there. It’s much more intricate and detailed than you realize from the ground, and it really is a beautiful, random piece of art. Take a look at this up-close picture here to see the detail:

It almost looks like a nest, or a cage, or what the Earth might look like if only rivers and faults were mapped on a globe. It is all wound together so randomly, but there’s an order to it, as well. Truly a fascinating piece of artwork that many people might not even notice when they’re walking around downtown or parking on the top lot!

What can bring down house prices and rates?

What could bring house prices and rates down? According to my friend Jay Vorhees at JVM Lending, it could be something called “monetary tightening,” or an experiment conducted by The Fed to infuse the economy with cash. Basically, what Jay is getting at, is that you’ll never know exactly when to buy or sell (or when a market dictates that decision), and that assuming you know the market intimately trying to time the market may be a mistake. Read on for more from our slightly-edited version of Jay’s blog:

Dude Sells Too Soon!

I was at a graduation party yesterday and the host told me how his law partner sold his Silicon Valley home two years ago because he was convinced the market had peaked.

It hadn’t. The poor guy’s former home has gone up another 20% since he sold, and so has his rent. The host made the further point that people should never try to time a market they are not intimately familiar with.

I like to remind everyone that nobody should ever try to time a market, no matter how much they know, because there are so many variables they have no control over – especially when those variables involve the Fed.

Elephant in Room: Monetary Tightening

There is a huge elephant in the room that nobody is talking about: Massive Monetary Tightening via Higher Rates and Quantitative Tightening.

After the meltdown, the Fed engaged in a massive experiment known as Quantitative Easing, where the Fed bought trillions of dollars of government bonds and mortgage-backed securities. These bond purchases increased the money supply by flooding financial institutions with cash in an effort to increase lending and liquidity. The Fed also lowered the rates to unprecedently low levels.

The low rates and huge capital infusion pushed up asset prices, particularly with respect to stocks, bonds and real estate. This is what usually happens when the Fed increases the money supply, and this is partially why we see such high asset prices now. Many people believe high prices are just a function of too much demand chasing too little supply, but that is not always the case.

Excess demand is often driven by excess capital in an economy; people want to park their capital somewhere, as opposed to letting it sit in bank accounts, so they buy assets. In any case, the Fed created about $4 trillion of new money up through 2016, and in 2017 they reversed the policy! They are now not only pushing up rates but also selling bonds with the intention of vacuuming about $2 trillion out of the economy.

This will likely have an adverse effect on asset and housing prices at some point. Do I think real estate prices will tank? No. I still like real estate because the fundamentals are so strong in many areas. But, I don’t think we’ll continue to see such strong appreciation, and now might be a good time for Silicon Valley lawyers to sell their homes.

Fed Could Reverse Again

Nobody is more aware of this than the Fed, and they are watching closely. If Fed policymakers see the economy showing excessive signs of softening, they could very likely change course again – and lower rates. Again, nobody knows what will happen because we have never seen anything like this before! We are in the midst of one giant experiment, and we all get to be the lab rats.

“Sure Enough” – new art installation in Civic Park!

You may remember when I posted my most recent Event Round-Up. It featured an artist named Patrick Dougherty who was putting up a massive art installation in Civic Park, culminating in a final reveal/celebration on May 26th.

Well, the installation is done and up in downtown Walnut Creek, and I’d highly recommend you go check it out! It’s extremely unique and interactive, and it draws your eyes right to it. I recently stopped by Civic Park to take pictures and experience “Sure Enough!” It is fun to meander through and get lost in the moment and just watch other people do the same. I got there after the celebration and people were still coming into the park with curiosity and then continuing through to see the Hand of Peace.

As mentioned in my previous blog, the installation is made possible because The Bedford Galley and City of Walnut Creek Public Art Department have a National Endowment for the Arts grant.  This project is inspired by the idea that art is for everyone.   I am continually impressed with Walnut Creeks urban art and how they expose and engage the community to public art.

Dougherty is a world-famous sculptor, known for his larger-than-life woven willow sapling installations. He says that ¨Sure Enough” (which is a Southernism evoking a state of complete satisfaction) is aimed at the open skies to take in “that special California light.”

Dougherty, who has won many awards for his work, started out with single pieces on pedestals and moved into these monumental, scaled works which require truckloads of saplings. He has built more than 250 of them now, and has become internationally acclaimed for sculptures worldwide, including Scotland, Japan, France, and more. The “Sure Enough” installation will be there for a couple years, so no need to hurry, but next time you’re in or around Civic Park, make sure to check it out!

Road Trips: Summer Festivals

One of the best parts about summer in Northern California is that it’s pretty much perfect weather all the time. Even the notoriously-chilly San Francisco has a legitimate summer for a couple months at the tail-end. If you’re a fan of music like me, this is a perfect season for festival-hopping!

Last weekend, BottleRock in Napa took place and they had another fantastic lineup. I went on Friday which was a birthday gift from my friend Veronica. It is one of my favorite festivals – more to come on a future blog. Between the music itself and the amazing Napa-esque food and drink scene, you can’t go wrong at BottleRock. There are a few other great festivals in the Bay Area you should definitely check out, too. Here are 5:

Outside Lands (Aug. 10-12 in San Francisco): Another wildly popular festival that attracts top names in the music circuit to its stages in Golden Gate Park. This year, you can see Florence and the Machine, The Weeknd and Janet Jackson atop the list.

Stern Grove (June 17-Aug. 19 in San Francisco): Stern Grove is a free (!!!) annual festival that has hosted names as big as Stevie Wonder in the past. This year, two of the biggest names will be M. Ward and Ziggy Marley, also playing in Golden Gate Park.

Hardly Strictly Bluegrass (Oct. 5-7 in San Francisco): I’m pretty sure Hardly Strictly used to be literally strictly bluegrass. But nowadays, the free show in – you guessed it – Golden Gate Park welcomes all genres. This year’s lineup includes Brandi Carlile and The Wood Brothers!

Country Summer (June 15-17 in Santa Rosa): Let’s mix it up a bit. Florida Georgia Line, Little Big Town, Toby Keith and Maren Morris are the highlights of this country festival in Santa Rosa. I’ve never been, but if you like country, this line-up kicks it!

Berkeley World Music Festival (June 1-3 in Berkeley): We can’t have an arts/culture/music blog without including the funkiest Bay Area town around. This is going on RIGHT NOW, but it’s free and you can bring the kids to experience music from all over the world!

The Cost of Waiting

I generally encourage all my clients to be patient in the home-buying process. You’re looking for your dream home, and a house to call your home where memories are created. You want to exercise patience and really find the right place. However, at some point, waiting too long or sitting on the fence can have consequences.

As you’ll see in the blog from my friend Jay Vorhees at JVM Lending below, waiting too long on a home purchase can be costly. He highlights one particluar (anonymous) client who kept quibbling over small price differences and that stubbornness led to her not only missing out on her dream home, but settling for an entirely different town. To add insult to injury, the home she wanted has doubled in value since!

Read on to learn more:

COST OF WAITING IN 2012

In 2012 and 2013, we had a borrower looking to buy in Oakland and she was obsessed with getting the absolute lowest possible price.

As a result, she kept walking away from transactions, b/c of $5,000 to $10,000 price discrepancies, even though she was shopping in the $650,000 range in what was becoming the hottest market in the country.

The $10,000 differences she quibbled over worked out to be less than $50 per month in payment. What is most interesting is that she waited so long that she was ultimately unable to buy in her desired Rockridge neighborhood altogether, and she ended up buying in a suburb east of Oakland.

The houses she was bidding on are now worth twice what she was offering too. Her “cost of waiting,” or cost of not executing, was extremely high, to say the least. Unfortunately, her story is not unique.

RATES HIT 7 YEAR HIGH

According to this CNBC Report, “interest rates are surging to their highest level in seven years.”

And, it looks like they are going to continue to climb, based on continued strong economic reports and announcements by the Fed.

Despite the rate increases, the demand for housing remains very strong. In addition, property values continue to appreciate at a surprisingly fast pace.

COST OF WAITING IN 2018

These factors (increasing rates and appreciation) combined make the “cost of waiting” as high as ever.

In a recent National Real Estate Post Video, at about the 9-minute mark, Barry Habib uses a $500,000 Orange County purchase as an example.

At current appreciation rates, waiting even six months can cost a buyer an additional $200 per month, according to Mr. Habib.

Waiting a year can cost over $400 per month.