Mortgage Rates Hit Record Lows! Who’s Ready To Refi??!!

On Friday, we saw mortgage rates hit their lowest levels EVER!  All month long, we’ve been helping many clients refinance to rates below 3%, and we anticipate helping even more through the rest of summer.  Renewed fears of another spike in Covid cases around the country are impacting financial markets, leading to even lower mortgage rates.

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Since Covid first swept the globe earlier this year, life has become incredibly unpredictable.  This is true also for the world’s financial markets, as companies, banks, and investors were constantly re-calibrating the economic risks of Covid.  

 

Typically, the more uncertainty and fear around the world the lower mortgage rates go, but that was not true for most of Spring.  Other factors, which you can learn more about by watching my recent YouTube videos, kept the mortgage industry particularly vulnerable to financial losses, so rates did not go into a free-fall.

Now with a second round of Covid cases all but inevitable and a volatile presidential rates droppingcampaign right around the corner, mortgage rates may be poised to take another dip.  If you have thought about refinancing, please get in touch with me ASAP.  We are helping more clients than ever refi to lower rates, shorter terms, or take cash out to pay off debt, but keep in mind not all loan scenarios are able to capture these record low rates.  Furthermore, underwriting a refinance is taking longer than normal, so its important to get your application submitted to us before any potential sudden rate drops.

I look forward to the opportunity to help you navigate your options and grab the lowest rates in our lifetimes!!!

Have a Happy & Safe 4th of July!

Mortgage Rates in the 2s? Yeah, I Got Those!

OUR LOWEST RATES EVER!

As an independent mortgage broker, I have the ability to find you the best mortgage options in the marketplace.  More and more mortgage banks are making drastic policy changes amidst the new Covid-economy.  Some are pushing business away to avoid uncertain risks.  For example, big banks like Wells Fargo & Chase have made it harder to qualify for loans with them.  On the other hand, other firms are luring in business by offering competitive rates and reasonable guidelines.  That’s why its so important that consumers like you utilize the services of a broker like me; to find you the best opportunities!

Case in point…one of our top lenders just introduced a program offering unbeatable fixed rates for certain scenarios!  If you have been thinking about refinancing to get a lower rate or a shorter loan term, now is the time to act.  This new program is not for everyone, as it doesn’t apply to cash-out refinances or rental properties, but for many folks looking to lock in a rate in the 2s, THIS IS IT!

Watch this video to learn more about the criteria & if you think you meet the criteria, give me a call or an email to discuss further.  I anticipate a high level of interest in this new program, so I will handle inquiries on a first-come basis.

 

Should You Make Your Next Mortgage Payment?

Times are uncertain, so skipping a few mortgage payments sounds nice, right? Not so fast.

In response to the economic turmoil caused by the Covid-19 pandemic, Congress passed an unprecedented 2.2 TRILLION dollar financial aid package for Americans. Known as The CARES Act, it aims at relieving businesses and individuals from economic hardships, including provisions to allow folks to request mortgage payment forbearance for the next several months. Awesome, right??!! Not so fast.

The intentions of this policy were wise, as a mortgage payment is often the single largest monthly expense for households. But, the unforeseen ripple effects of hundreds of billions of dollars in delayed payments has the potential to cripple the entire mortgage industry, put homeowners in perilous financial positions, cause grave damage to the overall economy.

To explain the economics of this issue, I’ll briefly touch on lessons of history, politics, English, and zoology.  I know its long, but please take the time to understand the full story and the negative consequences you and society at large may face if pursuing mortgage payment forbearance.

 

First, A Bit of History

On March 27th, President Trump signed The CARES Act, a package of profound financial aid to Americans. The last time the federal government swooped in to save the economy, it was 2008 and TARP (“Troubled Asset Relief Program”) was passed to primarily bail out large (ie-“too big to fail”) banks in the midst of the “Mortgage Meltdown.” There was much criticism about how big banks were saved but the “little guy” was left out in the cold, so today’s policy makers didn’t want to repeat that same formula. WERF-00017390-001The CARES Act is more focused on small businesses and individuals, and includes direct cash payments as well as the option to request to defer payments for the next 6-12 months without proof of financial hardship. As long as the mortgage is backed by a government entity, the mortgage servicer must honor the request. But, what the mortgage servicer must also honor is the monthly funds owed to the mortgage bond holders. In a nutshell, mortgage companies have to keep paying money out even though money is not coming in. YIKES!

Mortgage servicers will be facing incredible cash crunches and have repeatedly asked policy makers to establish a lifeline allowing mortgage servicers to borrow money from The Federal Reserve Bank to keep money flowing through the system. Without this form of aid, the mortgage industry as we know it could die.

 

Next, A Little Politics

As of this writing, the most influential politician on this matter insists that government intervention is not yet needed. Mark Calabria, the appointed director of Federal Housing Finance Agency (FHFA) who directs Fannie Mae & Freddie Mac, has a track record of disfavoring the government coming to the rescue in turbulent times. In fact, he’s gone on record to say if he were in charge during the Mortgage Meltdown of 2008 he would have let the very institutions he currently leads fail! Moreover, Mr. Calabria recently estimated “2 million borrowers would seek forbearance requests by May” and suggested if mortgage servicers get in trouble they could always sell their mortgage accounts to the larger mortgage servicers. Mr Calabria is either tragically miscalculating or misinformed on both fronts.

According to the Mortgage Bankers Association, the industry already processed well over 2 million requests by early April, and this number will only increase as our economy struggles to fully bounce back from shutdowns. Furthermore, the two largest mortgage servicers in the country, Wells Fargo & Chase Bank, have established policies in the last week to drastically reduce the amount and types of new mortgage

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Mortgage firms may go bankrupt

s they are willing to take on. There is no way the larger mortgage outfits will be a backstop to these new kinds of toxic mortgages with payment forbearance. Since the payment forbearance phenomenon was not created by the free markets, the free markets are not able to be the solution. Government intervention is essential, and at this time support to mortgage companies is only being offered to loans related to VA & FHA, which is a very small minority of the overall mortgage market.

 

Siri, What Does Forbearance Mean?

Unless you have a Jeopardy-sized vocabulary, forbearance is not a word you use often. Oxford dictionary says its “the action of refraining from exercising a legal right, especially enforcing the payment of a debt.” Simply put, forbearance does not mean forgiveness. Mortgage companies may temporarily refrain from collecting your payments, but they won’t hold back any longer than legally necessary, and likely won’t play nice when that time comes.

 

Survival Instincts Will Take Over

With inevitable liquidity issues and no sign of an immediate parachute from the federal government, mortgage servicers have impossible decisions ahead of them. Sadly, I believe this will force mortgage servicers to avoid favorable forbearance agreements at all costs. They will only play as nice as necessary to follow the law, but be ruthless otherwise. If you went through a short-sale or loan-modification process during the last housing recession, you know exactly what I’m talking about.

For example, there are no rules that govern when these deferred mortgage payments are re-paid. Even this video from the Consumer Finance Protection Bureau is vague. Potential options your mortgage servicer may offer: 1.) tack the payments on at the end of the loan; 2.) spread the missed payments over a period of time; or 3.) demand the payments be made in a lump sum.

e959fb34-c706-439d-bf8d-aee4215276beWhat would you do if you ran out of cash and someone was overdue on a loan due to you? You’d force them to play catch up ASAP, right??!!  Its not greed.  Its not nasty.  Its survival.

 

Mortgage servicers will do the same thing, forcing a homeowner who skipped payments at, say, $2000/month for 3 months & now pay $8000 in a lump sum in the 4th month. Obviously, most folks who truly need the payment reli6d414dac-6ee1-4973-b54a-0f8cdb5bc8d7ef in the coming months likely won’t be in a position to make a single catch-up payment, but tragically mortgage servicers are not in a position to float millions of skipped payments over the next few months and then patiently wait for reimbursement at the end of a 30-year loan. They have been backed into a corner, and will use any means necessary to try and survive.

I remain optimistic that policy intervention and clarity will eventually calm this situation down, but until it does every mortgage servicer is in a choke hold.

 

What Should I Do?

If you have suffered a big economic loss and cannot make your mortgage payment, by all means call your mortgage company and request payment forbearance. Yes, this may mean you are forced into a lump sum payment at some point, but that is tomorrow’s problem. You have bigger problems today; take the payment relief and hope repayment options are more favorable when you’re back on your feet.

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If you still have cash, keep making your monthly payments!

BUT, if you are still able to make your mortgage payments, please continue to do so. Consider taking advantage of the delayed tax filing deadline (extended 90 days to July 15th!), but don’t delay making your mortgage payments unless absolutely necessary. Staying out of forbearance will allow you to keep your options open for refinancing if rates slip down (forbearance generally disqualifies you from getting a new mortgage) & will help you avoid a build-up of payments that will likely need to be paid all at once in the future. It is not only in your best interest, but also in the best interest of the mortgage industry and our country at large. If too many borrowers utilize payment forbearance, the mortgage system could face catastrophic failure that would result in a housing crash worse than the Mortgage Meltdown of the late 2000s.

Spread The Word, Not The Virus

Please pass this post along to as many friends and family as possible, and do your part to encourage folks who have been considering mortgage forbearance to know the full story. In the meantime, stay safe, stay inside, and stay sane!

A Different Kind of March MADNESS!

We are living in a generational-defining moment. How we cope and change amid this COVID-19 pandemic will define humanity for years to come. While I hope we bounce back quickly, I fear we have a long road ahead; medically, socially & financially. Even then, “normal” will have a very different feel compared to life before the pandemic.

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On the economic front (the only front I really should dip a toe into on this blog), each week in March has seen unprecedented events, only to be outdone the very next week. It has truly been MARCH MADNESS!!! Mortgage rates, for example, hit their lowest levels ever on March 6th, but then saw rates climb faster than any other time in recent memory on March 13th. Then on March 19th, The Federal Reserve Bank began injecting a record amount of funds into the mortgage market to stabilize rates. Their intervention had positive effects for standard mortgages, but this week we are seeing irregular mortgage products (ie – Jumbo loans or alternative documentation loans) essentially vanish from lender’s rate sheets, terribly reminiscent of the 2008-2009 “mortgage melt-down” crisis.

It has been an astonishing roller coaster ride, & I’ve been recording short videos in recent weeks to keep clients up to date on these mortgage market developments (click here for the YouTube Playlist).

Today’s video (see below; complete with fun green-screen effects!!!) is a recap of some of the latest developments, most notably this week’s jobless claims and stimulus package details, and also a forecast of what to look for in the days and weeks ahead.

Here’s why I feel this is important insight for my clients. Over the last 40 years, every US economic recession has forced mortgage rates lower. Many folks argue COVID-19 will push us into a recession; how could it not!!?? This week’s unemployment claims figure of 3.3 million is nearly 5 times higher than the previous high, and our government is poised to pass a 2+ trillion dollar stimulus package, which may stop the bleeding but it alone will not turn the tide on this crisis. It’s very possible mortgage rates will push lower in the near future, so as a community we should be prepared for that opportunity.

But it’s not as simple as saying a recession automatically leads to lower mortgage rates. The mortgage market has tremendous hurdles currently facing it that could push rates higher. Either watch today’s Mortgage Market Video here, or keep reading below:

 

  • RISK of buying mortgage bonds has increased dramatically – With millions of people being laid off each week with no end in sight, investors of cufa4b2a71-31f3-41d1-b18c-d59fe7e2aad7rrent mortgage bonds are worried about higher delinquency and foreclosure rates. This withers away the value of their current investments, and makes them leery of purchasing more new ones. If you got food poisoning from eating at a particular restaurant, would you go back right away? That’s the dilemma facing mortgage bond buyers at the moment, and rates have to go up to lure them back.
  • Lenders are UNCERTAIN if they can sell new mortgages for a fair price – when we start a loan with you, we lock in the rate upfront with a bank. That bank has to then guess what the value of that mortgage will be on the open market when we close in 30-45 days. This is known as “hedging,” and the more volatile the market the more expensive it is for the banks to hedge. With unprecedented market swings, banks are spending a ton of money hedging their bets, and this cost gets passed on to you via higher mortgage rate offerings.  Some lenders are suspending locks until loans are underwriting, creating further problems and uncertainties for banks and borrowers.
  • Most lenders will have CAPACITY issues to handle a big surge of refi applications – With the unknowns of today’s economy, most banks are not looking to hire new staff. But, if mortgage rates drop dramatically they’ll need more staff to handle all of the new refinance applications OR take much longer to underwrite files. To keep a “governor” on the speed they receive new applications, banks may keep their rates artificially higher even though normal market conditions would suggest rates should be lower.

0c5067a2-878d-41c3-9d4a-fee88781e89aDue to RISK, UNCERTAINTY & CAPACITY issues, the current market requires a different game plan. In years past, if mortgage rates suddenly dropped I’d call as many clients as possible to jump on a refi application. In today’s environment, however, we have to be more pro-active. We need to have an application in place BEFORE the rate drop. Doing so allows us to serve more clients during those short windows when mortgage rates fall. And doing so gets you ahead of everyone else who is sitting on the sidelines. If your application is in & the underwriter has approved it, you’ll be in the front of the line for record low mortgage rates.

Will mortgage rates fall below 3%? I don’t know for sure. If the last few weeks have taught us anything it’s that nothing is for certain, but I’d like to spend my time & talents helping you to prepare for such an opportunity. If you’d like to discuss further your potential refinance goals, please get in touch with me. We’ll lay out a game plan, whether it be for a low rate, cash in your pocket, or a big reduction in your monthly payment. Let’s prioritize goals, gather needed application documentation, and work together to stay apprised of mortgage market developments.

Stay safe out in this world, and sane inside your cozy home!

Mortgage Rates Are in A Free-Fall, Right???

 

panicbutton2The last two weeks have been filled with dramatic headlines about our financial markets and global economy. The Fed had an emergency meeting, stock trading was halted for a brief period, and US government bond rates hit record lows. The markets have been in “panic” mode.  I’ve always said  mortgage rates improve when there is bad news, so mortgage rates are surely in a  free-fall, RIGHT???

In short, no. Mortgage rates don’t tend to move as quickly as other markets during extreme swings. For example, the rate on 10-yr US bond rates fell .42% last week while 30-yr mortgage rates fell only .08%. There are a number of reasons for this inconsistency, but the point worth making here is that mortgage rates are not in a free-fall…yet!

I believe mortgage rates will fall further in the near future, and last week’s volatility is a clear reminder of just how fragile our economic markets have become. We have spoken to a ton of clients in recent days, and most are deciding to wait for lower rates before taking action. I think this is a wise move for a number of reasons.

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The Mortgage Rate Roller-Coaster Ride is far from over!

First off, significant mortgage rate declines tend to lag behind other market movements. If the world economies and governments continue to grapple with the spread of Covid-19, it will give mortgage rates a chance to “catch-up” and fall further.

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It won’t take much of a punch to knock down our current financial markets.

Secondly, I believe the financial markets are fatigued and vulnerable to further volatility. Much like a heavyweight boxer in the twelfth-round, it doesn’t take much of a hit to knock out an exhausted fighter. The US Stock market has been on its longest “bull” run in history; it can’t go on forever. The recent market hysteria over the Covid-19 fears and of a potential price war in the oil markets prove it doesn’t take much for the current markets to get scared. I strongly believe the world’s financial markets are “on the ropes,” and the next knock-out punch will be coming soon.

Finally, it rarely pays off to chase markets. A few lucky clients did lock in great interest rates last week amidst the crazy market swings, but most of them had already been in previous conversations with us about a transaction. Thus far this week we’ve seen the markets “rebound” and give back much of the rates drops experienced last week. Rather than regret the missed opportunity of chasing last week’s market, I would advise everybody else to get ready to pounce on the next opportunity.   Luck favors the prepared, so begin discussions with us now about potential refinance goals. Doing so will allow us to monitor the markets for your particular situation, and swiftly act when the opportunity presents itself.

Please give me a call or email so we can set up a 10-minute phone appointment. I’ll be working nights and weekends as needed in the coming weeks, so I look forward to finding a time and method to communicate with you soon.

Stories in the Making

The stage is set this week to be an incredibly volatile one filled with newsworthy headlines.  These stories could have huge implications for mortgage rates.  Generally speaking, mortgage rates fall when economic indicators are sluggish or uncertain.  This week’s scheduled events could make markets very nervous and, depending on the outcomes, push rates lower.

Here is a list of stories in the making this week:

December 10thThe World Trade Organization (WTO) will cease to operate.  This multi-lateral trading system underpins 96% of global trade, but our American government has put a block on appointing new judges.  Two judges are retiring this week, so there will not be enough judges to hear new cases. While this event has been in the making for months (if not years), its significance is noted, especially given the rising trade war tensions around the world.  With no “sheriff in town,” the “gun-slinging cowboys” of global trade may feel brazen to impose stiffer trade rules and costs.

December 11thThe last Fed press conference of 2019.  After two back-to-back rate reductions in the Federal Funds rate, most analysts are expecting The Fed to not take any action in this week’s meeting. However, what they say in their press conference could have ripple effects through the world’s financial markets

December 12thBritish election that will shape the fate of Brexit.  A special election is being held on the hope that the Prime Minister’s party will win majority in their parliament.  If that takes place, the Conservative Party’s agenda, which includes a quick exit from the European Union, will forge ahead more swiftly.

December 15thNew round of tariffs set to take effect on $160,000,000,000 of Chinese goods (that’s a lot zeros!!!). With no sign of a written trade agreement between the two biggest economies on the globe, it is possible the next round of scheduled tariffs on Chinese imported goods will take effect.  While prior tariffs have targeted production materials, this tariff will directly apply to finished Chinese goods sold in America, including cell phones and other electronic and household products.  With less than a week to go, it is still uncertain if this latest tariff is a threat or a promise.  Its anybody’s guess how the next few days will play out in the financial markets, and its by far the most important story to follow in the coming days.

USA and China trade war[1]_ US of America and chinese flags crashed contain

Indeed, uncertainty is high, and I think there is potential for mortgage rates to fall in the days ahead.  Peek back at my August and October blog posts that share my thoughts on these story lines in the past, and give me a call if you want my forecast on whats ahead.

I’ve Never Done THIS Before!

Over my career, I’ve referred to my thoughts on the markets as forecasts. For example, my yearly post about the market is titled the annual market forecast, and I’ve been known to compare timing the markets with forecasting the weather.

Today I’m taking it a step further; I’m going to make a bold prediction about where interest rates are heading. I’ve never been so daring in my career, but in doing so I’m hoping to get you prepared to take advantage of what I believe will be record low mortgage rates in the coming months.

If I’m going to make such a provocative declaration, I want to back it up with data. So, as a fair warning I’m going to show you some graphs. Don’t close your browser just yet; I promise to make it impactful and easy to follow (it may be easier to watch the video starting at 1:15).

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OK, here we go!  Above is a graph of the interest rates on 10-yr US Treasury Bonds. These rates are closely correlated to mortgage rates, so we’re just going to focus on the direction of the rates. As you can see, rates have been in mostly a free fall for the last year, and we’ve helped many clients in the last two months take advantage of these low rates. In fact, I’d like to focus on these recent two months where this jagged saw tooth action has been and show you where on this timeline our clients have been locking rates.

graph2Beginning in August, refinance clients began locking in their rates; each of these X’s indicate when one of my clients locked their loan. We were on a roll until just after Labor Day, and then rates took a big jump up on the announcement of a future meeting between US & China trade officials. During this volatile time, several clients submitted an application to refinance with us, but we recommended against locking in the hopes the markets over-reacted and would settle back down. That’s indeed what occurred, and we had a number of clients lock in their low rates in the “trough”. No one locked at the peak!

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Now history appears poised to repeat itself. For the last week, rates have been on a steep rise as verbal agreements were made in the widely anticipated trade meetings. The US and China economies are the two largest in the world, so easing tensions of a trade war is definitely good news. But, I think the markets are being overly optimistic. First off, none of the details of this trade agreement are in writing yet. That is supposed to be done over the next several weeks. Secondly, analysts say the agreements do not address some of the more critical issues of the trade tensions; this is being called simply Phase 1 of trade discussions. And thirdly, trade and tariff policies can be set unilaterally by a president in the name of national security. They can also be changed or removed unilaterally.

Bottom line, the trade war outlook is still uncertain, and when the markets figure that out then rates will fall. There are other factors at play that support my theory, and I’m happy to share them with you individually, but for fear of losing my audience I’m just cutting to the chase…mortgage rates are poised to fall. That is my bold prediction; and here is my strong recommendation; begin a refinance application now so you can be prepared to lock in a low rate if my prediction comes true. A trusted colleague of mine put it this way…if you go tailgating at a football game you don’t want to still be in the parking lot when the big play happens. Sure, the roar of the crowd will prompt you to make your way in, but by the time you get into the stadium you’ve missed the moment. Grabbing a low rate on a refinance is much the same; you need to be in your seat, watching the game in order to participate in the exciting plays.

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I can’t lock an interest rate until the needed paperwork to complete an application has been submitted. So, let’s do that now. If rates drop during the holidays do you really want to scramble to grab w2s and bank statements for me then? No, lets do it now. I’ll absorb any upfront application expenses for you, and if rates don’t drop we don’t need to complete the refi. There isn’t really any downside for you coming into the game: if my prediction is right you’ll get to celebrate with everyone on the field with a great refi rate, and if I’m wrong you’ll have a front-row seat to my crystal ball fumble.

Contact me so we can discuss ways we can make it easy for you to start your refinance application ahead of the next interest rate down turn.

Should You Finance Energy Efficient Upgrades? UPDATED 2018

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.

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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.  Furthermore, changing income tax laws impact many of these finance alternatives.  PACE loans, for example, are liens buried into the property’s tax bill, but many California homeowners may find their property taxes not as tax-deductible as in years past.

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.

We have worked to help several clients 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.

2017 Real Estate Market Forecast

c0501a39-6615-4dce-9c0f-3703cc5aa964March marks the beginning of Real Estate season.  As snow melts and flowers bud, current and aspiring home buyers alike are coming out of financial hibernation to assess their real estate affairs.  That’s why I hope this annual market forecast is a timely message to many of my clients and readers.

 

I’ve always said forecasting is a fancy word for guessing.  No one knows for certain what lies ahead in our local real estate market.  Nevertheless, as someone who witnesses the front-lines action in the market, I have the chance to share observed indicators with you.

These “markers” signify much of the same patterns we’ve seen in the market for the last three years: high demand, low supply, and rising prices.  Frankly, I don’t see these altering course in 2017.  Here’s why:

Without further ado, here are three significant real estate predictors to watch for in 2017.

Welcome to the Party, Millennials!

Millennials are discussed for many reasons, and for good reason!  They are the largest generation by population in our country, so their actions will have profound impact on many industries, including real estate.  Research from Zillow indicates Millennials were the largest generational buying group in 2016, and they are predominantly buying in the suburbs.  This is a big deal, as Millennials have deferred home buying longer than their predecessors.  The conceived factors vary from their high levels of student debt to their emotional scars of witnessing others before them lose homes and wealth during the Great Recession, but the simple fact is Millennials have not been buying homes at typical rates…until now.

Last year, the United States’ Home-ownership rate dipped below 63% for the first time since 1965 a symptom not necessarily of affordability (after all, home-ownership rate hit an all-time high when prices were at all-time highs in 2005) but rather due to a lack of appetite.   With Millennials poised to remain hungry for homes of their own, the demand for housing will persist into 2017 and beyond.

Where are all of the new homes?

In last year’s forecast post, I shared some shocking statistics regarding the relatively low level of new home construction in Sacramento.  Without enough homes to go around for everyone, prices are forced to go up.  New home permits are increasing (up 20% from a year ago), but not at a rate fast enough to meet current buyer demand.  2016 had over 6,000 single-family home permits filed in the Sacramento area, the most seen since the Great Recession but far fewer than the peak of 18,523 in 2004.

Furthermore, there are fewer and fewer homes available to rent.  In the 4th quarter of 2016, the Western region of the United States had a rental vacancy rate of 4.2%, the lowest reading since the Census department began collecting this statistic in the mid-1950s!!!

Until new home construction picks up considerably, there will be upward pressure on the prices (& rents) of the limited number of homes for sale (& rent).

Never Say Never (to new housing highs)

When the real estate market crashed ten years ago, many people said home prices became so inflated that they’d never reach those levels again.  In 2011, the “never again” prophecy seemed accurate.  Sacramento home prices had lost over 50% of their values from the peak seen in 2005.  Beginning in 2012, however, the market rebounded with a vengeance and now has clawed back to price levels seen in 2007, before the Great Recession.  This 5-year rally has market observers wondering if we will break through to new price highs soon.

Some pockets of town have already earned this accolade.  East Sacramento, for example, is experiencing higher home prices now than ever before.  I believe other neighborhoods will follow suit, but not prolifically in 2017.  We may need to wait one more year before breaking new records, but sooner or later the “never say never” prophecy will ring true.

In 95819, the median home price hit a peak of $500k in 2005.
Presently, it’s $525k!
 

Is This a Bubble Waiting To Pop?

Some view these hot market factors and predict a market bubble forming.  After all, how much longer can a 5-year rally last?  While I agree that a rally can’t last forever, the rare combination of scarce housing options, home-ownership rates at 50-yr lows, and an emerging generation of home buyers leads me to believe the Sacramento housing market is well-insulated from another bubble.  Even with the looming possibility of rising interest rates impinging housing affordability, our real estate market should see steady gains (5-10%) yet again this year.

If you are thinking of buying or selling a home, I’d love the opportunity to serve.  With 15 years of local market experience, I am able to provide honest insight on how to best navigate the current market dynamics to help make your real estate transaction a success.

As always, thank you for reading Matt’s Memos!

 

I Hate To Talk Politics, BUT…

We have all been warned of the three taboo conversation topics: sex, religion, and politics. Touching on such subjects with others often leads to conflict or misunderstanding. Wikipedia even admits on their web site that “its nearly impossible to provide a neutral point of view” on these matters.   And yet, NOT discussing politics in our current climate is nearly impossible as well, even for a guy like me who wants to focus on economics rather than politics.

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All of these “us” vs. “them” antics are exhausting, and dangerous.

 

So here it goes; my bold attempt to lace politics into my Part-Professional, Part-Personal, Rarely-Ever-Political blog.

Political news is everywhere!  Its even prevalent on financial (see below), fashion (peek at GQ’s polarizing Facebook video page) and sports (Google “Ass or Asset”) news sources .

moneycnn-screenshot

Check out this screen shot I took last night when visiting www.Money.CNN.com, my preferred source of financial and market news. Every single one of the top 10 headline stories covers some element of President Trump’s administration; they even have a page titled “Trumponomics.”  The unavoidable reality is that our politics are shaping our economics, including mortgage rates.

As I’ve been preparing my Annual Market Forecast post (coming soon!), I’ve realized I must understand our political affairs in order to best counsel my clients about the recent and potential future changes in interest rates. For example, mortgage rates and other financial markets have been incredibly volatile since Election Day due to the foreshadowing of how our world may be different under a Trump Administration. In fact, the term “Trump Effect” has been coined as a reference to the markets being indirectly influenced by President Trump. For example, on good stock market days, you’ll read headlines such as “Dow closes above 20,000 for first time as Trump actions spark rally” and “Trump tax talk lifts Wall Street to record high.” And on down days you’ll see “Will Trump kill the Trump rally?” and “Is Wall Street starting to show Trump regret?”

Like it or not, our economics are closely tied to our politics, and it seems that in the near term market movements will be directly correlated to President Trump’s every move, meeting, tweet, and executive order.

So here is the economic takeaway from this tip-toed political blog post: the more volatility, uncertainty, and controversy surrounding President Trump’s first 100 days in office, then the more likely we will see mortgage rates drop.  Markets disfavor uncertainty, and when it comes money flows to safer investments such as bonds and mortgages. On the other end, the more focused he becomes on pushing his domestic promises to cut taxes, deregulate industry, and increase infrastructure spending, then the more likely we will see mortgage rates rise. If you are in the market to purchase or refinance a home in the coming months, then the inescapable political headlines you encounter every day have more impact for you, as the Trump Effect on mortgage rates will surely be at play in the weeks to come.