Energy efficient upgrades to a home can add value, lower your utility bills, and make you a “greener” citizen of the Earth. There are now a number of finance alternatives that have made these updates more accessible than ever before.

For example, you can lease solar systems and offset the monthly lease payment with the energy savings produced. You can also borrow money to install energy saving appliances, and have the loan payments added to your property tax bill. With all of these new finance alternatives, it has helped many homeowners who otherwise wouldn’t have been able to install these updates with their own savings.

But are these new finance options truly helping homeowners? We have spoken to a number of clients who weren’t aware of some of the fine print of these finance schemes, specifically how these lease and loan options create a lien on their property that make it difficult or even impossible to refinance their homes.

A trusted colleague told me early in my career that there is no free lunch in lending. In other words, you don’t get to borrow money without strings attached. Typically, that means you are paying interest, and in the case of real estate it also means you put your property up for security against the loan. Mortgages, for example, are recorded against the property and this loan must be paid off prior to selling or allowing another mortgage to be taken out.

Most folks recognize that they are going to pay interest if they borrow money from a solar or utility company, but what does not appear to be commonly understood is that these loans and leases are recorded against the property.

Several times in the last year, we have worked to help a client refinance to a lower interest rate and save money on their mortgage payment. During the underwriting process, we discover an additional lien resulting from a solar, window, HVAC, or other energy efficiency update. This secondary lien must either be paid off or give permission for the mortgage to be refinanced. Many times, the client either doesn’t want to or can’t pay off the loan, and the energy efficiency loan won’t allow the refinance to proceed. The refinance attempt ultimately fails. Ironically, the act to save money through energy efficient updates ends up handcuffing the client to a higher mortgage interest rate loan, thus losing more money to interest than what is being saved in lower utility costs.

Not all loan and lease terms are the same amongst the various options and vendors. And in some cases it probably makes sense to obtain one of these loans and live with the potential down sides.   Simply be sure you know the fine print. Solar and other outfits are pushing these available financing options hard on homeowners, but there are more traditional finance options available that you may want to consider as well. A cash-out refinance, home equity line of credit, home improvement loan, or other form of traditional mortgage financing may make sense as well. As always, we are happy to discuss what options you may have and objectively point out the pros and cons of each.

Last week marked the beginning of Chinese New Year, the year of the Monkey. Fitting, considering last week’s financial markets around the globe were filled with “monkey business.” It seems everywhere you turn lately there are crazy things happening. The Dow Jones is down several thousand points from recent highs, suggesting we may be entering a “bear” market. Gas prices are as low as they’ve been in nearly 15 years, leading many to think economic growth is slowing. And several central banks around the world are charging negative interest rates (imagine being charged interest to keep your money in the bank!?!).

Despite the monkey business everywhere else, our local real estate market appears to be quite normal. We are seeing similar vital statistics this winter compared to recent years. Sacramento area home prices are up 10.7% over the last year. And low interest rates combined with rising rent prices are keeping demand high for real estate.

But will the world’s monkey business eventually seep into our local markets? Will we remain insulated from the worlds’ woes? Or be dragged down with them?

In short, I believe the recent economic turmoil will only fuel our real estate market, not hinder it. We should see the similar dynamics seen in recent years (low inventory, high demand, low interest rates) but I think they’ll be further intensified in 2016! Here are my reasons for a strong year ahead for Sacramento real estate:

Money will flow to what’s “real”
With money fleeing the stock market, it has to go somewhere. Fear is abundant in the markets (check out this cool “Fear & Greed” index tool), and money runs to safety when it smells fear. I believe it will find its way to real assets, like precious metals (gold prices are up 10% in just the last month!) and real estate.

Millennials will “get real”
It is widely documented that the millennial generation (those born roughly between the early 1980s and early 2000s) has deferred home ownership more than their predecessors. The reasons vary (they have more school debt, prefer to live in higher-priced urban areas, don’t want to be “tied down” with a mortgage, etc.) but sooner or later they’ll see the light to become homeowners. In Sacramento, the validity for homeownership is becoming quite clear.

In recent years, Sacramento has become a magnet for Millennials. This article cites everything from the dining scene to recreation to coffee as reasons why younger folks flock to the River City (excuse the language used in the article). Furthermore, rent prices have been skyrocketing in Sacramento. This article from Sacramento News & Review states we are the third hottest rental market in the country, only behind Portland and San Francisco, with average rent prices climbing 10.6% in a single year. With rents rising and no clear sign of significant new construction on the way (more on this in a moment), many who are renting should be considering home ownership, which will further spur real estate demand and prices upward.

New home construction will continue to lag
New home and apartment construction has not kept up with demand in Sacramento. Developers site high costs and red tape; others are concerned of the over-building that occurred a decade ago and don’t want to repeat history. Nevertheless, only Detroit had fewer new construction starts last year than Sacramento.
Let that last sentence sink in for a minute; the only city with slower new construction activity in the entire county is a city that lost 25% of its population from 2000-2010. Detroit is not building because they don’t need new housing units; 1 in 4 people up and left during the Great Recession! Sacramento, in contrast, GREW 25% in population during the same decade, and until we begin building new housing we will continue to see home prices and rents soar, both in urban and suburban areas.

Mortgages will remain cheap and accessible
With gas below $2 a gallon and other world banks charging negative interest rates, its clear that no one should be concerned with inflation here in the US. Inflation is Public Enemy #1 to fixed interest rates such as mortgages, so with no inflationary threat mortgage rates will remain low.
How low? In a word…ridonkulously low (well, in sort-of a word)! With low rates (30-year fixed rates below 4% and 15-year rates near 3%) and, in turn, low mortgage payments, this will only further instigate millennials and other home renters to become home owners. Furthermore, underwriting guidelines are loosening and new loan products are emerging (more on this next month in a separate post). This makes financing accessible to more home buyers, thus allowing demand to grow ever more.

To re-cap, I’m incredibly optimistic for the 2016 real estate market.  Compared to my “rosy” forecast from 2015 (which turned out to be quite accurate, I might add), this year’s is just plain flushed! I expect strong price appreciation (10%+ for Sacramento), coupled with high volume (lots of buying and selling), and fueled by very affordable and available financing. Until new home construction is firing on all cylinders and inflation becomes a concern, the outlook for our local real estate market will remain bright.

As always, thanks for reading Matts Memos!

As usual, I’m a little tardy in posting my annual market forecast.  I assume everyone else’s Januarys are as hectic as mine, so its likely you wouldn’t even read it if I were to send this out at the turn of the New Year.  By more happenstance than design, my annual forecast release in early February has worked out over the years, as more readers view it over any other MattsMemos.com post during the year.  I’m honored you find entertainment, and perhaps a little insight, from this annual tradition.

2014 Year In Review

Before I get ahead of myself, let us review 2014’s forecast and see how my predictions stacked up to what truly transpired.  In short, I forecasted we would see stabling home prices due to a healthy balance of supply and demand of traditional buyers & sellers.  I can’t help but brag for a moment that this was the exact script for last year’s market.  Sacramento homes appreciated less than 5% (Folsom was less than 2%), and the market maintained between 1.8-2.7 months of inventory (this is a balanced level).  Short sales and REO sales accounted for less than 15% of Sacramento area sales.  All of these signs clearly indicate a return to normalcy for our real estate market.

My accurate aim stops abruptly, however, when you peek at last year’s interest rate forecast.  With The Fed easing and ultimately exiting their campaign of buying mortgages (known as “quantitative easing”), I anticipated 30-year fixed rates would steadily climb through the year and end up around 5%.  In actuality, rates somehow defied logic and plummeted back down well below 4% towards the end of 2014.  There are a number of factors that led to this, but the main cause was the falling price of oil.  When oil costs less, so does everything else as it costs less to produce and transport goods.  With little to no threat of rising costs of goods, interest rates on mortgages tend to slip lower as investors are not worried about inflation.

2015 Market Forecast

There is much “writing on the wall” that makes me very excited for 2015’s real estate market.  Compared to the meager demand of buyers seen in 2014, I anticipate many more first-time & “boomerang” (folks who lost a home to short sale or foreclosure who are now looking to purchase again) home buyers entering the market.  Why?  Rent prices are skyrocketing everywhere, thus making it less financially attractive to rent versus own.  Also, lending guidelines are becoming more favorable for folks with small down payments.  For example, FHA financing (which allows down payments of as little as 3.5%) slashed monthly mortgage insurance rates by more than 35% last month.  When combining this drop with the overall decline in interest rates, homes have instantly become more affordable for most buyers.

With more first-time & boomerang buyers on the scene, entry level home prices will appreciate more rapidly than other segments of the market, but the tepid pace of entry level home sales will have a positive ripple-effect on larger homes as more folks look to move-up.  I boldly predict we will see more homes sold this year in the Sacramento area than we have in over 5 years.

As always, interest rates will be a big wild card.  It always seems an unpredictable global, political, or financial event causes rates to swing in the opposite direction conventional wisdom suggests.  Will 2015 play out the same way?  Perhaps, but given the low cost of oil (which keeps rates low) and the sputtering pace of the stock market (if stock market does poorly then rates tend to fall) I would be incredibly surprised to see rates increase more than ½% from their current marks.  30-year rates are below 4% presently and 15-year rates are inching towards 3%.

All in all, the real estate market looks rosy.  Perhaps that’s due to the shade of my glasses, but the combination of hungry buyers, willing & able traditional sellers, and accommodative interest rates and lending guidelines make it hard to believe 2015 will be a poor year for the market. As always, I’m thrilled to have a front row seat while it plays out, and I’m honored to have your trust to help navigate your real estate affairs.

Its that time again…time for my annual market forecast.  I like to consider March as the turn of the Real Estate year, as many folks begin to think about their real estate affairs this time of year.

Forecasting, to be honest, is just as much about reviewing the past as it is about predicting the future.  How can you know where you’re going if you don’t know where you’ve been?  With that said, its always a scary (albeit entertaining!) exercise for me to review last year’s forecast with what actually took place.

In short, 2013 was a two-faced trip around the sun for the Sacramento real estate market.  From January to June, I couldn’t have been more accurate with my projection of “steady price increases for sellers and challenging times for buyers”.  The market was ON FIRE with average home prices rising 21%, interest rates hitting rock bottom lows, and the number of homes for sale at the lowest point in over a decade.  However, after The Fed meeting on May 22^nd that quickly raised interest rates, the real estate market hit the brakes and my forecast accuracy fell off the tracks.  In the second half of the year, Sacramento home prices only increased 4%, and the number of homes for sale (known as “inventory”) nearly doubled. 

In hindsight, this second-half slow-down was healthy for the real estate market.  Things had become out of balance and the rally unsustainable.  Now looking forward to 2014, the big question will be are we going to see a resurgence in home prices as Spring nears or will it continue on its plodding pace?

My prediction is we’ll see stable 2014 home prices as both inventory and sold homes increase to remain mostly in balance with one another.  Despite the sharp increase in inventory in recent months, its still low at a level not seen since 2005 (see below).  More sellers will look to sell in 2014 as life events dictate homeowners to move.  Similarly, more buyers will look to buy in 2014 as folks re-enter the market after a prior short-sale or foreclosure.

In short, we should see a traditional market with a healthy balance between traditional buyers and sellers.  Short-sales and REOs will account for fewer than 15% of the market, real estate speculators will gravitate away from California, 30-year fixed rates will hover around 5%, and transactions will be dominated by repeat buyers.  In fact, I couldn’t agree more with Trulia’s Chief Economist who coined 2014 as “The Year of the Repeat Home Buyer.”  The Blue Waters Group is uniquely equipped to help clients buy, sell, and finance all at the same time.  Moving up or down can be an anxious experience, but our clients find having a single, trusted team handling all facets of their multiple transactions makes for a smoother, confident, and successful transaction.

Even a “normal” market requires just as much know-how, expertise, and calm nerves as any other market we’ve seen over the years.  If you or someone you know is considering a real estate transaction this year, I look forward to the opportunity to share my knowledge and experience.

I recently went up to Donner Lake for a beautiful fall weekend. When I came back it felt like I brought the cool air back with me.  The autumn air here in Sacramento feels crisp, healthy, refreshing.

Similarly, the real estate and mortgage markets are cooling off too.  THIS IS GREAT NEWS!  Much like the changing weather, the current market changes are healthy and refreshing too.  After months of sizzling home price increases, we’re beginning to level off.  Interest rates, too, have cooled off and have fallen from their summer highs.  All of this means home buyers, particularly MOVE-UP buyers, have more opportunities to find their next home at a reasonable price.

This past summer we saw an unbelievable real estate rally.  Much like a caged animal, the market sprung from hibernation and jumped with reckless abandon  Sacramento area average home prices spiked 13.8% from April to August!!!  This rally was exciting and, thankfully, unsustainable.  Had we kept on that pace, we simply would have created a market bubble that surely would have popped in the near future.

Instead, we’re seeing prices level off, homes sit longer for sale, and more homes available to purchase.  This is incredibly good news for home buyers.  I had several clients who looked to buy a home earlier this year who opted to sit on the sidelines and wait for the market to calm down.  These clients now look very savvy & patient (you know who you are :-), as the coming months should present them a more reasonable marketplace in which to buy.

Furthermore, the interest rate spike we saw this summer is beginning to reverse.  In May & June, the markets were largely expecting The Fed’s influence on mortgage rates to “taper.,” thus sending rates higher.  Now, the expectation is beginning to change.  With sluggish economic indicators and a political stalemate threatening to bring our country to a halt, uncertainty is high.  As a result, fixed mortgage rates have fallen nearly ½% in the last month.

Again, all of this means home buyers are in a much better position to find the right home without the worry of insane, multiple-offer situations.  If you are a first-time home buyer, there’s no need to panic about being “priced-out” of the market in the near-term. If you are a move-up buyer, this balanced market between buyers and sellers is the perfect environment to buy your new home and sell your old home.

As most clients know, our firm is perfectly suited to help you with all of your home buying, financing AND selling needs.  Many clients find this one-stop-shop form of real estate service incredibly valuable and convenient.  For the rest of the year, if you enlist us to help with all three services (buying & financing a new home as well as selling your old home), we will reduce our listing commission by ½%.  On a $400,000 home that’s a $2000 discount!

Thanks as always for reading Matt’s Memos and your continued support by returning to and referring The Blue Waters Group.

Its no secret…home values are skyrocketing everywhere!  Sacramento Home Prices are up 31% in just the last year!  Besides leading to increased home sale opportunities for those looking to move-up, this trend has also led to more and more refinances.  In fact, most of my current refinance clients could not have refinanced just 6 months ago due to low or no equity.  But now, they’re experiencing the benefits that come with thier fast-rising home value.  If you’ve previously written off the possibility of refinancing, then its time to reconsider your options.  Even with only 5% equity, homeowners with credit scores over 740 have options to refi to 30-year fixed rates around 4% with no mortgage insurance.  And you don’t even need to be eligible for HARP to do it.

Speaking of HARP, the Home Affordable Refinance Program (HARP) has been extended through 2015.  HARP offers refinance opportunities for homeowners with no equity (see if you’re eligible).  It was set to expire at the end of this year but the government, in one of its rare recent occasions to agree on something, approved its continuance for two more years.

To make these opportunities even sweeter, mortgage rates remain super low.  I’ve been finding 30-year fixed rates around 3.5% and 15-year rates under 3% for clients with 20%+ equity.*

Bottom line…now’s the time to consider refinancing.  If you contact me this month to determine your refinance options, I will waive the initial credit report fee cost ($25 value).  As I’m writing this post, I have several specific clients that come to mind that should take advantage of these low rates and rising home values.  If I don’t hear from you, maybe you’ll hear from me in the coming days! 🙂  This is the perfect time to refi; I don’t want you to miss it.

*Rates shown are only meant as rough illustrations.  For full rate and APR details, please contact me. I assure you; rates like these are currently available for qualified borrowers

My real estate market forecasts are the most widely read articles on MattsMemos.com.  Their popularity is certainly not due to profound accuracy; in fact, I’m probably wrong more than I’m right.  Nevertheless, it’s been fun for me to take my best-guess and, as it turns out, it’s been fun for my followers to read.  You can read prior year’s forecasts here, here, and here.  But, you’ll get more from reading the one below which also includes home refinancing, buying, and selling tips.  If you like it, share it!  If you disagree with my projections, make a comment…I’d love to hear your thoughts on our CRAZY real estate market.

Refinancing

Everyone (including me) predicted mortgage rates would rise slightly through 2012 as the economy slowly recovered and as the presidential election brought some clarity to the fiscal and political direction of our country.  We were all wrong.  2012 saw lower rates than ever before, largely due to The Fed’s decision to buy mortgages.  When the Fed’s announced they’d steadily purchase billions worth of mortgages until the unemployment rate hits 6.5% (its currently at 7.8%), mortgage rates fell dramatically.  Presently, The Fed is buying $3.7 billion in mortgages every day, yet the industry only originates $2.5 billion daily, essentially meaning mortgages are “selling-out.” Simple economics dictate that regardless of if its a mortgage investment or a bunch of bananas, when a product sells out due to high demand, prices rise (just think of skyrocketing prices in New England right now as there isn’t enough supply to meet the demand of frantic buyers preparing for the blizzard!).  When the prices of mortgages to investors rise, the rates to borrowers fall.  As long as The Fed stays the course on buying every mortgage off the shelf, we will see these low rates remain throughout this year.  Currently, 30-year fixed rates are around 3.75%.  However, economic conditions around the globe are improving, and with brightening economic forecasts both at home (our real estate rebound will do wonders for America’s economic health) and abroad (many believe the worst of Europe’s fiscal woes are behind them), rates should increase from the record lows we saw last year.

More importantly, accessible programs (like the Home Affordable Refinance Program – HARP)  and rising home values (much more on this below) are allowing more folks to refinance as we march through 2013.  According to statisticians much smarter than me, 4 million more Americans are eligible to refinance today compared to last year simply because their home is worth more now.  If you’ve tried to refinance in the past but hit hurdles due to your home’s value, be sure to check back again.

Read these tips if you’re hoping to refinance this year

Home Buying

After 6 years of having the negotiating advantage, home buyers last year suddenly found themselves competing over a short-supply of homes for sale.  I foresee this feeding-frenzy dynamic to continue well into 2013…possibly beyond.

Sacramento County home prices rose 20% in 2012, so many sellers are less inclined to put their homes up for sale if they believe their home will continue to be worth more in the near future.  Furthermore, there’s much pent-up demand from home buyers, including ones who are now eligible to purchase after a short-sale or foreclosure.  Real estate investors also make up a big portion of the home buyer pool as they see big profits in real estate from both a strong rental market and swiftly rising home prices.  In conclusion, the imbalance between strong demand and weak supply should continue this year, leading to further steady price increases for sellers and challenging times for buyers.

If you expect to be a buyer in 2013, here are a few tips:

Home Selling

Home sellers are finally back in the driver’s seat, and likely will remain there through 2013.  Due to rising home values, many once upside-down homeowners are discovering they can now sell and break-even.  “Traditional” sales by sellers with equity now comprise over 60% of home sales, compared to only 34% from just two years ago.  Furthermore, bank-owned sales are down nearly 90% from 2010, thus showing signs banks are foreclosing on and, more importantly, re-selling significantly fewer homes.

In my opinion, the fear of banks’ “shadow inventory” is grossly exaggerated as many banks are trending to renting out their foreclosed homes or selling homes in bulk to investors who also turn many of the homes to rental properties (this recent Bloomberg article discusses this trend in detail).  Bottom line, 2013 will afford many home owners to sell after years of riding out the market, and to command higher prices than the last neighborhood home sale before them.

Here are a few tips for Home Sellers in 2013

To wrap up, 2013 will see rising home prices, stingy levels of inventory, and slightly elevated interest rates.  It should be a very healthy year for real estate, and likely be the catalyst for economic growth in many other sectors.  The Blue Waters Group is honored to stand alongside you in your home buying, selling, and refinance transactions in the year ahead and beyond.

As always, thank you for reading.

-Matt Sundermier, Mortgage Broker & Real Estate Agent
Owner/Broker of The Blue Waters Group
Two-Year Winner of Five-Star Awards as featured in Sacramento Magazine