By This Intero Insider – Video Series brings you Dominic Nicoli, one of our top real estate agents at Intero Real Estate Services from the Los Altos office. He speaks candidly with Intero COO Tom Tognoli and shares his insight and projections on today’s real estate market from luxury real estate to foreclosures – where we have been, where we are now, and where we are headed.
Posts Tagged ‘housing market’
Intero Insider: How to Save $67,960 on Your Next Home Purchase
By Standard & Poor’s downgrade of the U.S. debt rating this month sparked speculation about what the effects would be on stock, bond and key interest rate markets. A lot of conversations centered around the prediction that interest rates for mortgages would increase dramatically, damaging an already delicate housing recovery.
So far, the opposite is true. We’re talking down, down and down again. In the tumultuous days following the S&P downgrade, rates on 30-year fixed-rate mortgages fell to 4.32%, according to Freddie Mac’s Primary Mortgage Market Survey.
I realize I’m the CEO of a real estate company so you’d expect me to say this: But, now truly is an opportune time to borrow money for real estate if your finances are in a solid, healthy state. Borrowers who lock in super low rates stand to save a substantial amount of money over the life of a mortgage.
Take this example: A borrower with a $450,000 30-year mortgage with a 4.3% interest rate would have a monthly payment of $2,227 and pay a total of $351,692 in interest. If their rate on their fixed-rate mortgage had been 5%, they’d pay $2,416 a month and $67,960 more in interest over the 30 years.
Substantial!
Could rates go even lower? Who knows? Seriously. We don’t know. However, S&P also downgraded Fannie Mae and Freddie Mac, which means borrowing could get more expensive for the mortgage giants. That increase likely gets passed on to consumers.
Even if you refinanced last year at an average 5.5%, a rate drop to below 4.5% is worth a check-in on the math of refinancing. When rates really do start moving up, you don’t want to look back and think “I wish I’d…”
Interest rates really do matter. So if you are on the fence or if you’re an agent with buyers who are on the fence, do some math to see your/your client’s total savings. It’s as good a time as any to borrow money. Talk to your mortgage advisor today!
Intero Insider: Is the Uptick in Home Remodeling a Good Thing?
Here’s some positive housing market news out this week: home remodeling hit its highest level in May since 2004, when the service reporting the numbers first started tracking it. Are we surprised? We shouldn’t be.
Home remodeling was up 22% in May from the same month a year ago, according to BuildFax. If the economy is still in a slump, many are still without jobs and consumers are facing rising prices on gas, food and other goods, why are more people spending money to remodel their homes? Two aspects of our housing market can explain this phenomenon:
- Foreclosure homes aplenty – Many times, homes that are foreclosed will sit abandoned for awhile or may have suffered from lack of care from owners who were sinking in debt. Buyers who grabbed these properties are likely fixing them up either to live in or re-sell.
- Why sell when you can remodel? It may be a good time to buy in most markets, but unfortunately, that also means it’s not the greatest time to sell in those same markets. For move-up buyers, this means potentially selling at a loss. Hey, why sell and move up when you can just take that money and fix up your current place? Remodeling is also a bit more budget-friendly in some cases than moving, which can be rather expensive.
The next question that’s begging to be asked: Is this necessarily a good thing for the housing market? I say yes. For one thing, it’s creating at least some job creation in the construction industry. And it’s getting consumer spending flowing. It’s also adding value to homes that may be on the market four or five years from now instead of this year. And, perhaps most importantly, it’s potentially reviving foreclosed homes to make them attractive to buyers.
So remodeling is on the upswing indeed. It may not be the pill that saves the day, but it’s a sign that things are moving up. It’s also a sign that deep down inside, Americans still value their homes as much as they did before this recession. Nothing’s really changed that – and nothing ever will.
Intero Insider: Are Falling Home Prices Saving Marriages?
You’ll often hear people in the real estate business talk about how most home sales are triggered by life events: marriage, divorce, babies, job relocation. These are the standard igniters. But how do situations change when the housing market is slow?
In a situation like divorce, the general truth is that economic hardship and financial stress tend to be a chief cause. So you’d think that during the recession and housing slowdown that divorce is on the rise. But you’d be wrong.
I stumbled across a discussion of a new economics paper last week that finds the opposite – that economic turmoil today is keeping couples together, and that low house prices are the reason. Although it may seem like low house prices would enable couples to break up and buy on their own more easily than when the market is hot and prices are high, it seems that couples instead would rather stay in their unhappy marriages than sell their homes at a loss.
For those couples whose home values may have fallen below their mortgages, selling may not be an option if the bank won’t approve a short sale. But, even if that’s not the case, the research notes what economists call “loss aversion,” an emotional barrier to selling at a loss. It seems we humans for the most part can’t get over that.
Just how much did the recession and drop in house prices pull down the divorce rate? The research found that a 10% decrease in home prices pulled down the divorce rate of college-educated households from 11.6% to 8.22%.
What exactly does this mean? Well, it’s interesting data to understand when examining the dynamics of the housing market, what affects it and how it affects other parts of the economy and everyday life. For some couples, who knows – maybe the extra years they spend together because of avoiding a loss on their home sale will actually help them reconcile. Or, maybe it makes it worse.
I think a big takeaway from this is that it shows the emotional component of the housing market that can’t always be predicted. Data and forecasts are great; they’re helpful to understanding the various factors and impact of economic events. But, sometimes in housing there is good old human emotion that comes in and throws all the data and forecasts for a loop.
If you’re interested in learning more about this research, check out “House Prices and Marital Stability,” by Martin Farnham, Lucie Schmidt and Purvi Sevak, which appeared in the American Economic Review, Vol. 101(3)
Why the Fed’s Role in Housing is Important
The big debate in the housing industry this year is over the federal government’s role in the mortgage finance system. Our biggest industry group, the National Association of Realtors, favors a continued federal presence. But, others do not. What is this debate all about and why is it important?
As we’ve noted before here, a couple of issues that are on the Congressional table would have a direct impact on home buyers and homeowners:
- The mortgage interest deduction
- Government backing conventional mortgage securities through Fannie Mae and Freddie Mac
The mortgage interest deduction is a tax boost many homeowners enjoy. It enables those who itemize their deductions to deduct the interest they pay on their mortgages from their income tax bill. For many years, it’s been a great selling point for many homeowners, saving them money and offering a small break on the costs of ownership.
Congressional groups have been eying the deduction as a possible source of instant revenue for the nation, and have talked about putting restrictions on it or doing away with it altogether.
I think the government’s role here is critical, and taking away this benefit of homeownership at a time when Americans are struggling and the housing market is still trying to recover is a big mistake.
What about Fannie Mae and Freddie Mac? Does the government need to continue to prop up these financiers? And if so, at what cost?
Fannie and Freddie’s role thus far has been two-fold: buying mortgages, securitizing them and selling them to investors in order to free up funds for more home buyers; and setting underwriting standards.
There’s no doubt that these two entities cannot continue operating the way they were during the boom and bust. But without a federal role in backing mortgage finance, there’s always the chance that the private market would freeze up in tough times, leaving no available money to the nation’s borrowers who are willing and able to become homeowners.
In that case, a bad situation gets worse. Fewer and fewer people are able to buy homes without the 30-year mortgage that’s historically played a vital role in boosting home ownership.
I don’t know what the answer is for how to structure a new system for the government to be involved in backing mortgage finance, but it’s clear to me that it’s important. Homeownership continues to be a source of economic stability for the majority of owners out there – despite the recent years of record foreclosures.
And as we’ve seen in recent surveys, the majority of Americans still have faith in home ownership. We need the federal government to show its faith too, and stay involved without getting in the way – a difficult dance we’ll be discussing more in the months to come.
Intero Insider: Home Sales on the Rise
Last week brought us positive news that 2010 ended the year with a fairly sharp uptick in home sales. Existing home sales climbed 12.3 percent to a seasonally adjusted annual of 5.28 million homes in December, according to the latest data from the National Association of Realtors.
That’s good news for the nation’s housing markets. But what caused this end-of-year surge? It’s hard to say for sure, but likely the result of a number of things:
- Positive signs in the jobs market
- Interest rates expected to rise
- Rock-bottom prices in many markets are creating great value for today’s buyers.
- Rising rents in many markets are making ownership more attractive to first-time buyers.
I think the energy of home sales in December is a great sign for our markets in 2011. NAR’s Chief Economist Lawrence Yun said that the pace of December sales is in line with expectations for sales volume throughout 2011. The recovery will likely continue as job growth gains momentum.
What can buyers, sellers, fence-sitters and real estate agents do with this information? Well, for those buyers on the fence, I would take this as a sign of coming urgency. If you’re in the market to buy, you may want to make your move sooner rather than later. Interest rates are expected to rise, and each little uptick can drastically change your buying power and affordability range.
For sellers, I wouldn’t take this as a sign that you can start raising prices and play hardball. Rather, you’ll need to watch your local market closely for trends and price accordingly. Agents will also want to continue to monitor their local markets closely. Just because sales increased nationally in December, doesn’t mean the same is true for your local market. Your local market may have shown a steady rise all of last year or it may still be in a lull. Your customers are counting on you to know what’s happening.
Many markets are expecting a slow but steady recovery in 2011. Let’s keep our ears to the ground and encourage each other to make the smartest decisions for our individual situations. For some, this might mean buying the home of their dreams in 2011. For others, it might mean selling and moving up.
The theme this year as we’ll see more and more is that no two markets are identical.
Mortgage that Matters: COULD RATES ACTUALLY GO LOWER?
By The past several months seem to prove that you shouldn’t always trust conventional wisdom. Most recently, conventional wisdom was that in March, the Federal Reserve would have finished buying the $1.25 trillion in mortgage backed securities they were authorized to purchase, and when this heavy buying activity ended, mortgage rates would shoot up in April, May and June.
It was simple economics. If the Fed was in there every day buying up mortgage securities, this heavy buying would drive MBS prices up and rates would go down.
This did work, and the low rates were precisely what the Administration hoped would happen to get the housing market back on its feet.
The 800 pound gorilla was the fear of what would happen when all this buying activity by the Fed ended.
Basic economics would seem to indicate that rates would have gone up and perhaps significantly.
Even worse was what would happen when the Fed started selling these securities. If they were to dump even a few billion a day, the constant selling would drive MBS prices down and mortgage rates up.
Almost everyone predicted this scenario, and many housing economists thought it would be devastating to the housing markets.
But in an economy with so many moving parts, things often turn out differently than expected.
Rates not only didn’t go up, they’ve actually gone down, and this has huge implications.
With rates dropping toward 4.5%, we are seeing a whole new wave of refinancing, and many of these loans being refinanced are in mortgage securities owned by the Fed! As a result, this $1.25 trillion in MBS the Fed owns is gradually being paid off on its own. And the more people re-finance, the more will be paid down.
The implications of this are huge. If the $1.25 trillion pays down through refinance activity to, say, $750 billion, that could open up the Fed to buying another $500 billion to get back to the $1.25 trillion number.
If you think about it, a new round of Fed buying, as they replenish their holdings, could drive rates to a level no one could have ever dreamed of.
As hard as it is to imagine rates being as low as 4.5%, a new round of Fed purchases could drive rates to 4.0% or even lower.
As Yogi Berra once said, “Who’d have ever thunk it?”
Indeed.
Intero Insider: How’s the Market? Not So Fast
Lately, I’ve been noticing how poorly the housing market is covered by the media. And I don’t mean that the media is to blame for all our problems. What I mean is that real estate markets are varied, complex and much much smaller than you may realize.
Housing is more than a headline. When you listen to reports of national home prices increasing or demand slowing, it’s easy to get lost because they rarely go much deeper than that.
Throw in a mixture of reports – on the same day, even – and it gets all the more confusing. Case in point: last week CoreLogic reported home prices increased for the fourth straight month, while the IMF warned of a possible double-dip recession for housing. Confused?
Let’s not forget reality #1 of real estate: location is everything.
For instance, your national report may be screaming doom and gloom, but your neighbor’s house just sold for $50,000 above asking price. Or your nightly news report may say home prices are up, but meanwhile your neighbors are slashing prices. What’s going on here?
The housing market, like all markets depends on the balance between supply and demand. But in real estate, supply and demand can vary wildly not just by city and state – but by neighborhood and even street. That’s how delicate the market for real estate is and why it is so difficult to talk about at the macro level.
So there’s location to consider. But then there’s also individual circumstance. Sure, it may be a horrible time to sell your house when you read the numbers, but if you are relocating for a once-in-a-lifetime career opportunity, then it’s your time to sell.
Same for buyers. Sure, it may be the best time in the last 15 years to buy a house, but if you’re looking at a potential job loss or have no money for a downpayment, now is not a good time for you.
Think about that the next time you or someone asks, “How’s the market?”
The real question to ask is, “How’s the market in your neighborhood and under your circumstances?”
Real estate is not only local – it’s all relative.
Keep this in mind as we continue to slog through this recovery. Because the horrifying and confusing headlines will not stop anytime soon. Foreclosures are at massive levels, supply is climbing, and interest rates are at historic lows. The mixture of these news bits will make your head spin. Are things getting better? Worse?
The only people who can truly answer those questions are the buyers and sellers who are in your market right now, and the agents who know it inside out.
Intero Insider: Life After the Home Buyer Tax Credit
It’s safe to say now that the action brought to the nation’s housing markets by the Homebuyer Tax Credit is over. Any buyers who wished to take advantage of this credit had to have been in contract by April 30 and now must close by June 30.
But please remain seated before exiting this ride and declaring the housing market D-O-O-M-E-D (as several headlines have cried this week). See, there is still a very key factor in place that is working in homebuyers’ favor:
Historically Low Interest Rates
This often-overlooked little fact is actually a really important point to ponder. That’s because when you look at today’s rates, which average around 4.75 percent on a 30-year fixed rate mortgage, according to the Mortgage Bankers Association’s latest survey, you realize what a win this is for borrowers – even for those who missed the tax credit deadline.
These low rates are far more significant than any tax credit in terms of savings and incentive to stoke demand. How is that? Well, let’s look at the math:
Let’s say today’s buyer is looking at a 5 percent interest rate on a 30-year fixed loan of $285,000. He’s disappointed at missing out on the tax credit, but since he’s able to lock in at a lower rate than he would’ve gotten two months ago at 5.25 percent, he’s actually saving $15,782 in interest over the life of the loan, which according to my math is significantly higher savings than what that tax credit would’ve gotten him ($8,000).
So today’s buyer nearly doubles his savings in interest compared with the April tax-credit buyers? Doesn’t spell D-O-O-M to me.
Let’s look at another scenario:
This buyer would be able to lock in a 5.25 percent rate on a 30-year fixed loan of $400,000 in July. There’s no tax credit to light a fire under his decision, but say the economic news circles expect a slight uptick in rates by the end of August. If he waits, he’ll risk increasing his rate to 5.35 percent, thereby adding $8,943 in interest to the life of his loan.
I’m not saying that rates will save the day. Remember: There are no quick fixes. But we also have to be sure we understand the forces that are working in the market’s favor.
Tax credits may come and go, but at the end of the day it’s things like historic low interest rates that will keep buyers interested.
Intero Insider: The News Is Up! And It Is…Good?
Yesterday, the good folks over at Zillow released the results of its First Quarter 2010 Survey. Was the news good? Sort of. Maybe. A little.
First, the facts:
Home values in California appear to be on the rise. During the First Quarter of 2010, home values in Los Angeles, San Francisco, San Diego, Santa Barbara and Ventura County showed marked increases.
Nationwide, home values continued to decline in the first quarter of 2010. The Zillow Home Value Index showed a 3.8% decline for the same period last year — this makes thirteen consecutive quarters with year-over-year declines. In 106 of the 135 markets tracked, home values fell.
Negative equity is rising steadily. In the Fourth Quarter of 2009, 21.4% of single family homes had mortgages that were “underwater” or “upside-down,” meaning that more was owed on the mortgage than the home was worth. In the First Quarter of 2010, that number rose sharply to 23.3% — nearly ¼ of all mortgages on single-family homes.
Foreclosures reached an all-time high in March 2010. According to Zillow’s survey, more than one out of every 1,000 U.S. Homes — a startlingly high number — went into foreclosure that month.
It is interesting to me to compare this national level data with what I am seeing here in Silicon Valley at the Street level, which is always, in my opinion, the most useful way to look at the housing market. Here I am seeing lots of signs of market vitality. Recently, a listing in Cupertino received 14 offers. A listing in San Jose received 6 offers just this week. This seems to be going on at both the entry level – where one might expect to see such things – but also towards the higher end.
This is information that, especially if you’re planning on selling a home, is very important for you to understand. You need the big picture, but also the picture in your neighborhood or on your block.
Please talk to your Intero real estate professional. We’ll make sure you have all of the facts, and every tool at our disposal to make sure that you make educated decisions about your home sale. We’ll tell it to you the only way we know how: like it is.
The Intero Insider
A weekly e-newsletter with fresh market data and candid insights from Intero CEO Gino Blefari
