Saturday, November 28, 2015

When Is the Right Time to Sell?

For years, making a killing in real estate was easy. All you had to do was to hold on to your home. People doubled, tripled, and quadrupled their money just by living in hot areas of the country.
We all know what happened next. A few lucky people cashed out at just the right time. As for the rest -- we're still dealing with the aftermath of their stories. And many people are wondering: Did I miss the right time to sell.
A unique asset
First, remember that your home isn't like other investments. When housing prices are up, your four walls and a roof may be the best investment you've ever made, but pocketing the profit is just half of the process. There are property taxes to consider and school systems to research; commutes to be calculated and condo fees to be factored in.
And guess what? If your house is worth a lot, odds are any house you're interested in moving into also has a hefty price tag. You can always find a rental, which isn't a bad option -- if you successfully time both the top and the bottom of the real estate market.
Home, sweet investmentAs a homeowner, you'll find it easy to think of your home as a piece of your overall portfolio. You're the CEO of 1412 Maple Lane. Make the most out of this piece of your portfolio by making sure you aren't overpaying for your mortgage, and that you are making necessary upgrades to extend the life of your home -- and enhance your time there.
In fact, you should approach the housing market -- your housing market -- with the attitude of a buy-and-hold investor. Long-term buyers know that they will most likely be rewarded, despite the market's day-to-day ups and downs. Time in the market is a lot easier than market timing.
Granted, things change. It's pretty rare these days for people to live in the same area for their entire lives. Depending on where you move, you might find yourself in a totally different real estate market, with different price levels and available features. But if you're lucky, you'll always be able to at least maintain your standard of living when moving from house to house -- thereby enjoying the slow but steady profits that rising housing prices have given homeowners over the decades.
Hot or notWhatever history tells us about this time period, remember that a home is where you live. Its value in your asset mix is more than a number on a piece of paper. But you already know that. And, honestly, after a weekend of watching homes being razed, refurbished, tricked out, flipped, and traded up on cable TV, we can't blame you for wondering whether you should have dumped your house at the peak and rented a place until everything cratered.
But while hindsight may be perfect, we don't have a crystal ball. And with your home, it's an all-or-nothing proposition. You can't just take a portion of your profits -- say, sell the third half-bathroom with the bad '80s wallpaper and the seldom-used dining room and unfinished basement.
So if you want to make a killing in real estate over the years, the right time to sell is never. By moving only when your needs change, you spend less on costs such as listing fees and mortgage loan charges -- and you benefit from the slow appreciation that real estate has offered over time.

Wednesday, November 25, 2015

Today Marks The End This Week

Although the markets will be open on Friday after Thanksgiving, today tends to represent the end of anything significant that may occur in the markets for the week.  All the major weekly economic reports are released, and as is typical as of late, we have a mixed bag of good and not so good news.  Leading into the holiday tomorrow, let me get the not so stellar news out of the way up front so we can finish on a high note. 

The Mortgage Bankers Association of American reported that with the slightly rising interest rates, mortgage applications declined for the previous week.  Purchase loan applications dropped a slight 1.0 percent while refinances, which are always more sensitive to rate movements, declined 5.0 percent.  These declines are minor and within normal week to week variances.

Existing home sales are not a point of strength for housing or the economy.  October sales declined 3.4 percent to a slightly lower annualized rate of 5.36 million homes.  From the same time last year sales are only up 3.9 percent which is the lowest spread we have seen since January.

Lack of inventory remains the biggest factor for the less than stellar sales numbers.  Supply is at 4.8 months which is less than the 5.2 months at the same time last year.  Inventory supply of 6 months is considered balanced for the market.  If we talk straight numbers, supply is down 100,000 homes from the same time last year.

Let’s talk good news now.  Prices of homes showed a lot of life in September rising 0.6 percent according the Case-Shiller Home Value Index.  Prices are up 5.5 percent from a year ago and the spread has increased slightly.  These are the strongest numbers since last summer.  All 20 cities measured by the index showed price appreciation.  It is believed that the continuing price appreciation will drive more sellers into the market in the coming months which will help to balance out demand and supply.

Piggybacking on the Case-Shiller report, the FHFA House Price Index reinforced the positive movement in home values.  The FHFA reported that price appreciation for September increased 0.8 percent.  Home values are 5.7 above the same time last year.  FHFA covers single family housing data where Case-Shiller focuses on both single family and multi-family real estate transactions.

Lastly, first time jobless claims fell to 260,000 for the week ending November 21st.  This is near the 42 year low for claims.  Strength in the labor market should bode well for housing in the coming months.

Next week’s potential market moving reports are:

·        Monday November 30th – Pending Home Sales
·        Tuesday December 1st – ISM Manufacturing Index & Construction Spending
·        Wednesday December 2nd – MBA Applications & ADP Employment Report
·        Thursday December 3rd – Jobless Claims & Factory Orders
·        Friday December 4th – National Employment Situation

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Sunday, November 22, 2015

The Stock Market Continues To Rise

The overall stock market continues to rise despite the recent decline in travel related stocks due to the terrorist attack in France.  The Dow Jones Industrial Average is up 500 points for the week through Thursday.

Mortgage rates have retreated from their recent high’s and borrowing seems to be picking up steam.  The Mortgage Bankers Association reported that for the week ending November 13th that purchase applications jumped 12.0 percent and refinance apps rose 2.0 percent.

Surprisingly the November Housing Market Index showed signs of weakness.  In recent months the index, which is reported by The National Association of Home Builders and measures how builders rate overall economic and housing market conditions, has been quite strong.  Most analysts did not expect a reversal in the trend.  Good news within the report however is that builders have been seeing an increase in buyer traffic.  It seems that the decline in builder sentiment is that first time buyers continue to remain largely absent from the housing market.

Housing starts for the month of October declined significantly led by an 11.0 percent drop in multi-family construction.  Starts for this sector spiked in September which coincided with the springtime jump in permits.  Single family home starts dropped a much smaller 2.4 percent which seems to be much more in line with typical month to month movements for this area of the housing market.

The Federal Open Market Committee released their minutes from the last meeting.  To no-one’s surprise the indications remained that the Fed is leaning towards the first rate hike in ten years at the December policy meeting.  The Fed continues to continues to be non-committal on a rate hike and always include language in their commentary that states that conditions in the market will be the determining factor to a decision on rate policy.

Reinforcing the likelihood that the Fed will raise rates in December is the past week’s first time jobless claims report.  The report for the week of November 14th continues to show claims at a healthy level of 271,000, which is 29,000 below the baseline of 300K, which seems to be the point where concern for employment can change.

Inflation on the wholesale and retail level continues to remain low.  The most recent CPI report showed a 0.2 percent rise in prices at the consumer level.

Next week’s potential market moving reports are:

·        Monday November 23rd – Existing Home Sales
·        Tuesday November 24th – GDP, S&P Case-Shiller HPI, and Consumer Confidence
·        Wednesday November 25th – Durable Goods Orders, Jobless Claims, FHFA House Price Index, New Home Sales, and Consumer Sentiment
·        Thursday November 26th – Thanksgiving – All Markets Closed

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Thursday, November 19, 2015

How Much Home Can You Afford?

Taking out a mortgage is probably the biggest hassle facing prospective homeowners. The bank asks you all sorts of nosy questions about your income and savings, and after you've poured your heart out and shared all your money secrets, they might not even lend you as much as you need. The nerve!
Of course, they do have a point. Put yourself in the bank's shoes: If you were going to lend people money, what would you want to know about them? Of course you'd want to know whether:
  1. They make enough money to pay you back.
  2. They've been trustworthy in the past.
  3. They have something of value to trade, should they be unable to pay you back.
Congratulations: In financial parlance, you've just been introduced to the concepts of income, credit worthiness, and collateral -- the three main factors that go into the lending decision. Let's look at each one, and how they affect what you can afford.
Do you make enough to pay the lender back?Your lender will want to know not only how much money you have, but also how much you will likely make over the next 30 years. Also, what are your other debts? Do you owe money for college loansor credit card charges? Do you have any other assets? Things like stocks and mutual funds, or personal property like a boat or a car, are also considered in figuring out how much a bank will lend you.
Ideally, you'll want to come up with at least 20% of the value of your new home as a down payment, to avoid things like mortgage insurance payments (also called private mortgage insurance, or PMI). But you probably qualify for plenty of financing arrangements that will get you into a new home for as little as 3% of the asking price.
The lender will also plug your income numbers into a couple of formulas: the front-end ratio (having to do with your mortgage payments) and the back-end ratio (having to do with your debt).
For instance, let's say your gross income is $4,000 a month, and you have $400 a month in debt payments. A common rule of thumb is that they'll allow you to pay around 30% of your gross income toward your mortgage payment every month. This is known as the front-end ratio. In this example, 30% of $4,000 is $1,200 a month -- so, they'll reason, you can afford put $1,200 toward your mortgage payment.
Your debt ratio, or back-end ratio, on the other hand, is $400/$4,000, or 10%. That's not bad. They don't want more than around 40% of your gross income going to total debt -- mortgage, credit card interest, and other payments -- and in this case, your payments add up to 39%. (These ratios can vary somewhat; the ones given here are just examples).
Have you been trustworthy in the past?
Potential mates aren't the only ones curious about your past. Your lender wants to know your history, too, before deciding whether or not to commit. Your credit report -- a nifty little compilation of your personal financial history -- will reveal whether you have a track record of paying your bills on time. Before you even start shopping around for a loan, pull your reports from the major credit reporting bureaus by going to the website. If you see anything unsavory, clean it up to make yourself more attractive to lenders.
Do you have any collateral?The house you buy will generally be considered collateral for your mortgage. As a result, in case you can't repay the loan, the bank can decide to do something really nasty: foreclose on the mortgage and repossess the house. You will find yourself out on the street -- with your dog, your La-Z-Boy, your collection of unpublished poetry, a couple of suitcases, and your toiletries kit. Your house now belongs to the bank, and it is unlikely that anyone will ever loan you money again. Hot tip: Avoid this scenario at all costs.

Now, let's discuss your needsHow much you make, your creditworthiness, and how much collateral you have are all questions from the bank's point of view, because the amount of house you can afford is largely a question of how big a loan you can afford. Now, let's look at a few things from your point of view.

Your timelineTo determine whether you should buy a new home, think about how long you're planning to stay in it. It generally doesn't make economic sense to buy if you're only planning to stay there for a couple of years. Since you'll be paying fees to buy and then sell your house, it would have to appreciate in value very quickly while you're living there to make the entire deal financially worthwhile.
Your comfort zoneBefore you borrow $100,000, $200,000, or whatever you need for your mortgage, figure out whether you can really afford it. Just because the bank will loan it to you doesn't mean that you'll be able to pay it back -- at least, not without cutting into other goals that may be a priority for you. Are you planning to have a big family? Would you rather spend money on travel or spoiling the grandkids?
Remember, your house payment is just one piece of your financial puzzle. Carefully consider what you might need to give up to make that house a reality, and ask yourself whether you're really willing to do it.

Monday, November 16, 2015

How To Make The Most From Refinancing

For most homeowners, mortgage payments dwarf all other living expenses. When an opportunity comes to reduce those payments, many jump at it. Some homeowners, however, jump a little tooquickly. When you're bombarded by ads from mortgage lenders day after day, it's easy to understand why.
Focusing solely on how much you can save from refinancing is tempting. Yet research done in the early 2000s by economists from Harvard, Brown, FleetBoston Financial, and the National Bureau of Economic Research suggests that this common decision-making process for whether to refinance is too simplistic. By using a more sophisticated model, they argue that waiting for bigger savings is better for most borrowers in the long run.
Turning down free moneyIn evaluating the benefits of refinancing, financial planners often compare the expected reduction in monthly payments against the costs associated with refinancing. When the amount saved exceeds the costs by more than a tiny amount, planners will often recommend that homeowners replace their current mortgage.
It's hard to argue against saving money. But by focusing on how much you can save, the paper concludes that a surprisingly large number of mortgage borrowers -- nearly a third -- save less than they could by refinancing too early. These results fly in the face of those who say that many borrowers wait too long before they refinance their mortgages, even when interest rates have dropped substantially.
Weighing the costsThe analysis hinges on the reality that refinancing costs money. If you could refinance for free, you could grab a few extra dollars every time interest rates experienced a small dip. But when you consider mortgage application fees, title insurance premiums, and other closing costs, you can't afford to refinance every day.
Because of that, the authors argue, you should be very careful when you decide to pull the trigger. For instance, if you could save $25 a month now, deciding to refinance may mean giving up the possibility of saving $50 or $100 a month if rates continue to fall. And although the paper cites many personal-finance experts who advise against trying to time mortgage rates in this way, the authors maintain that only by treating the refinancing option as a rational economic decision can you make the most from your mortgage.
Analyzing a number of factors, including the size of your mortgage, the length of time you'll stay in your home, and the volatility of interest rates, the paper concludes that the optimal time to refinance for those who intend to stay in their homes indefinitely is when rates have fallen 1%-2% from your existing mortgage. For those planning to move in the near future, rates may have to fall even further before it makes sense to refinance.
Look before you leapThis analysis of refinancing options serves as a reminder that many financial decisions are more complicated than they seem at first. It's smart to look for savings anywhere you can. But by jumping at the first opportunity to save small amounts, you could give up the chance to reap bigger savings later. 

Friday, November 13, 2015

In A Week That Started Out Very Calm

In a week that started out very calm with investors, it quickly turned to panic on Wednesday and Thursday with the Dow dropping a combined 310 points for both days.  Driving the market declines are concerns over commodities pricing.

Energy companies are getting hit hard with investors due to big concerns relating to the price of oil.  In the last few days the price of crude has dropped significantly with the price of a barrel closing at $41.75 on Thursday.  Stockpiles of oil supplies have been unexpectedly high which can be an indicator that consumers might be starting to pull back on spending. 

Investors are already concerned that the Fed is going to raise interest rates at the December policy meeting.  If the increase in oil reserves is a real indication that consumers are beginning to get skittish about spending, a rise in interest rates may add further slowing pressure on the economy.

There continues to be a lot of conjecture about what the Fed will do with interest rates at the December policy meeting.  However, the most recent comments, from not only Fed Chair Janet Yellen, but other high-ranking board members, indicate that the odds of a December rate increase are very high.

After seeing the new lending disclosures implemented in October create wild swings in mortgage application activity, it seems that things are settling down.  For the week ending November 11th, and for the second straight week, mortgage application volume showed little change.  Applications for purchase loans remained flat and refinances declined 0.2 percent.  Even this past Friday’s stronger than expected employment report seemed to have little effect on rates.

One thing that is surprising to so many mortgage professionals is that even though that it appears highly likely that the Fed is going to raise rates in December, it does not seem to be creating any urgency for purchasers or homeowners to apply and lock in today’s rates.

First time jobless claims remain unchanged at 276,000.  This is the highest reading in two months but seems to be having little impact on investor behavior.  Friday’s better than expected labor report continues to have investors focused on the Fed’s next move.  Although an important report, first time jobless claims is not considered a main economic indicator used by the Fed to set monetary policy.

The one thing that is all but guaranteed when it comes to Fed policy is that the Fed is committed to very slow change.  The Fed knows they need to be very cautious in any change to monetary policy.  The long-term goal of the Fed is to normalize monetary policy however they are committed to not implementing change that will shock the economic system and derail consumer spending.

Next week’s potential market moving reports are:

·        Tuesday November 17th – Consumer Price Index, Industrial Production & Housing Market Index
·        Wednesday November 18th – Housing Starts & FOMC Minutes
·        Thursday November 19th - First Time Jobless Claims

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Tuesday, November 10, 2015

Fixed Mortgages vs. ARMs

Fixed-rate and adjustable-rate mortgages are the two main types of mortgages of the home-lending world. Let's take a look at the differences.

A fixed-rate mortgage is very straightforward. The borrower knows from the beginning what the interest rate will be for the entire duration of the mortgage, and the monthly payments due are likewise fixed. By far, the most popular fixed-rate mortgage is the 30-year mortgage, but you can also get 15-year loans easily, and some banks offer other terms as well. Simple.
The adjustable-rate mortgage, or ARM, is slightly less simple. With these mortgages, your rates will change from time to time, depending on what type of ARM you have. With a 5/1 ARM, for example, you'll have a fixed rate for the first five years, but after that, your rate will reset from year to year, depending on prevailing interest rates. If rates are plummeting, your rate will also drop -- and vice versa. ARMs typically have an extra-low "teaser rate" for the first year, as well as an upper limit, or cap. The amount that an ARM can rise each year is also limited, so that it won't rise too quickly.
Fixed-rate mortgages are good because they come with no surprises. In exchange for essentially allowing you to lock in a rate for a long period of time, however, you'll often pay a slightly higher rate than you would with an ARM. Fixed-rate mortgages are good for people who enjoy stability. They're also especially attractive during periods when interest rates are low. At such times, fixed-rate mortgages permit you to lock in low rates for many years to come.
Conversely, if the prevailing interest rates are very high, and you think rates are more likely to fall than rise, an ARM might make more sense. In addition, since ARM rates are typically slightly lower than fixed rates, they permit people to borrow a little bit more, and the difference can help you buy a slightly spiffier house. ARMs are often recommended for those who will be in a house for only a few years, since the rate is not likely to change too much in that time. Beware, though -- don't enter into an ARM unless you're sure you'll be able to handle the worst-case scenario of having your rate quickly rise to the cap.

Saturday, November 7, 2015

A Jump In Hiring

On Wednesday ADP called for an increase of 182,000 jobs in the private sector for the month of October.  On Friday the Labor Department announced that new job creation for the month was actually 271,000 blowing past virtually all expectations.  The unemployment rate fell to 5.0 percent.  Although not a guarantee, it is likely that this jump in hiring will figure in significantly increasing the odds of a December rate hike by the Fed.

The stock market for the week has been trading in a relatively narrow range due to the fact that most major economic reports delivered little news that surprised investors other than Friday’s unemployment data.  The immediate market reaction after the labor department’s announcement was for bond yields to soar which means mortgage rates will jump.

It is typically in the labor report, even when the top line jobs number is strong, that there are weaknesses buried within it that will indicate everything in the employment sector is not rosy.  Today’s report bucked the trend with the underlying data, such as wage growth and average hours worked, showing positive employment trends.

On Wednesday Fed Chair Janet Yellen alluded to the fact that there is a stronger possibility that the Fed will move on interest rates at the December FOMC meeting by using the words that a rate increase could be a “live possibility”.  She did however emphasize that there is no commitment to change monetary policy.  Of course as is expected, the announcement came with the typical caveat that the Fed will have to look at the latest economic reports to make their final decision.  Friday’s employment report seems to make it highly likely that the Fed will move rates.

The recent rise in mortgage rates even prior to this latest announcement from the Fed has pushed mortgage applications slightly lower.  According to the Mortgage Bankers Association of America purchase and refinance applications both declined by 1.0 percent for the week ending October 30th.  Applications for refinances are 4.0 percent than the same time last year.  Purchase applications which are reflective of the strong housing recovery are 20 percent from a year ago.

Construction spending in residential real estate continues to remain strong with a jump of 1.7 percent and a year on year gain of 17.1 percent.  New multi-family construction also continues to remain very strong with a rise of 4.9 percent for the month.  From the same time last year multi-family construction is 26.7 percent higher.

Next week’s potential market moving reports are:

·        Thursday November 12th - First Time Jobless Claims
·        Friday November 6th – Producer Price Index & Retail Sales

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.

Monday, November 2, 2015

Big News Came Wednesday

The big news investors were waiting for came on Wednesday when the Fed announced that they are leaving interest rates alone for the time being.  It was suggested that they may be ready to raise rates in December however we have all learned that the economic reports between now and the December meeting will ultimately be the deciding factor on the next Fed action.  The stock market reacted with little fanfare as the Fed lack of change to economic policy was not unexpected.

In the first of three housing reports released this week, the sale of new homes surprisingly came in much lower than anticipated.  Projections for the latest data were running between 535K to 560K on an annualized basis.  The report for September came in at only 468K which was far below Econoday’s low-end estimate.  To make matters worse August numbers were revised downward by 33,000.

The belief is that the recent rise in prices may have played a significant factor in the decline.  The drop in sales pushed inventory supply up from 4.9 months to 5.8 months.  Inventory at the same time last year was 5.5 months.  Median home prices are up 13.5 percent from the same time last year.

The Case-Shiller Home Price Index for the 20 major markets in the U.S. also confirms that home prices are rising.  The index showed a 0.4 percent increase for the month of August.  Home prices are 5.1 percent higher than the same time last year.  Overall inflation in the economy seems to be non-existent with the exception for the housing sector.

The final housing report for the week was delivered on Thursday.  The pending home sales index turned lower for the month of September.  The drop of 2.3 percent was much more than expected and is raising concerns over the future of housing for the remainder of the year.  When you add this report on top of Monday’s less than stellar new home sales report it appears that this could be enough to keep the Fed from moving rates higher at the December monetary policy meeting.

After experiencing significant movement in application data related to before and after implementation of the new mortgage disclosure regulations, loan applications appear to have returned to normal levels of movement.  The Mortgage Bankers Association reported that loan applications for purchase declined 3.0 percent and refinances dropped 4.0 percent for the week of October 23rd.  Rising interest rates is the likely culprit for the application declines.

Next week’s potential market moving reports are:

·        Monday November 2nd – ISM Manufacturing Index and Construction Spending
·        Tuesday November 3rd – Factory Orders
·        Wednesday November 4th - MBA Mortgage Applications & ADP Employment Report
·        Thursday November 5th - First Time Jobless Claims
·        Friday November 6th – National Employment Situation

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can.  Please feel free to reach me at (707) 455-7070.