Author: msundermier

Getting in Tune with HARP 2.0

Many clients are very interested in how the improvements to the Home Affordable Refinance Program (I call it HARP 2.0) could help them, and rightfully so. The recent announcement is unprecedented, as it will allow many homeowners with loans backed by Fannie Mae or Freddie Mac to refinance regardless of their loan-to-value ratio. There is much to be excited about for American homeowners that have toughed it out to keep their mortgage current despite being underwater on their home. HARP 2.0 has the potential to be the missing life-line that middle-class America has been looking for since the economy soured in 2008.

Keep in mind the HARP enhancements are not available yet, and it’s likely to take several weeks for banks to figure out how to implement them. In the meantime, you will hear “chatter” amongst friends, family, and other mortgage companies about the HARP improvements, and inevitably some of the hearsay will be incorrect. If you are interested in staying up-to-date with the latest, accurate HARP news, I ask you to get in touch with me. I will be devoted to sharing the real scoop in the coming weeks with those who are interested, and preparing my business to help as many folks as possible once the HARP improvements become available.

Also, please share this news with anyone you know who may benefit from a refinance in today’s tough economy. I am always honored and grateful for the confidence my clients place in me to care for their friends, family, and colleagues. Thank you in advance for your trust and referrals.

Could 30 Year Rates go to 3% or 3.5%?

I read this article this morning on Bloomberg. There are some officials that support further action from The Fed to push mortgage rates even lower. How low can they go? Enjoy the read!

(Bloomberg) — Federal Reserve Chairman Ben S. Bernanke can’t go it alone when it comes to reviving the U.S.housing market.

Fed policy makers, who start a two-day meeting today, are considering buying mortgage-backed securities to push down borrowing costs and help homeowners refinance their debt. That would reduce monthly payments, freeing up cash for other purchases that could spur the economy and reduce unemployment, Fed Governor Daniel Tarullo said Oct. 20.

Such an effort would save homeowners $60 billion to $80 billion a year, or about 0.5 percent of gross domestic product, so long as the Obama administration succeeds in helping homeowners through a stepped-up refinancing aid plan, said Joseph Gagnon, a former Fed economist. Should the program fail, Fed asset-buying would probably provide homeowners less than half its potential savings, said Gagnon, a senior fellow at the Peterson Institute for International Economics inWashington.

“The Achilles’ heel of the Fed’s efforts so far has been that the monetary-policy transmission has not worked as they would like because of, in large part, the inability of consumers to get loans” for homes and other purchases, said Ward McCarthy, chief financial economist at Jefferies & Co. in New York.

Refinancing Program

(The Federal Housing Finance Agency said Oct. 24 it will let qualified homeowners refinance mortgages regardless of how much their houses have dropped in value, expanding terms of the 2009 Home Affordable Refinance Program, which has fallen 80 percent short of the goal of reaching 5 million borrowers. The FHFA estimates the changes will help generate about 900,000 refinanced loans by the end of 2013. If the alterations to the so-called HARP plan don’t spur refinancing, any Fed purchases of mortgage bonds would bring limited benefits, said McCarthy, a former Fed researcher.

(The Federal Open Market Committee, which has kept its benchmark interest rate near zero since December 2008, plans tomorrow to release a statement and economic projections from governors and regional Fed presidents. Bernanke is scheduled to hold a press conference at 2:15 p.m., his first since June and third since the Fed started the briefings in April.

(Central bank officials may not be ready this week to pull the trigger on more bond-buying because of an increase this year in core inflation, which excludes food and fuel costs, Gagnon said. Once policy makers see slowing price gains for another month or two, “they will then feel empowered, indeed driven,” to restart asset purchases, he said.

‘Top of the List’

(Tarullo, in a speech in New York last month, said additional mortgage-securities purchases should “move back up toward the top of the list of options” because “the aggregate -demand effect should be felt not just in new-home purchases, but also in the added purchasing power of existing homeowners who are able to refinance.” Fed Vice Chairman Janet Yellen said Oct. 21 that a third round of asset purchases “might become appropriate” if the economy’s state warranted additional stimulus.

(“I don’t know how you could embark on a program of buying agency mortgages thinking you’re going to stimulate more refinancing,” said Bryan Whalen, co-head of mortgage bonds at Los Angeles-based TCW Group Inc., which oversees $120 billion in assets. “It’s not a rate issue, it’s a qualification issue.”

(The average rate on a typical 30-year fixed mortgage fell to a record low 3.94 percent in October, from this year’s high of 5.05 percent, before climbing to 4.10 percent last week, according to Freddie Mac survey data. In September, the FOMC voted to reinvest proceeds from maturing housing debt into mortgage-backed securities, switching from Treasuries.

Record Easing

(New York Fed President William C. Dudley said Oct. 24 that removing “impediments” to the transmission of monetary stimulus would make the central bank’s record easing more effective. The FHFA’s plan to make it easier for borrowers with high loan-to-value ratios to refinance is “a step in the right direction,” he said, adding he hoped additional measures would follow.

(Bernanke said in congressional testimony last month that the Fed needs help from other branches of government to aid the economy. “Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by theU.S.economy,” he told the Joint Economic Committee Oct. 4.

(Gagnon urged the central bank to target a 30-year mortgage rate of 3 percent to 3.5 percent by buying as much as $2 trillion of mortgage-backed securities. While boosting stocks and supporting property prices, Fed asset purchases may help create at least 3 million jobs, he said in an Oct. 24 blog titled “The Last Bullet.”

Out of Reach

(“The Fed could do stuff, and it would help, but there would be a lot of people who without HARP couldn’t take advantage of it,” Gagnon said in a telephone interview.

(Reduced home prices and tightened lending standards have slowed the pace of replacement home loans. The Mortgage Bankers Association forecast on Oct. 11 that refinancing this year would total $783 billion, down from $1.1 trillion last year, even amid lower interest rates. Refinancing peaked at a record $2.5 trillion in 2003.

(Stanford University Professor John Taylor, best known for the Taylor Rule formula that suggests how the Fed should set its benchmark interest rate, said more Fed purchases of mortgage bonds are unlikely to reduce loan rates.

(Another round of purchases wouldn’t cut rates “appreciably, and not really in any predictable way,” Taylor, an economic adviser to House Republican lawmakers, said in a phone interview.

‘Difficult to Detect’

(Taylor and one of his graduate students, Johannes Stroebel, wrote a paper arguing that “it is difficult to detect a significant effect” from Fed purchases of mortgage bonds totaling $1.25 trillion from January 2009 to March 2010.

(Gagnon, co-author of a Fed study that found the bond buying lowered borrowing costs and helped the economy, disputed Stroebel andTaylor’s findings, saying they focused on the impact of the actual purchases, rather than the announcement.

(A May 2011 Bank of Canada review of research into central bank bond-buying said the Fed’s MBS purchases “appear to have eased mortgage-market conditions.” At the same time, the Fed’s $600 billion, second round of bond purchases, undertaken from November 2010 through June of this year, probably had a “more modest” effect because of fewer “distortions” in financial markets and the economy at the time, the Canadian central bank’s researchers said.

(Without the administration program sparking more refinancing, Fed asset purchases won’t be of much help to the housing market, says Stephen Stanley, chief economist at Pierpont Securities LLC inStamford,Connecticut, who opposes further bond-buying.

(“If the pipeline is stuck, then it doesn’t matter if mortgage rates are 4 percent, 3.5 percent or zero,” said Stanley, a former Richmond Fed researcher.

A Little Less Conversation, A Little More Action Please!

On September 22nd, mortgage rates hit their lowest marks ever!  30 year fixed rates were BELOW 4%; shorter terms were even lower.  Naturally, one would assume that mortgage broker’s phones would be ringing off the hook the following week from people looking to refinance, right?  RIGHT?

As it turned out, refinance applications decreased 5.2% in the last week of September compared to the previous week (according to the Mortgage Banker’s Association).  What gives?  Why are applications going down when rates are this low?

In my opinion, many homeowners are simply not applying because programs are not available to them.  Our country’s lawmakers know this, and have been talking for months about how to solve the problem.  I believe the solution to be fairly straightforward; expand the Home Affordable Refinance Program (HARP), a government-created refi program in 2009 that has been fairly successful since its inception (read my April 2009 post for more details about the program).  A growing group of Senators agree with this, and wrote a letter on October 11th to top officials encouraging such a policy improvement.  President Obama also concurs, as he recently noted in a speech to Congress that the average refinance would “put $2000/year in a family’s pocket.”  This savings, mind you, is more than double the amount of what the current Social Security payroll tax relief is saving average American families; clearly making refinances more widely available to homeowners without equity could be a powerful way to help families and our economy at large.  Let’s hope all this conversation turns into a little more action in the near future.  You can surely count on me to keep you informed of positive updates.

With that being said, however, please don’t assume you can’t qualify for a refinance.  If you haven’t pursued your refi options yet, please give me a call and I’d be happy to chat about your situation and what refinance options may be available to you.

Average Investments Yield Amazing Returns

Below is a sample of home prices, rent rates, and rate of returns in various areas of Sacramento County for an averaged-sized 3 bed, 2 bath home. As you can see, just the AVERAGE numbers are very attractive. And these return rates don’t even factor in loan balance reduction or home value appreciation! Tell me, are your other investments giving you this type of return? Are they as safe and tangible as real estate?

 

Avg. Sales Price (as of June ’11)

Avg. Rent Income

Estimated. Expenses*

Annual Rate of Return**

Folsom

$265,000

$1,719

$1,253.85

7.83%

Rancho Cordova

$153,000

$1,357

$766.19

16.39%

Natomas

$153,000

$1,432

$766.19

18.47%

Arden

$193,000

$1,409

940.35

10.56%

O-vale/
C. Heights

$173,000

$1,352

$853.27

12.40%

Carmichael/
Fair Oaks

$211,000

$1,469

$1,018.73

9.36%

*expenses include mortgage interest, property taxes, insurance & city/county utilities

**based on a 25% down payment and $5000 in immediate closing costs/repairs

Purchasing rental properties requires a much more analytical approach than traditional home buying.  With my expertise in both the financial and sales aspects of real estate, I am well-prepared to help you become a successful real estate investor.  And remember, using a Realtor to buy a home doesn’t cost you anything…the seller pays the commission.  So don’t do it alone; ask me to be of service in this advantageous real estate market.  

Renters See Prices Skyrocket

As home prices have fallen to levels not seen in nearly a decade, rent prices have been on the rise due to rising demand for rental housing and the lack of new unit construction. According to HotPads.com, national home rental rates are up 6.7% from just a year ago. What does this mean for a real estate investor? It means you can buy homes at low prices and rent them for good money. Click here to read full article from SmartMoney Blogs.

Real Estate Investors to dominate the market

Buying rental properties is still an emerging trend in the current real estate market, but according to a recent article in the LA Times it will become rather commonplace.  A recent survey estimates investor buyers will outnumber traditional buyers 3-to-1 in the next two years!  If you want to get ahead of the masses to invest in real estate before everyone else catches on, you need to educate yourself now.  Click here to read full LA Times article

Do You Need a (Real Estate) Savior or Sherpa?

Buying, selling, or financing a home today can be quite an intimidating process to many.  From short-sales to appraisals to volatile home prices, more and more elements are beyond predictability.  I have watched some real estate professionals market themselves as real estate saviors, promising the world in order to falsely take the fear out of the process for consumers.  In my opinion, however, nothing is scarier in real estate than an over-promising sales person guaranteeing things they simply have no control over.

As a real estate agent and mortgage broker, I cannot be a savior.  Rather, I see myself as your real estate “Sherpa.”  Sherpas, as you may know, are an ethnic group in Nepal who are famous as highly skilled and capable mountaineering guides in the Himalayas.  Unable to make the trek alone, summit-seeking climbers hire Sherpas to manage and navigate the dangerous trek up Mount Everest.  And while Sherpas make most Everest ascents possible, the chance of reaching the summit is ultimately out of their hands.

 

Buying, selling, or financing a home can seem like climbing a mountain.  It seems scary, danger exists if you make a wrong turn, and there are plenty of nay-sayers claiming you can’t do it.  To overcome the obstacles, you need a partner who is experienced, resilient, and calm under pressure.  But, be wary of the guide who guarantees you a trip to the summit; who are they to control the weather in such extreme conditions? 

I cannot guarantee you the perfect house at the lowest price with the fastest close.  I cannot guarantee you an underwriter will approve your loan.  And I cannot guarantee your home will sell in 2 weeks for full asking price.  There are too many variables to a transaction to pretend like I wield the real estate cosmos in my hands.  Again, I am not a savior.  I am, however, your real estate Sherpa, determined to use my experience, skills, and knowledge to help you make the best decisions possible during your next unpredictable real estate expedition.

Read Beyond the Headlines

On May 11th, 2011, The Sacramento Bee published a front-page article titled “Sacramento-area home prices continue their long decline.”  Timely?  Yup.  Dramatic?  Certainly.  Accurate?  No way!!!

As a real estate professional who closely studies current market trends and statistics, I found the headline way off-base.  I read further to see how they were making this claim.  What I found was fairly ironic.

On the back-page of the continued article, a graph (provided by the Sacramento Association of REALTORS) illustrates the historical median home price inSacramentocounty over the last decade.  Take a peek:

 

This graph clearly shows how, for the past two-and-a-half years, the median home price trend has largely flattened out and stabilized.  The “long-decline” happened from 2005-2008, so within the writer’s own article he disproved the misleading claim of his headline.

In my opinion, the headline is another example of news providers creating sensational stories rather than factual news.

It was a good reminder that even in our information over-load lives, it is best to slow down and read beyond the headlines.

Got Inspiration?

Back in December, I posted about how accountability can help you keep and achieve your goals.  Now that we’re three months into 2011 and the adrenaline of goal-setting season is over, how are you faring with your goals?  If you are staying focused on and reaching them without any difficulty, then you’re better than most.  But, if you are floundering with some of your goals (as I am), consider another piece of the puzzle you may be missing…inspiration.

Inspiration is like a beaming spot light for your goal.  Without it, we easily lose sight of our goal when we inevitably become distracted and disheartened.  But with it, we are constantly “illuminated” on why our goal is so important.  For example, a goal to lose 20 pounds by July 1st is a fine measurable goal, but one that is easy to lose sight of.  It needs some oomph, some pizzazz, some inspiration.  Consider this alternative…

When stating a goal, try adding “because” after the statement.  Such as, “I will lose 20 pounds by July 1st BECAUSE I want to have a healthier body and more energy to play with my grandkids.”  Combine that with pictures of you playing with your grandkids posted on your refrigerator and pantry door and now you’ve got a goal with lasting power; with inspiration!

Any ambition can become a goal.  And accountability can remind you of a goal.  But it is inspiration that helps you ultimately achieve that goal.  If you need to breathe a little life back into your 2011 goals, go back to your list, write “because” after each written goal and fill in the blank.  This simple extra step could be the difference between writing off your goals or conquering them.

2011 Real Estate Market Forecast

Happy Valentine’s Day!  Now, I know today is a day devoted to love, but I figure it can’t hurt to sprinkle in some real estate chat too.  The two topics just might have more in common than you think.

Like love, our housing market can be impossible to understand, but that doesn’t stop us from trying to figure it out.  I think the mystic of the market (& love) captivates us to know what others think about it.  That’s probably why my annual market forecasts are the most widely read posts on this blog (read last year’s here).

So here it goes…my attempt to figure it out…Matt’s 2011 Market Forecast.  No love talk here, though; just economics.  As usual, my forecast focuses on three categories in the Sacramento real estate market: housing supply, housing demand, and mortgage interest rates.  I will recap 2010 and give you my best guess for what lies ahead in 2011!

Supply
’10 Projection: Inventory will be higher in 2010 (than 2009) as banks release more homes for sale and more short-sale listings are successfully sold.

’10 Result: Nearly 60% more homes are currently for sale compared to the end of 2009 (see chart above).  These increases were largely due to more homeowners looking to short-sale their properties and more banks releasing homes for sale.  Unfortunately, this increase in supply was not met by an increase in demand (more on that in a minute), and the amount of homes sitting on the market (known as inventory) is currently at an uncomfortably high 3.6 months.
’11 Projection: Short-sales and bank-owned properties will remain the primary sale types in Sacramento.  Additionally, an emerging sale type, the government-owned home, will become more prevalent this year.  The Department of Housing and Urban Development (HUD) has been forced to foreclose on an increasing number of FHA-held loans originated in recent years.  While the Making Home Affordable Foreclosure Alternative (HAFA) program was mostly unsuccessful in 2010, I am optimistic that improvements will be made this year that enable more short-sale listings to successfully close.

Demand
’10 Projection: Demand will still be high as buyers confidently (and rightfully) believe the bottom of the cycle is here.
’10 Result:  The bottom certainly seems to be here with respect to Sacramento county’s median home price.  In fact, it has increased 1.6% over the last two years.  First-time home buyers and real estate investors continue to make up the majority of current home buyers.  The overall pace of sales last year declined remarkably after the federal 1st-time home buyer tax credit expired in June 2010, indicating the market was propped up with artificial measures more than originally thought.
’11 Projection: Total home sales will be lower this year compared to 2010.  Although the bottom has arrived, it may be here to stay for some time.  Some potential home buyers may be reluctant to commit to a home purchase with looming job and other economic concerns and the absence of alluring tax credits.  Real estate investors, however, will be looking to purchase in abundance as rental rates are on the rise…11.6% nationally! (read this article for more details about these rising rental prices).

Interest Rates
’10 Projection: Despite wide-spread concern of drastically rising rates, I believe rates will stay well below 6%.
’10 Result: What a wild ride for mortgage rates in 2010!  While many worried of rates rising in April after The Fed stopped purchasing mortgages, rates actually plummeted for the first six months after the Feds exit from the market.  Towards end of the year, rates steadily climbed out of record-low territory.  In September I coined the 4th quarter as “Crunch Time” (read September’s blog post here) and encouraged clients and readers to consider refinancing before rates rose.  Thankfully, many heard that message as I helped more folks refinance in the 4th quarter of 2010 compared to any other 3-month period in my career.  30-year fixed rates rounded out the year hovering just below 5%, which was close to where they started the year.
’11 Projection: Mortgage rates will continue to be influened by politics more than economics, but in a very different way.  While I predict the Feds will stop trying to manipulate the mortgage and bond rate markets at some point this year, legislation from Congress will drastically impact mortgage rates.  MASSIVE financial reform regulations are scheduled to start in April 2011 that change how borrower’s closing costs are disclosed and paid for.  While unintended, these reform changes will increase the cost of obtaining a loan.  Furthermore, Congress is currently considering largely downsizing Fannie Mae and Freddie Mac’s participation in the mortgage market.  If this is done, mortgage rates will likely increase as banks must shoulder the risk of holding more mortgage loans rather than selling them to Fannie or Freddie.

In summary, 2011 will not be a rebound year from recent market challenges, but rather a continuation on our road to recovery.  American job creation & stability, mortgage financing availability & affordabiliity, and unpredictable legislative action will direct the market this year.  A healthy real estate market is within our sights, but we likely have another 18 months before we see a balance between home supply and buyer demand.  Until then, it will remain a buyers market largely comprised of 1st-time home buyers and real estate investors.

Do you have different thoughts and forecasts for 2011 housing?  I’d love for you to share them here.  Please leave a comment with your opinions, and let the chatter begin.