Author: msundermier

Future’s So Bright, I Gotta Wear Shades

But are the shades for protection???

Timbuk 3, a 1-hit wonder from the 80s, wrote “Future’s So Bright, I Gotta Wear Shades” and is often interpreted to mean there are exciting events ahead. For example, I couldn’t help but hum the song this past weekend as we helped move our daughter into her freshman dorm at college. She has her whole life in front of her; full of potential and promise. Her future indeed looks bright and we are so proud of her!

But, the band actually ironically intended the song lyrics to be a grim outlook of nuclear fallout fears during the height of the Cold War. The shades referenced were not a cool fashion statement, but rather to protect your eyes from a bright nuclear blast!

I study nuclear science

I love my classes,

I got a crazy teacher

He wears dark glasses.

*image from Universal’s Oppenheimer film

Where am I going with this??!! Well, the current economy is at a crossroads and up for varying interpretations as well. After three years of rampant inflation, interest rates have begun falling. We are currently helping several folks refinance who purchased homes in 2023 at higher rates, and we expect to do much more of that in the coming months. You can say the future looks bright for those looking to refinance and save on their mortgage payment!

Mortgage rates have sharply declined in recent weeks to levels not seen in over a year!

On the other hand, interest rates are settling down largely due to growing signs of a slowing economy. Unemployment rates are rising, global stock markets are very volatile, and statistical patterns suggest a recession is right around the corner (see below). While the future looks bright for mortgage rates, a larger economic doom could also be on the horizon.

By many metrics, we are on the eve of a recession. This graph shows the rising unemployment rate compared to the levels of the year prior. When the blue line hits .5%, many consider we are in a recession (known as the Sahm Rule). In July, the reading was .53%!
For the last 40 years, every time this blue line reverts back above the flat black line after falling into negative territory, a recession (areas indicated by the gray horizontal bands) has followed. As of August 30th, the line is finally out of negative territory after being negative for 25 months (the longest duration in my lifetime!). For more insight on this statistical relationship, read my Top Gun themed post from last summer.

If you have been waiting for a lower mortgage rate to either refinance or purchase a home, the future does indeed look bright for you. You should call us now to set a “target rate” that makes sense for you to pursue a refinance or home purchase. Let us help you look at the market through the right “shades” and keep an eye on factors that may push rates lower so you can best prepare for a refinance opportunity.

Future’s So Bright (for mortgage rates), Gotta Wear Shades!

Do As I Say, Not As I Do

That was The Fed’s message to markets this week

On Wednesday, The Federal Reserve Board left their Federal Funds Rate unchanged. This was widely expected amongst financial markets, yet stock markets rallied and mortgage rates fell at once. What gives?

Simply put, markets change when the expectations of future events change. They don’t wait for the actual event to take place. To illustrate, here is a chart showing how The Federal Funds Rate (in red), has not changed in 12 months and yet mortgage rates (in blue) have been bouncing all over the place as market expectations have evolved over a myriad of variables (inflation, elections, economy, etc.).

This week was no exception; markets followed the words and largely dismissed the actions of The Fed. While the Federal Funds Rate was left alone, The Fed strongly suggested they see economic conditions that merit lowering the rate in future meetings later this year. Markets cheered these words, as mortgage rates had one of the best weeks in some time!

It can be hypocritical for parents to insist that their children “do as I say, not as I do.” In this case with the markets being the “kids” and The Fed being the “parents,” the market is dutifully following the words of The Fed by pushing mortgage rates down despite The Fed holding their rate steady. In fact, mortgage rates dropped to their lowest levels since April 2023, and will fall further if The Fed keeps true to their word in their next meeting. But, if The Fed reverses course like a hypocritical parent, then the markets (& mortgage rates specifically) will throw a fit and rise rapidly.

All in all, it has been a great week for mortgage rates. Let’s hope this rally continues!

That’s What I’m Talking About!

A key inflation metric turns negative for the first time since the initial Covid-19 outbreaks

For the past few years, interest rates have remained at elevated levels due to high inflation. The words to describe the inflation have evolved over time; initially it was called transitory, and then persistent, stubborn, and sticky. Now inflation can be called negative.

Chart from YCharts.com

This week’s Consumer Price Index dropped to -.06% since last month, the first time it’s been negative since the darkest economic months shortly after the initial Covid-19 outbreaks and subsequent economic shutdowns. Moreover, it’s the first time since this battle with inflation began that the month-over-month reading has decreased for 3 consecutive months.

This news is significant for anyone who borrows money (or is planning to borrow money). To combat inflation, governments around the world have increased borrowing costs. The US Federal Reserve Board has consistently reminded markets that they will not lower rates until they are confident that they are on a path to return inflation to their annual target of 2%.

After Thursday’s inflation report, markets are optimistic that the battle against inflation is finally being won. As a result, mortgage rates are falling. For the past 3 months, 30-yr fixed mortgage rates have bounced between 7.0-7.5%. As of yesterday, they are decidedly below 7% for the first time since Easter.

Chart from MortgageNewsDaily.com

I remain cautiously optimistic that lower inflation readings like this week’s CPI report will become commonplace in the coming months. If that becomes the case, then mortgage rates should continue to fall.

Are Home Prices At All-Time Highs?

The answer depends on where you look

Recent headlines have touted “All-Time” Highs for home prices. Despite higher mortgage rates, the real estate market has marched upward, with most areas seeing price increases over the past year.

In fact, the median home price in California topped $900,000 for the first time ever in April and climbed even further in May! But while these state-wide numbers are indeed at all-time highs, many markets across the United States, including most here in Northern California, are still trying to claw back the 15-25% losses realized in 2022.

Here are some charts that show while home prices are increasing, they are still lower than the 2022 peaks.

Sacramento County – Median Home Price

Sacramento County home prices peaked in May 2022, with the median home price topping out at $575,000. Things dropped considerably in the following 6 months, giving back 16%. Since early 2023, home prices have risen steadily, but still are under the 2022 peak.

Folsom – Median Home Price

Folsom experienced a similar pattern, but the fall was more pronounced. After peaking at $850,000, Folsom home prices dropped 20% in the second half of 2022. The current median home price is $775,000, much higher than the low in late 2022 but still not at all-time highs.

El Dorado Hills – Median Home Price

El Dorado Hills had one of the biggest pullbacks in 2022. EDH home prices peaked a bit earlier in 2022, and spent the entire year sliding down from nearly 1.12M to $800,000 (28%). Things have mostly recovered as the median home price sits at nearly 1.08M, but not an all-time high.

United States – Median Home Price

This trend is common not just in Northern California, but all around the country. Nationwide, home prices hit their all-time highs in 2022 and have attempted to climb back to those levels ever since.

Don’t see your city on this post? I have stats on most areas of California. Send me a message and I can put together a custom presentation of your market.

Got Debt?  You Are Not Alone

If your credit card balances are creeping up on you, it may be time for a cash-out refinance

Total US household debt continues to climb even as borrowing costs rise with higher interest rates, particularly on credit cards. The total debt level for credit cards hit a record amount of $1 trillion…with a T!!! And it seems on pace to keep on climbing. 

Many of us are facing harder times with the on-going economic slow down & lingering inflation. With credit card balances & their interest rates at all-time highs, it may be time to consider a cash-out refinance to consolidate high-rate loans. 

Home values remain reasonably resilient & most homeowners have record levels of home equity. Even with elevated mortgage rates, it may be better to roll higher rate credit card debt into a new mortgage balance.

Has the economic slowdown forced you to borrow more against credit cards, cars, and education? Borrowing from your equity at a lower rate to pay off higher rate debt will lower your overall monthly payments and lower your interest costs over the long-run. I can help you determine the “blended rate” of your various debts, the effective interest rate you’re paying across all of your loans (including your mortgage). If your blended rate is over 7%, then its time to consider a cash-out refinance.

Consider the following graph…according to CreditCards.com the national average credit card interest rate is over 20%!. With The Fed suggesting they don’t plan to reduce the Federal Funds Rate any time soon, this will lead to high credit card rates for some time.

Let us help alleviate the financial stress of carrying high credit card balances at astronomically high interest rates by refinancing them into a lower fixed rate mortgage.

It’s May Madness. Bring on…EVERYTHING!

May seems to always be the most hectic month of the year.  Graduations, picnics, school parties, sports, boating…commitments and fun keep us busy all month long, and I’m sure the same is true for you.

The real estate market has a way of hitting its full stride in May as well.  For the last few years, May has signaled the time when many homeowners decide to put their homes on the market.  This year appears to be similar as I’ve already listed two homes for sale in recent days. This is a good sign for the market at large since the single greatest issue we have in our market is too few homes for sale. Yes, that’s a bigger issue than high mortgage rates (although one could argue these issues are linked together)!

At the time of this writing, there are fewer than 100 single-family homes for sale in Folsom. 

May is often when new listings hit their annual peak

This is an incredibly low amount, considering we are a town of over 80,000 people and 28,000 housing units. Over the last few years, beginning in May, we start to see this figure increase through the summer months, but since interest rates began rising two years ago we have seen the number of homes for sale in the summertime decrease dramatically.

What will this summer bring?  Unfortunately, much of the same.  Unless I get more calls from clients interested in selling their homes this summer, I expect the number of homes for sale to be similar to last summer.  For current homeowners not looking to move, this is great news.  For those looking to buy their first home, this is truly discouraging, at least for now. 

I am anticipating mortgage rates to improve in the second half of the year, which will likely do two things: #1) more buyers will re-enter the market due to improved affordability; and #2) more “move-up” and relocating sellers will choose to put their home on the market as they feel less committed to remaining in their current home to hold on to an ultra-low mortgage rate. This increase in both demand and supply should keep prices level while increasing options for buyers.

Much like May’s relentless calendar, the real estate market keeps chugging right along despite challenging conditions. Either way…Bring. It. On.

LATEST LISTING – 4346 Prodperine Lane

This listing won’t last long! It’s literally the only home in the entire Sacramento region priced under $600,000 that provides over 2000 sq ft of single-story living space in a gated community built in the last 20 years.

Visit www.AspenVillageHomeForSale.com for full details.

GET REAL – Buyer Always Pays

Let’s Get Real about Buyers Paying Real Estate Commissions. Much of the recent news coverage of the real estate industry has focused on the shift that buyers now may be the one paying their REALTOR commission. Well, this shouldn’t be a newsflash, but the truth is the buyer ALWAYS pays.

Let me break this down for you. Say a homeowner sells their home for $500,000. Before the seller sees a dime of that $500,000, the transaction costs, including real estate commissions, are paid out through closing using the funds the buyer brought to the closing table. So who’s money actually paid those commissions? Oh yeah, the buyer’s money! It doesn’t matter if that money was from the buyer’s down payment or from the buyer’s loan…it was the buyer’s side of the transaction that made paying those commissions possible.

The actual thing that’s changing is a seller can no longer advertise a pre-determined commission amount to the buyer’s agent as a part of the MLS marketing. But rest assured a buyer’s REALTOR commission will still be negotiable and paid at closing. Maybe from time to time its paid by the buyer directly or, more likely, worked into the price of the home as it more commonly is now.

But make no mistake about it, either way the buyers always pay.

GET REAL – CA Dream “For All”

Let’s Get Real about California’s new loan program coined Dream For All. The Blue Waters Group has this shared appreciation 2nd mortgage available to eligible applicants when it comes back on April 3rd, but is it really a Dream “For All?”

It truly is a great loan program for those who qualify, as it will allow folks to buy with no money down, avoid PMI, and keep their monthly payment at a reasonable level.

The program is, unfortunately, underfunded. The state legislature recently allocated $220,000,000 in funding for CalHFA’s Dream For All loans, which will likely only reach approximately 2,000 California applicants. To put that in perspective…our state had over 250,000 transactions in January alone. So Dream For All loans will impact less than 1% of transactions.

This program is getting a lot of hype and I am happy to help you apply for it before the application window closes at the end of April. Keep in mind, however, it will not end up being a Dream For All, but rather For a Very Lucky Few.

With that said, it’s a great program if you qualify and are fortunate to have your name pulled in the lottery system. Reach out to me and I can help you navigate the application process and give you more details about CalHFA’s Dream For All loan program.

GET REAL – Price Fixing

Let’s Get Real about Price Fixing in Real Estate. There is this misguided myth that our industry price fixes commissions, and nothing could be farther from the truth. In my 22 years in this business, I have never, ever had anyone tell me how I should structure a real estate commission. 

You’ll find a ton of click-bait headlines out there today proclaiming that a recent REALTOR class-action lawsuit settlement aims to drastically cut commissions in the real estate industry, but if the market really demanded lower commissions it doesn’t need a class-action lawsuit to enable that. The American real estate agent marketplace is one of the most competitive and creative industries in the world, and no one is out here telling practitioners or consumers that commissions are fixed.

In fact, on every California listing contract it’s put in bold lettering to advise sellers that commissions are not fixed. And if a market disrupter wanted to come in and offer lower commissions to consumers, which they do constantly, they are certainly at liberty to do so.

No one is going to convince me that 2 million realtors are acting as a unified cartel who is fixing commissions, and you shouldn’t let anyone convince you too. Home buyers and sellers have been able to and will continue to be able to negotiate commissions with their selected REALTORs at will.