Author: msundermier

Cheap Mortgages May Last as Investors Replace Fed

In February I posted in my 2010 Market Forecast that I thought mortgage rates would remain low this year in spite of the phase-out of the Fed’s massive involvement in the mortgage-backed-securities market.  That phase-out was completed earlier this week, and just today I read an article  that supports my theory.  Yes, the Fed is out, but private investors are back buying mortgages, and willing to do so at lower yields meaning lower interest rates for borrowers.

The article has a fair amount of financial jargon, but the crux of it is investors are back buying mortgages because of 1.) more capital due to improving financial markets; 2.) lower risk due to tighter lending requirements and stabilizing real estate markets; & 3.) continued subdued inflation.  Read the whole Bllomberg article written by  Kathleen M. Howley by clicking this link.

MORE Tax Credits Available for California Home Buyers, but You Better Act FAST

While the biggest political news of last week was surely the controversial Health Care Reform Bill, California also passed a housing bill that is sure to aid the state’s housing market.  A few months ago I shared that Governor Schwarzenegger, in his January State of the State address, said he wanted to create state tax credits for California home buyers. Today, I’m happy to report that last Thursday he signed a bill that gives both first-time home buyers and buyers of new homes state tax credits up to $10,000.

As I understand it, this tax credit is IN ADDITION to the current $8,000 Federal tax credit that is available until April 30th, 2010.  This means that if you are a first-time home buyer in California and get into contract to purchase a primary residence in the next 30 days, you could be eligible for $18,000 in tax credits!!!  Quite incredible.

But as lucrative as this new California bill sounds, it is as equally illusive.  Let me explain.

California passed a similar $100 million bill in 2009 that gave credits to buyers of new homes only, and funding ran out in 4 short months, even in a year that saw record-low California new home sales.  This latest bill provides the same $100 million for new home buyers and an additional $100 million for 1st time home buyers. through December 2010 OR until funding is exhausted.  With housing affordability at reasonable levels in many parts of the state, expect the funding for both of these credits to also dry up quickly; possibly within weeks after the May 1st commencement date!!!  Consider these numbers:

So, what’s the moral of the story?  Incentives (especially illusive ones) should not drive the decision to purchase a home.  Yes, another amazing incentive has been thrown at 1st-time home buyers, but it is simply the cherry on top of an already delicious ice cream sundae.  If you are considering home ownership, good for you!  Homes in most areas are more affordable now than a decade ago.  But, be sure you’re buying to enjoy the whole sundae (home), not just the maraschino cherries (tax credits & low interest rates). 

*Please consult a tax professional before assuming you may qualify for any of the aforementioned state or federal tax credits.

It’s The Climb

A few months ago my brother, Andy, climbed Mt. Kilimanjaro, the tallest freestanding mountain in the world.  The trek requires 6 days of climbing to get to the 19,000+ summit and back.  Needless to say, I was eager to hear of this trip that took him to the top of an African mountain like no other on this planet.  Over a beer and a narrated slide show, Andy shared with me the details of this life-changing adventure.

As I now reflect on his stories, I most remember his journey up the mountain rather than his time at the top.  Sure, the pictures of the summit were breath-taking, and the sense of accomplishment I saw in him was inspiring.  But, in life’s adventures it’s often the challenges, not the triumphs, which best define the experience.  On Andy’s climb, one of his porters broke his leg, so they had to carry on with fewer resources until a replacement could catch up with their team.  On the day before the summit he climbed a cliff called Barranca Wall, a steep 800 foot vertical climb that intimidates many climbers to simply turn back down the mountain.  Andy and his team were amongst the first that day to tackle it, meaning they had a unique opportunity to be at the summit in solitude.  These challenges they faced and overcame are the pieces from his adventure that I most remember.

As the great philosopher Miley Ray Cyrus says, “It’s The Climb” (listen to it here) *

“I may not know it,
but these are the moments,
that I’m gonna remember most yeah,
just gotta keep going.”

It’s no secret; life is challenging for everyone.  For you, for me, for your co-worker that you think has it easy…for everyone.   Over the last 2 years, several of my posts have been about dealing and struggling with challenges; I know I’ve been redundant, but we live in challenging times.  We are all facing our fair share of financial, relational, spiritual, and physical challenges:

February 2008 – Living In Gratitude
August 2008 – Challenges
March 2009 – Hurricanes
April 2009 – Win Some, Learn Some

In some way, all of these posts have also been about embracing challenges.  “There’s always gonna be another mountain”, and “it’s always gonna be an uphill battle.”  We need to learn to embrace challenges, because life is rarely a cake-walk.  We can keep our eye on the summit and relish those moments when we’re at the top, but we need to remember that it’s the climb that defines our journey.  I think Andy would agree.

*The song “The Climb” is provided only for illustrative purposes, and is not meant to be distributed without copyrights 🙂

Only 22% of California consumers were happy with their real estate agent in 2009? WOW!

Check out these excerpts of a surprising article I read this morning about California homeowner’s dissatisfaction with their real estate agents:

RIS Media – It doesn’t take a genius to know that events of the past few years have greatly affected the public’s view of real estate agents. Now that image is below that of used car salesmen (except, perhaps, Toyota used car salesmen!) and many are publicly stating that the agent’s time is over, that maybe it’s time to take corrective action. What do you think?

The study reported on consumer responses to one simple proposition: “Yes, I would use the same agent” over the six-year period from 2004 to 2009. It reports that 79% of respondents said “Yes” in 2004 but only 22% said “Yes” in 2009.

The article suggests that these statistics could be due to negative experiences with the difficult real estate market, and that home owners are turning their frustrations towards their agents.

Nevertheless, this article makes me feel very fortunate that during this same time frame, 94% of my surveyed clients said they would “absolutely” return to me for their mortgage and real estate needs.  My loyal clients have valued my services and enabled me to run a referral-based business in spite of a difficult real estate market.  Thank you!  Thank you!  Thank you!

Matt’s 2010 Market Forecast

My annual forecast has always been the most popular post every year, so I hope you continue to find this year’s insightful and valuable.  2010 has been blazing by, and I’m just getting around to writing my annual real estate market projections and reviewing my previous year’s forecast.  I’ve been somewhat tardy in writing as I’m very busy in tending to my client’s buying, selling, and financing needs.  My full plate is one of many indicators that tell me 2010 will be an active year for the Sacramento real estate market.

With so many variables to the housing market, I focus my predictions on three broad categories: supply, demand, and interest rates.

Supply
‘09 Projection: Supply will remain low until April because many banks opted to not foreclose on properties during December and January…The number of homes for sale will roller-coaster up and down throughout the year, and end up close to it’s current level.
‘09 Result: The low supply of homes was the biggest real estate surprise in 2009.  Instead of the up and down roller-coaster trend I had predicted, the number of homes for sale continued to drop throughout the year (see graph). 

 

Currently, the Sacramento area has nearly ½ the number of homes for sale compared to a year ago.  Let me repeat…50% less homes for sale!  In my opinion, the reduced inventory of homes was the single, largest factor in stabilizing home values; more influential than tax incentives or low interest rates.  The surprising low number of homes for sale was likely due to “phantom inventory,” homes banks have foreclosed on but have not put back on the market for resale.  This decision by the banks has reduced the ratio of bank owned homes for sale on the market from 1 in 3 in December 2008 to nearly 1 in 6 currently.
’10 Projection: Inventory will be higher than 2009 levels.  Banks will begin to release more of their shadow inventory, and more short-sale listings will be successfully sold as improved processes are implemented.  Most major mortgage servicing companies are preparing to adopt streamlined, universal short-sale policies proposed by the Home Affordable Foreclosure Alternatives (HAFA) program.  If this program proves effective, more “upside-down” home owners will be inclined to sell and more home buyers will pursue short-sale properties. 

Demand
’09 Projection: While the global economic crisis has raised fears as to whether home prices will continue to fall, I believe low prices, low interest rates, and tax incentives will keep entry-level buyers extremely active in 2009.
‘09 Result: Gobs of 1st-timers purchased homes in 2009.  Since May of ‘09, Sacramento county homes priced under $200,000 have, on average, sold for more than asking price; a clear sign of strong buyer demand as buyers compete with each other.  For the first time in 4 years, the county’s median home price increased.


’10 Projection: Tax incentives will no longer be necessary to entice people to buy homes, and so the current tax credits will expire on April 30th, 2010 and not renews.  Sacramento saw a 4.8% INCREASE in the median home price over 2009 (see above), and this small yet steady rise will continue into 2010.  Demand will still be high in 2010 as buyers confidently (and rightfully) believe the bottom of the cycle is here.

Interest Rates
’09 Projection: With continued government intervention, mortgage rates will remain well below 6% for the year.  Lending guidelines will remain tight, but those able to qualify will have unbelievable refinance and home buying opportunities.
‘09 Result: In 2009 the Federal Reserve Bank bought 1.25 TRILLION DOLLARS in mortgage-backed-securities to keep mortgage rates low.  They did so because traditional investors refused to buy mortgages…they had lost faith in the system.  When the government swept in, interest rates immediately dropped more than a full percent, and fixed rates remained near 5% for most of 2009.
’10 Projection: Many predict mortgage rates to skyrocket above 6.0% in the coming months and stop any type of real estate market recovery.  The Fed has announced they will pull out of the mortgage-backed-securities market in March 2010.  The simple line of thinking is that rates were above 6% before the Fed got involved, so they’ll go back above 6% when they get out.  I don’t agree with this argument.  When the government intervened back in November 2008, the financial world seemed to be crumbling.  Investors were running scared from everything, including mortgages.  Fast-forward to February 2010 and things are immensely better.  They’re not great, but they are better.  Investors are now looking to buy assets again, but they want safety.  Mortgages have become a much safer investment as lending standards have tightened and home values in many areas have stopped falling.  If investors are ready again to buy mortgages (which I think they are), then that means they’ll be willing to do so at lower interest rates.  So, while I do expect mortgage rates to rise this year compared to 2009 levels, 30-yr fixed rates will stay below 6%.

Add it all up, and 2010 will be a year of recovery for Sacramento real estate.  Systemic challenges still abound, but overall this year will continue to be a wonderful time for home buyers, with now through April being the ideal time with low rates, low prices, and big tax incentives.  Tax credits to 1st-time and “move-up” buyers expire on April 30th.  If you’ve been considering buying a home for either personal or investment purposes, give me a call to discuss your options and see if you can take advantage of these ideal factors.

Thanks for reading.

5 Reasons Why Refinancing May Be a Good Option Now

I came across an article this morning that speaks volumes about the attractive yet and narrow opportunities for refinancing in the current lending environment.  I believe we will see rates increase by ~1/2% in Spring 2010 (more insight on that to come in a later post), so now is the time to act on refinancing.

RISMEDIA, February 4, 2010—Mortgage experts from Bills.com, one of the leading resources for free, objective and expert money advice, advised that consumers considering a home refinance should begin the process now. Further, the company reported that the most frequently asked question of its Ask Bill expert advice center concerned home refinancing rates and recommendations.

“Market conditions have aligned to make this a perfect environment for home refinancing,” said Ethan Ewing, president of Bills.com. “Low rates and compelling opportunities to refinance into shorter term loans have arrived at the same time as large consumer demand.”

Ask Bill is a free service that allows consumers to ask any money question of human experts and receive personalized advice to their inquiries. One of the most frequently asked questions of 2009 concerned interest rates for home refinancing.

This high level of interest on behalf of consumers corresponds to favorable market conditions for refinancing. Specifically, these factors include:

1. Interest rates continue to hover around all-time lows, making it sensible for anyone carrying a higher rate interest loan to consider refinancing. With some exceptions, a 1/2-point to a 1-point drop in rate will generally make refinancing worthwhile.

2. Low fixed interest rates make converting from an adjustable rate loan into a fixed 15- or 30-year loan a smart move. Even if the adjustable payment is currently lower than a fixed rate payment, when rates rise again the monthly payment on an adjustable rate loan will quickly leapfrog a fixed rate loan.

3. The current difference between fixed 15-year and 30-year interest rates is significant, making refinancing into a shorter-term loan a compelling opportunity. This can save hundreds of thousands of dollars over the life of a loan and shorten the time to payoff with sometimes only a slight increase in monthly payment.

4. FHA efficiency mortgages provide consumers with an opportunity to refinance into a loan that will help pay for home efficiency improvements. These loans are meant to provide consumers with a way to make energy efficient improvements to their home as part of an origination or refinancing. This is a great way for homeowners to cost-effectively lower their utility bills through basic home repairs.

5. Those homeowners whose equity situation has steadily deteriorated, leaving them with little, no or negative equity in their homes, should ask their lender or broker for help. Most have some flexibility with government programs aimed at reducing rates for homeowners in weak equity positions.

“This interest rate environment provides opportunities for those trying to escape high interest rates as well as those making savvy long-term financial decisions,” continued Ewing. “Anyone considering a home refinance should move quickly to lock in rates now.”

What Does Your Bumper Sticker Say?

I recently stopped at a red light behind a Purple PT Cruiser that had a bumper sticker that caught my eye.  It read:

It was the perfect message to counter the feelings I had at the moment.  Do you ever find yourself worrying about the worst, and ignoring the great things that could become?  Lord knows I do all too often.  This bumper sticker, of all things, turned my day and attitude around.  I don’t know who was driving that PT Cruiser, but if given the chance I would say “thank you.”

This experience made me consider how a bumper sticker’s message can be analogous to the everyday actions that leave impressions on others.  Think about it…you have people in your life that always lift your spirits when you are around them.  Conversely, I would bet you also have others who drain you emotionally or who always focus on the negative (I know I have those folks around!).  Now think about this…what type of impression are YOU leaving on others?  What type of impression would you LIKE to leave? 

In other words, when you are driving down road’s path, what do those driving near you read on your life’s bumper sticker?  Is it a peace sign?  Is it cynical political commentary?  Is it Calvin urinating on your sports team rival?  If it is a message to others that says “encourage your hopes, not your fears” then let me applaud you.  Your outlook is having a profound, positive impact on those around you; or at the very least on me.

So, tell me…what would you like others to read on your bumper sticker?

Even more tax credits for California home buyers on the way?

I always swore I’m not a political person.  But I see that my last two posts (this one included) have political content and commentary.  Sign of the times?  Or a sign that I’m changing?  Hmmm…

Getting on topic, last night Gov. Arnold Schwarzenegger gave his final State of the State address.  I doubt most folks watched it (you can click here to read and watch his full speech), but there was plenty of bold talk in the governor’s speech.  Like most political speeches, time will tell if any of Arnie’s twilight-talk will turn into legislative action, but one suggesion that may grow legs is a proposal to expand California’s tax credits to home buyers.

In 2009, California home buyers were eligible to receive a $10,000 state tax credit if purchasing a NEW home (existing homes were excluded from the credit).  This program proved popular as the $100 million allocation ran out faster than expected.  This state program’s popularity, in conjunction with the current federal home buying tax credit program that many credit to stabilizing the national housing market, will likely force state legislatures to look closely at the governor’s proposal.

If you are a potential home buyer in California in 2010, it is conceivable that you could qualify for up to a total of $18,000 in tax credits ($10K state and $8K federal).  Keep an eye out for news on this pending legislation that will now work through the Sacramento Capital.  And as always, check back here for insightful updates from me.

Ben Bernanke: Friend or Foe?

bernanke_090721c2.03.jpg

Ben Bernanke, the chairmen of the Fed (the “non-governmental” financial entity responsible for the United States’ monetary policy) has a hearing with the Senate tomorrow.  The hearing is officially a congratulatory event in the wake of his reappointment to a 2nd 4-year term as chairmen.  But unofficially, it will be used  to blast him and the Fed’s decisions during Bernanke’s 1st term (which included the final stages of the housing bubble and the financial crisis of 2008).

None of this makes sense to me.  The man is re-appointed for (presumably) a job well done while simultaneously taking heat for a poor job done.  Which is it?  Is Big Ben our friend or foe?

In my opinion, Ben Bernanke’s decisions during the 2008 financial crisis and the challenges thereafter should be applauded.  And guess who agrees with me?  Warren Buffett (watch this video).   Ben spent decades prior to 2008 unknowingly preparing for the tough decisions he had to make last year.  He is a “scholar” on the Great Depression, and while studying at Stanford he wrote a transformational thesis that identified the unexplained reasons for the Depression.  He essentially said this: banks are disproportionately important to the health of a society’s economy.  When banks are overly concerned about lending money, businesses suffer and thus the economy suffers.  When the economy suffers, banks lend out less money and businesses suffer more, and the downward spiral continues.

When faced with the unprecedented problems of 2008, Ben seemed to use this road-map-of-sorts thesis when figuring how to deal with the crisis.  #1) he saved banks to instill confidence in the financial markets; #2) he took over Fannie Mae & Freddie Mac to infuse liquidity into the mortgage lending market; and #3) he created and borrowed boat loads of money (trillions!) out of thin air to do #1 and #2).  He and the Fed saved the entities worth saving in order to save the greater good.  Yes, big banks were bailed out and  individuals were dismissed, but it was for the greater good.

I hope that in the coming months the direction of our country’s monetary policy remains in the hands of financial geniuses like Ben Bernanke who have spent their careers steering our country’s finances.  Let’s all hope we don’t turn the monetary keys over to ill-equipped Congressmen and women who have plenty of other policies (Social Security, Health Care, etc.) to tackle.

Agree?  Disagree?  I’d love some discussion.

Look Around, Within & Out to Instill a Thankful Attitude

Thanksgiving is next week, and I have a lot to be thankful for as Mary & I brought our 2nd daughter into this world last month. Avery Rowan is a healthy, beautiful reminder to be grateful for life’s gifts. I just stare into that cute little face and am thankful for the miracle of life.

sweet little Avery

Most of us will gather around the Thanksgiving table next week and share with one another what we are most thankful for. This is a great annual family tradition, but sometimes our busy lives make it easy to forget to live in daily gratitude. When I do not have a sweet, snugly newborn around, I use a concept I learned from a business coach (thanks Brian Sharp!) to help me reinforce a thankful heart. I wanted to share it with you near Thanksgiving in hopes that you may find it helpful as well.

I call it my GAP meditation. Daily, I try to write down three things in my journal. 1) I write what I’m most grateful for; 2) I write an affirmation about myself or a goal that I have; 3) I write a prayer about or for someone. Grateful. Affirmation. Prayer…GAP.

This quick exercise forces me to LOOK AROUND at the abundant goodness in life, to LOOK WITHIN at what I value and aspire to become, and to LOOK OUT for others. And by writing it down I find that it lingers in my heart and actions through out the day. It has been a wonderful way for me to stay focused on what and who I am thankful for.

Having a thankful heart is the best medicine for a healthy attitude, so be thankful every day of the year.

Have a thankful Thanksgiving!