2011 Real Estate Market Forecast

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

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

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

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

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

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

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

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

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

Want to Play Monopoly?

Ever since I have been old enough to count, I have loved the board game Monopoly™.  Whenever my buddies and I played I wanted to be both the banker and the property card-keeper; an ironic foreshadowing of my career as a combined mortgage broker and REALTOR.  As it turns out, I’ve been playing banker and property card-keeper my entire life!

To this day I still adore the game.  I’m currently biding my time for my girls to be old enough to play (recent attempts just led to slobbery battleship pieces, crumpled bills, and unfinished games).

In the meantime, I am enjoying working with more folks than ever before playing real-life Monopoly buying and financing investment properties.  Due to low prices, low interest rates, rising rental demand, and favorable tax benefits, “playing” Monopoly has become a very wise financial move.

Those with means and foresight should be running to buy homes right now

Consider these recent examples of clients I’ve helped:
1.) Mr & Mrs K. purchased a rental property for $158,000 in Fair Oaks.  They are renting it to their daughter who is covering the mortgage payment, which is actually lower than the rent she was paying at her previous apartment.  Talk about a win-win!

2.) Mr. G is purchasing a $200,000 4-bedroom home that already has tenants.  After making a 25% down payment, his TOTAL monthly payment is $1028.  The tenants want to remain in the home, and continue to pay their $1475/month rent…positive cash-flow of $5400/year (annual rate of return of 10.8%).

Examples like these are fairly common in today’s market.  It’s not about finding the “diamond-in-the-rough”; it’s about simple supply and demand.  The supply of houses at decade-low prices is up.  At the same time, the demand of renters is up as every homeowner that has lost their home to foreclosure or short-sale is now looking for a home to rent.  Tremendous investment opportunities are readily available for folks with great credit, document-able income, and at least a 25% down payment.

Ironically, the Monopoly™ board game became a popular game in the mid 1930s, in the midst of The Great Depression.  I can’t help but guess folks of the time became fascinated with a game aimed at buying property when their real life finances were so dire.  This time around, in what many are calling The Great Recession, I hope that instead of playing a board game you consider your real-life opportunities to attain financial health through real estate investing.  My experience can help you find the right loan and best property for your investment preferences.  As I said earlier, I’ve been practicing for this my whole life :-).

Pick Up The Pace (On Your Mortgage)

All of us dream of the day our home will be paid off.  For many, now is the ideal time to speed up your pay-off pace.  15 year rates are near record lows, meaning you may be able to refinance, keep your monthly payment nearly the same, and shave YEARS off the life of your mortgage.  Consider this example:

Mr. B. obtained a $300,000 mortgage at 6% in 2001.  His payment is $1798/month, and now his mortgage balance is $257,000 with 21 years left.  By refinancing to a 15 year fixed at 3.75%, his payment will be $70/higher and he will pay his mortgage off 6 years faster…avoiding $130,000 in monthly payments!!!  In short, Mr. B. will pay $70/month and save $130,000…talk about a wise investment!

Numbers don’t lie.  Give us a call so we can discuss your options of becoming mortgage-free faster than ever before.

4th Quarter is “Crunch Time”

I can’t believe we’re already heading into the final quarter of 2010.  It seems that Avery, my youngest daughter, was born just a few weeks ago, but now she’s walking around and Mary is sending out invites for her 1st birthday party next month!  What happened?   

Looking forward…the coming months typically are the slowest ones of the year for my business.  After all, it’s more enjoyable for a homeowner to plan a holiday party than to take time to sell, buy, or refinance their home! This year’s 4th quarter, however, homeowners have much more at stake with their finances. 

Mortgage rates have hit ROCK BOTTOM, enabling homeowners to save money, consolidate debt, or reposition home equity to other investments during these difficult economic times.  Unfortunately, many have not even inquired or pursued their refinance options.  Some hesitate upon hearing horror stories about other’s experiences; many wrongly assume they don’t qualify. 

If you have not yet assessed your refinance options, I urge you to look at the upcoming 4th quarter as “crunch time” and act now before rates go back up.  Crunch-time players don’t hesitate; they know what’s at stake and they take action.  Do you need to take action and save  money in this economy?  In other words…will you be a crunch-time player with your mortgage? 

To encourage you to step up your game, I am going to offer a FREE GIFT to those who contact me to review their refinance options.  There’s no pressure here; just an honest professional looking to honestly serve you before time runs out. 

Be Like Mike…step up and take the shot at refinancing before time runs out.

 In sports, the 4th quarter is the last chance to make a difference as the clock winds down and the pressure rises up.  The same is true for your mortgage as we enter the year’s 4th quarter.  Rates will likely be heading higher as we approach the November mid-term elections (politics play a bigger role in the mortgage market than ever before)…so time is running out. 

As a special offer only for only my blog readers, I will give a $10 iTunes gift card* for calling me in crunch-time and simply discussing your refinance options.  If we discover options, we’ll celebrate the wise play you made and the money I’ll help you save.  If not, you at least get to download some music & get to know me so you have a mortgage broker and REALTOR to trust down the road when you need to buy, sell, or finance real estate.

I look forward to hearing from you.

*To qualify for the $10 iTunes gift card, just give me a call and complete a loan application within the next 30 days.  That’s it!

No-Cost (FREE) Refinances are Back!

One of my (and my clients’!) favorite refinance options is back…the no-cost refinance.   They were missing from the market for the last 18 months for a number of reasons, but now they’ve returned and I already have many clients taking advantage of them.  These refinance programs allow a homeowner to refinance to a lower rate and not pay a penny in closing costs.  Like everything, there are pros and cons to these creative options.  Let me explain further.

When a borrower considers the cost of a loan, they must factor two things: the rate and the closing costs.  Many focus on getting the lowest rate possible, but borrowers must realize that lower rates always have higher fees.  Conversely, higher rates have lower fees…sometimes no fees at all.  That’s where the no-cost option comes into play.

A no-cost refinance allows the borrower to pay a slightly higher rate than the standard rate offered by the bank and in return the bank pays the closing costs for them.  There truly are no closing costs paid or financed by the borrower.  These options come in handy for the following homeowners who want to reduce their monthly payment but:

1.) plan to sell their home in the near future, thus shouldn’t incur significant closing costs for short-term monthly savings
2.) can’t afford to pay or finance closing costs
3.) recently paid closing costs on a loan (either to buy their home or to do a previous refinance) and can’t stomach coughing up thousands more again to refinance
4.) prefer to “hedge their bets,” meaning they’d like to refinance for free now yet want to save their closing cost money for later as they believe interest rates may fall further in the near future.

Most of the no-cost refinances I’m quoting on 30-year fixed loans are currently at 5% (for loans over $250,000).  Would you like a 5% rate for free?  That’s not a bad deal.  If you’re interested, call me to discuss your options further.  Don’t assume you don’t qualify.  Also, if you are a reader and client who has taken advantage of a no-cost refinance in the past, please post a comment sharing your experience with and motivation for a no-cost refinance.

Good Advice can become Bad Advice


Avery, our little smile factory, recently turned six months old.  It’s such a wonderful phase of baby-hood; every little detail of this world fascinates her.  She has become most curious and interested in food, as six months now marks the beginning of eating solids.  It’s amazing how fast medical advice changes, because only four years ago we were advised to begin solids with Maddison at four months.  Studies now show early introductions to food may lead to food allergies.

At first I was reluctant to buy into this allergy “theory.”  To be honest, Avery hasn’t been the best sleeper and I knew that eating solids would help her (as well as Mary & me!) sleep longer at night.  And besides, Maddison doesn’t have any food allergies despite starting solids at four months so what’s the big deal, right?  Ultimately, I decided to follow the medical advice of the professional rather than pretend I was a doctor myself.

Why am I writing about baby food (don’t worry, I’m getting to the point here)?  Because I’ve realized that doctors have the same difficult task as I do when it comes to advising clients with new information in an ever-changing world, and patients and clients alike must value the expertise their professionals possess.

Doctors say they “practice medicine” for a reason; their field is always changing.  Medical advice from years past often becomes outdated due to new research, emerging technologies, and evolving diseases.  And yet, many of us are slow to follow the new advice.  As I almost did, we dismiss the professional’s advice and assume we know better.

Similarly, the real estate market is always changing too.  Homeowners today are experiencing unprecedented dynamics when buying, selling, and financing their homes.  Unfortunately, many folks are relying on their personal experiences from years past or on antiquated advice from friends, parents and neighbors to guide their decisions in today’s tumultuous and complex marketplace.  Doing so can cost them a tremendous amount of headache, heartache, and money.

The simple truth is this: yesterday’s good advice can become today’s bad advice when you don’t keep up with the times.  Our world changes quickly, so seek professional counsel in areas outside of your comfort zone.  Like a doctor, I devote a large portion of my mortgage and real estate “practice” to staying current on the trends of the markets so I can best help you make informed decisions in a fast-paced industry.  I am committed to provide up-to-date expertise to you and to those you refer.  As always, thank you for reading.

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.

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.

‘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. 

’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.

Expect Mortgage Rates to Rise

If you’ve had refinancing on the brain, you may want to put that thought into action soon. The Fed recently announced the subsidies that have artificially pushed mortgage rates to record low levels through most of 2009 will end in the first quarter of 2010.   Read this article to get a summary of how and why the government has kept rates incredibly low, and why their slow pull out of the mortgage market will force rates up.  According to its author, “It is a given that once the Fed ceases its purchases (of mortgage-backed-securities), interest rates will climb significantly higher … most likely back above the 6 percent area.”

If you are an eligible homeowner who would benefit from a refinance, I encourage you to act now before rates go up.  Contact me and I’d be happy to determine what options you may have.

Mortgage Rate Rally!!!


I watched the movie Wall Street last week (1980s classic with Michael Douglas and Charlie Sheen), and I had to laugh at the scenes of the stock market trading floor where traders are buying and selling stocks in a frenzy during a stock market rally.  I chuckled, thinking things don’t work like that anymore with increased technology and market efficiencies in today’s stock market.  The days of frenzied brokers are a thing of the past, I thought!

Ironically, I found myself today inside the frenzied pit of a mortgage market rally as mortgage interest rates have plummeted below 5% for conforming 30 year fixed loans, below 4.5% for 15 year fixed loans, and 4.25% for 10 year fixed loans!  I’ve tried to be on the phone with as many clients as possible because, as with any market rally, you never know when it will stop and you don’t want your clients to miss the boat.  I was just like those crazed traders on the trading floor trying to get great deals for my clients before the deals are gone!

As the day winds down, rates have continued to remain incredibly low for qualified home owners and buyers.  Tomorrow has the potential to be an even better day with a very important unemployment report scheduled to be released.  If our country’s monthly unemployment report shows higher than expected unemployment numbers, mortgage rates may fall even more!!!  If you want to talk about your refinance options, please give me a call as soon as possible to discuss your options.  Or, please let your friends and family know that you heard from your awesome mortgage and real estate consultant for life that mortgage rates are low and they too should consider refinancing or buying.  Regardless, I appreciate you reading my memos.  Now, I’ve got to slip my colored jacket back on, dive into the pit, and get back to locking more low rates!