Tuesday, May 28, 2013

What if mortgage rates shoot up?

My website: www.sandralew.com

I agree with the experts below. Timing may be right to buy now before mortgage rates rise. Even with current rising demand and housing prices, rates are historically low which increases affordability.

By Lily Leung 6 a.m.May 24, 2013

Peter McNamara and his 5-year-old daughter Keira look at a model home at a Pardee Homes' Watermark community near Carmel Valley on a recent Sunday. Record-low mortgage rates are helping drive up homebuyer demand. 

Peter McNamara and his 5-year-old daughter Keira look at a model home at a Pardee Homes' Watermark community near Carmel Valley on a recent Sunday. Record-low mortgage rates are helping drive up homebuyer demand. — Hayne Palmour IV

Market watchers are speculating when the Fed will start to scale back its mega-bond buying program called quantitative easing, or QE. The economic stimulus has helped keep U.S. mortgage rates at or near record lows, sparking buyer demand and refinancing activity. Would a wind-down of the program pose a threat to the housing recovery? 

Murtaza Baxamusa, directs planning and development for the Family Housing Corporation, of the San Diego Building Trades in Mission Valley: Yes. Federal stimulus successfully drove down interest rates below 4 percent for the first time ever, making homes affordable for new buyers and those who refinanced. Loans are cheaper now than in the early 1950s. Withdrawal of this stimulus would gradually inflate interest rates to their 20-year average of 6.5 percent for a 30-year fixed mortgage. San Diego still ranks among the worst in the nation in housing affordability. Prices are accelerating, and inventories dwindling. An increase in interest rates could precipitate another housing crisis in five years if income growth does not keep pace with monthly mortgage payments.

• Michael Lea, director of the Corky McMillin Center for Real Estate at San Diego State University: Under its quantitative-easing program, the Fed has been buying long-term Treasury and mortgage-backed securities. This strategy has been successful in keeping long-term rates low, stimulating housing demand and mortgage refinance as well as the stock market. It is time to end it. The housing market is no longer in need of life support and the risks of continuing the program are large. There is a risk of creating housing and stock-market bubbles. And continuing the policy makes the inevitable adjustment to market determined rates more difficult.

• Marco Sessa, chairman of the Building Industry Association of San Diego County and senior vice president of Sudberry Properties : Yes. Just how much is hard to say, particularly for supply- constrained markets like San Diego’s. Everyone expects that a wind-down of the Fed’s quantitative-easing program will result in higher interest rates. Higher interest rates obviously deter homeownership, but they also increase the cost of bringing homes to market. Both are bad for the housing recovery. However, there is a local housing shortage, which puts upward pressure on home values. This offsets the negative effect of increasing interest rates. Bottom line: If you didn’t buy in the last 12 months, there’s no time like the present – if you can find one.

• Robert Vallera, senior vice president of Voit Real Estate Services in San Diego: Yes, there is a threat, but no one knows how this will unfold. Like a cheating athlete, the market is juiced on low interest rates. When the quantitative easing tapers off, rising interest rates will create a drag on home values. San Diego’s median home price is now 6.7 times the median income, well above the historic average. It’s possible that household incomes might not grow quickly enough to offset rising mortgage rates and successfully support current valuations. Conversely, with housing in short supply here, a gradual rise in rates could play out far more smoothly than a sudden rate shock.

•Kurt Wannebo, real estate broker and CEO of San Diego Real Estate and Investments: No. Our housing recovery has been based on a multitude of factors including low inventory, programs that help struggling homeowners, public perception, overseas money and low interest rates. A slight increase in interest rates will slow down price increases but will not be extremely threatening to our recovery. However, it could slow the speed at which we are seeing things change.

Source: http://www.utsandiego.com/news/2013/may/24/mortgage-rates-qe-quantitative-easing-increase/ 

Friday, May 17, 2013

Today's Rising Home Prices Are A Rebound, NOT A Bubble

My website: www.sandralew.com

5/14/2013 @ 2:36PM

Trulia Bubble Watch: Today's Rising Home Prices Are A Rebound, NOT A Bubble

Although home price gains rival those of the last decade’s bubble, home prices today look undervalued by 7%. Prices are overvalued only in a few California and Texas metros.

Home prices today are rising nearly as fast as they did during the peak bubble years of 2005-2006. Since that bubble helped push us into the Great Recession, we should all be on high alert for the next housing bubble. To track whether home prices are in or nearing bubble territory, today we introduce Trulia’s Bubble Watch, which is based on the most recent price data from the Trulia Price Monitor and other data sources.

So are we in bubble territory? No. Bubble-phobes can rest easy. Even with recent sharp home price increases, prices are still low relative to fundamentals and are far below bubble levels.

Back to Basics: How to Spot a Bubble

To see a bubble, you first need to know what you’re looking for. A bubble in home prices (or in the price of any asset – like stocks or even tulips) is when prices soar above their fundamental value. Fundamental value is based on supply, demand, and realistic expectations about the future. We all learned in Economics 101 that prices move back toward an equilibrium determined by fundamentals of supply and demand. In a bubble, however, rising prices encourage speculation and fuel further demand – up until when the bubble suddenly bursts and people rush to sell, which causes prices to accelerate downward, sometimes well below their fundamental value. Bubbles are notoriously difficult to predict and hard to confirm until after they’ve burst: it’s impossible to be sure whether price gains are justified by fundamentals until, if and when, a bubble bursts. San Francisco home prices, for instance, are the highest in the country; is that “irrational exuberance” by speculative homebuyers, or are those prices justified by strong job growth, high incomes, great weather, and constraints on the local housing supply?

To answer that question, we assess whether home prices are overvalued or undervalued relative to their fundamental value by comparing prices today with historical prices, incomes, and rents. Incomes determine how much people can pay for housing, and price increases aren’t sustainable if they push prices too high relative to incomes. Rents reflect how much people value housing even if they won’t benefit from price appreciation (as renters don’t, but owners do); the price-to-rent ratio is like the price-earnings (P/E) ratio for stocks. Using data from multiple sources (see footnote), we create several measures of fundamental value and combine them in order to calculate how overvalued or undervalued home prices are relative to fundamentals.

Home Prices are Undervalued 7% Nationally and Regionally in 91 of the 100 Largest Metros

We estimate that national home prices are 7% undervalued in the second quarter of 2013 (2013 Q2). During last decade’s bubble, prices were as high as 39% overvalued in 2006 Q1, then during the bust, fell to 15% undervalued in 2011 Q4. Therefore, even with the recent price increases, home prices nationally remain undervalued relative to fundamentals and much lower than in the last bubble. That’s why today’s price gains are actually still a rebound, not a bubble. This chart shows how far prices are from bubble territory:



At the metro level, prices are below their fundamental value in 91 of the 100 largest metros. Prices are overvalued in the California metros of Orange County (+9%), Los Angeles (+5%), San Jose (+3%), and San Francisco (+2%), and the Texas metros of Austin (7%), San Antonio (5%), and Houston (2%), as well as in Portland (plus Honolulu, which at 0.01% is ever so slightly overvalued). The California metros are far less overvalued than at the height of the bubble – Orange County prices were 71% overvalued in 2006 Q1! Even the Texas metros, which largely avoided last decade’s housing bubble, are less overvalued today than at their peaks during the last bubble.

Market Where Home Prices are Overvalued
# U.S. Metro Home prices relative to fundamentals, 2013 Q2 Home prices relative to fundamentals at local peak When home prices peaked locally
1 Orange County, CA +9% +71% 2006 Q1
2 Austin, TX +7% +12% 2007 Q2
3 San Antonio, TX +5% +12% 2007 Q1
4 Los Angeles, CA +5% +78% 2006 Q1
5 San Jose, CA +3% +59% 2005 Q4
6 San Francisco, CA +2% +52% 2005 Q4
7 Houston, TX +2% +8% 2005 Q1
8 Portland, OR-WA +1% +44% 2007 Q1
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued. Among the 100 largest metros. To see if prices are over or under valued in the 100 largest metros, see here.
Prices are most undervalued today in Las Vegas and Detroit, even after their price gains in the past year. Several Florida and Ohio metros are also among the most undervalued. All of these metros were overvalued at the height of the bubble, some less so (Dayton, Akron) than others (Las Vegas, Palm Bay-Melbourne-Titusville).

Markets Where Home Prices Most Undervalued
# U.S. Metro Home prices relative to fundamentals, 2013 Q2 Home prices relative to fundamentals at local peak When home prices peaked locally
1 Las Vegas, NV -24% +70% 2006 Q1
2 Detroit, MI -23% +42% 2005 Q1
3 Palm Bay-Melbourne-Titusville, FL -22% +75% 2006 Q1
4 Akron, OH -21% +19% 2005 Q1
5 Cleveland, OH -21% +21% 2005 Q1
6 Warren-Troy-Farmington Hills, MI -20% +34% 2005 Q1
7 Jacksonville, FL -18% +45% 2006 Q4
8 Toledo, OH -18% +25% 2005 Q2
9 Dayton, OH -17% +16% 2005 Q1
10 Lake County-Kenosha County, IL-WI -17% +29% 2006 Q1
Note: positive numbers indicate overvalued prices; negative numbers indicate undervalued. Among the 100 largest metros. To see if prices are over or under valued in the 100 largest metros, see here.


Other indicators aside from home prices, like mortgage lending and construction activity, confirm that the housing market isn’t forming a new bubble. Mortgage credit remains very tight, especially for people with lower credit scores, and the new “qualified mortgage” rules under Dodd-Frank intend to prevent the recurrence of toxic mortgages that artificially inflated housing demand in the last bubble. Also, construction activity, though rebounding, is still well below normal levels, and the vacancy rate is falling, so there’s no evidence of overbuilding today like we had during the last decade.

Is the Next Bubble Coming Soon?

If prices keep rising as fast as they are today, we’d be back in bubble territory in several years. However, prices are unlikely to keep rising as fast as they are today, for three reasons:

1.       Inventory should expand. Tight inventory is boosting prices today as buyers bid up prices on scarce homes; however, as prices continue to rise, more people will sell as they get back above water or decide to cash out, and more new construction will add to inventory.

2.       Mortgage rates should rise. Low mortgage rates today increase buying power because borrowers can afford a more expensive house for the same monthly payment. Rates are likely to rise as a result of the strengthening economy, either through market forces or Fed actions, which – along with more inventory – should slow down price gains.

3.       Investor interest should fade. Undervalued prices have attracted investors, who have helped push up home prices as they have bought and rented out homes. But as prices rise, investor interest will fade.

Will expanding inventory, rising mortgage rates, and declining investor activity cause home prices to plunge? Slow down, yes, but probably not plunge. Just as these factors should cause home prices to slow down, job growth and increased household formation should support a continued recovery in housing demand.

Is Another Bubble Coming Ever?

Even though we’re not in bubble territory today, another one is coming – someday. The history of American real estate is full of speculation, bubbles, and busts. Trulia’s own survey of consumers shows that most people expect prices to get back to the peak of the previous bubble again in the next 10 years – including people in housing markets where prices had been overvalued most. Furthermore, our rent-versus-buy analysis, which indirectly reveals where people expect prices to rise the most long-term, shows that people expect future prices to rise more if they live in metros where booms and busts were more common in the past. This is another sign that people seem to think prices go up but not down. Will government help to prevent another bubble? Perhaps the new mortgage rules will help – but the more cynical answer is “no.” The most recent bubble was more severe than earlier housing bubbles, and if we didn’t previously learn from the past, then why should we learn from it now? In short: housing bubbles look almost inevitable. Whether you’re buying a home, selling a home, or setting housing policy, remember that the next housing bubble is probably just a matter of time. But, as Trulia’s Bubble Watch shows, that time is not now.

Source: http://www.forbes.com/sites/trulia/2013/05/14/trulia-bubble-watch-todays-rising-home-prices-are-a-rebound-not-a-bubble/ 

Wednesday, May 15, 2013

Home appraisals no longer derailing sales

My website: www.sandralew.com

Appraisers are valuing homes at or above their selling prices once again. This is another sign the housing market is heating up. Also with home loans in line with actual values it makes it easier for deals to go through.

Home appraisals no longer derailing sales

@CNNMoney May 15, 2013: 9:14 AM ET

home appraisals townhouse

This Jacksonville Beach, Fla., townhouse appraised for $5,000 more than asking price.

Consider this one more sign that the housing market is heating up: Appraisers are putting higher values on homes again, allowing for more deals to go through.

During the housing bust, sales were often derailed by low-ball appraisals that fell far shy of a home's selling price.

For example, if a home cost $500,000 and required a 20% down payment of $100,000, the buyer would need to finance $400,000. But if the appraiser valued the home at $450,000, the buyer would only be eligible for a $360,000 loan -- making the home too costly for some buyers.

But now, as home prices climb and housing inventories shrink, appraisers are valuing homes at or above their selling prices, according to Lawrence Yun, chief economist for the National Association of Realtors.

Between 2008 and 2010, appraisals for more than a third of Seattle-based real estate agent Michael Ackerman's sales came in below the selling price. So he had to get creative.

"I started pulling out the key boxes at the homes so the appraisers couldn't get in," said Ackerman. "They had to call me to let them see the home. I would bring a packet of comparables along and explain what I used to price the home."

But now, with home prices posting such strong gains, those strategies may not be necessary anymore.
"I've closed 15 homes so far this year and none of the appraisals have come in below the selling price," said Ackerman.

Source: http://money.cnn.com/2013/05/15/real_estate/home-appraisals/index.html

Thursday, May 9, 2013

Homebuyers clueless about mortgages

My website: www.sandralew.com

Knowledge is power is what my father always taught me. A home is a major large purchase yet about a third of homebuyers are clueless about mortgages. All loans are negotiable so best to shop around. Also, when getting that pre-approved loan keep in mind it is only a stepping stone. You can still shop around and do not have to necessarily use it. Being clueless can be costly!

Homebuyers clueless about mortgages 
@CNNMoney May 9, 2013: 12:24 AM ET

mortgage borrowers
One-third of respondents believe lenders are required by law to charge the same fees to all clients. That's wrong. Fees vary and can often be negotiated.


The housing market is heating up, yet many house hunters are not prepared to take on the biggest purchases of their lives.

When it comes to mortgages, homebuyers answered basic questions about terms, how to choose a lender and financing wrong nearly one-third of the time, according to an April survey of more than 1,000 current and prospective homeowners by real estate website Zillow.

Among the survey's findings, 31% of buyers don't think it's possible to get a mortgage for less than 5% down; 34% don't know what the term "annual percentage rate" (APR) means and one in four believe you must close with the lender that pre-approves your mortgage.

"All too often buyers focus on negotiating a lower home price and ignore the importance of finding the right loan," said Erin Lantz, director of mortgages for Zillow. "Buyers should always shop multiple lenders and compare rates and fees and read lender reviews in order to find the best loan for their situation."

One example: 34% of respondents believe lenders are required by law to charge the same fees to all clients for credit reports, appraisals and the like. That's wrong. Fees vary from bank to bank and can often be negotiated.

But it's hard to compare those deals if you don't understand what mortgage terms, like "annual percentage rate," mean. The APR factors into fees, upfront points, origination and underwriting fees and other costs that borrowers use to compare the actual cost of loans.

Such knowledge gaps can have long-term consequences. About 34% of first-time homebuyers think they need a down payment of at least 5% to make a home purchase, but loans insured by the Federal Housing Administration can require as little as 3.5% down.

And 24% of buyers believe the best mortgage deals are available through the banks where they currently have their savings and checking accounts, but often competing lenders can undercut those banks by large margins.

"If a homebuyer can lower their interest rate by even half a percentage point, they can not only increase their purchasing power, but save thousands of dollars over the life of the loan," said Lantz.

For every $100,000 borrowed, a half percentage point lower rate would reduce payments by $28 a month on a 30-year, fixed rate loan. That adds up to more than $10,000 over 30 years. Or borrowers could choose to add that $28 savings to each monthly payment. That would shorten the term of the mortgage from 30 years to just over 27 and save $6,500 in interest paid. 

Another costly mistake: Many house hunters go shopping with financing in place because it enables them to act more quickly if they see a home they want. But 26% of buyers believe that once they're pre-approved, they're obligated to close the deal with those loans, according to the survey. In reality, there's no obligation. If buyers see better terms available they should take them.

Existing homeowners can also be guilty of ignorance. Some 20% of homeowners surveyed didn't know that underwater mortgages -- those in which borrowers owe more than their homes are worth -- can be refinanced into lower rate loans. 

Finally, the survey found that nearly a third of homeowners are unaware that if they go through a foreclosure or short sale, they may not have to wait the full seven years it takes for their credit score to recover and they can buy a home again.

In reality, some homeowners who do short sales can obtain financing to buy another home in as little as two years.

The Consumer Financial Protection Bureau is hoping to make it easier for homebuyers with simplified mortgage forms that help them compare terms and costs and by creating new rules that will protect homeowners from getting into loans they can't afford.
Source: http://money.cnn.com/2013/05/09/real_estate/homebuyers-mortgages/index.html

Monday, May 6, 2013

Rejoice! Your House Is An Investment Again

My website: www.sandralew.com

Home values are back to their long-term average. That is good news as now home prices are more in line to appreciate with inflation as they should. This seems like the right time to buy as mortgage rates are still historically low and homes are appreciating in value.

Rejoice! Your House Is An Investment Again
5/06/2013 @ 10:00AM         Forbes Magazine  
Good news for homeowners – your house is appreciating in value! The housing bubble (and bust) is over and prices are now poised to appreciate with the inflation rate, as they should.

Bubbles occur in all asset classes and housing is no exception as Figure 1 illustrates. The average U.S. home price doubled in value on an inflation-adjusted basis from 2000 to 2006. The housing bust only took a few years to bring home values back to their long-term average.

Figure 1: Average US Home Price Index after Inflation
Figure 1: Average US Home Price Index after Inflation

Sources: Freddie Mac, FHFA, S&P/Case-Shiller Home Price Index, CPI

Housing prices got out of hand for many reasons. Many people have an opinion about why it happened; I have several.

Taxes: Liberal tax breaks enacted in 1997 allowed up to $250,000 of tax-free gains on the sale or exchange of a principal residence ($500,000 for married couples filing a joint return), and this is after deducting mortgage interest on a tax return for mortgages up to $1,000,000 and $100,000 for a home equity loan.

Easy Credit: Lending standards disintegrated at financial institutions. Marginal buyers with little credit were invited into the market and qualified for new types of loans where they made minimum payments in the early years of a mortgage. The idea was that prices would continue higher and the homeowners could refinance.

Greed: The stock market waned after the tech bubble burst in 2000, while home prices rose. Expectations for continued price increases led to widespread speculation among individuals who had never been in the housing market before except as a homeowner. I knew the top was near when one former client liquidated his IRA account to speculate on two Florida homes in 2005.

The house of cards began to shake in 2006 and it collapsed in 2007. Prices cascaded down. The bottom was finally hit in the first quarter of 2012.

That’s all water under the bridge. Home prices have retrenched back to where they should have been all along. Nationwide, homes are selling about where they were in the year 2000 after adjusting for inflation. That’s the normal growth range.

Am I saying that prices are building a base from which to catapult north again? I certainly hope that doesn’t happen. It would be bad for the economy and eventually lead to another financial crisis.

What I am saying is that it’s okay to buy a house today. Prices are back to normal and interest rates are low. From this point, home prices will likely appreciate with the inflation rate providing the property is kept up.

Washington also seems willing to help. Federal Reserve policy is to keep mortgage rates low, and the interest mortgage deduction will probably survive the next round of tax increases. This should keep a new homebuyer’s interest expense down around the inflation rate after tax.

There’s also good news for sellers. There hasn’t been much talk in Washington about cutting the $250,000 tax-free capital gain on the sale or exchange of a principal residence ($500,000 for married couples.)

Owning a home may not lead to speculative windfall profits that some people earned a few years back, but it beats paying rent. If you can turn rent into something that appreciates with inflation, that’s a good investment.

Source: http://www.forbes.com/sites/rickferri/2013/05/06/rejoice-your-house-is-an-investment-again/

Thursday, May 2, 2013

Secret 'pocket listings' return in hot housing markets

My website: www.sandralew.com

Pocket listings are back! This is the practice used when brokers share info with a colleague to show properties to potential serious buyers (ideally those with cash ready in hand) before advertising it to the general public on the MLS.  When priced right the property usually sells fast but sellers should be aware and approve of the practice before their broker goes that route.

Secret 'pocket listings' return in hot housing markets

@CNNMoney May 2, 2013: 11:48 AM ET

pocket listings

With pocket listings, brokers hope to find clients with deep pockets who are willing to pay in cash.

The housing rebound has given new life to an old, but little-known sales practice called "pocket listings," where agents reserve homes for serious buyers only.

Most homes that are put up for sale are posted on databases called multiple listing services (MLS), on which agents share information with one another in order to find buyers. There are open houses on Sunday afternoons and listings posted on real estate websites.

But with pocket listings, properties are kept under wraps and brokers only show them to people they expect will put money down if the property and the price are right, said Richard Smith, CEO of Realogy, the parent company of Coldwell Banker, Century 21, Better Homes & Gardens and other real estate brokerages. Ideally, the buyer has deep pockets and is willing to pay in cash, fast.

"High-end sellers often don't want to have the world coming to their property," said Michael Izquierdo, a Los Angeles-based real estate agent and acquisitions manager for LAPocketListings.com. "When it's put on the MLS, sometimes the next morning you see people standing outside the property, hoping to talk to the sellers."

Izquierdo recently got a pocket listing for a $1.2 million home in Mar Vista, Calif., where the sellers wanted to preserve some privacy. They also hoped to heighten interest among buyers by creating an aura of exclusivity.

But pocket listings aren't just for luxury clients anymore. With the number of buyers far outpacing the number of homes for sale in hot markets like Los Angeles and Manhattan, pocket listings are becoming more common among more moderately-priced homes as well, he said. He has some pocket deals where sellers are asking for as little as $500,000

When Izquierdo gets a pocket listing, he combs his client list for good fits. If he can't find one, he contacts colleagues to see if they have potential buyers.

If the home is overpriced, the seller and agent will find out quickly, said Alex Clark, founder of pocketlistings.net. "I put in the email, 'Not listed on the MLS,'" he said. "If it's priced right, there's a really good chance you can sell it as a pocket listing."

If it doesn't sell, then Clark tries to convince the seller to readjust the price and list it publicly on the MLS.

Some sellers, however, aren't interested in going public. They are purely using the pocket listing to fish for a "make-me-move" deal. "These are not motivated sellers. They're saying, 'Get me a good price,'" said Manhattan real estate agent Wei Min Tan.

Not everyone endorses these pocket deals, however. In New York, the practice could violate the Universal Co-Brokerage Agreement, according to Neil Garfinkel, counsel for the Real Estate Board of New York, the local trade association. Under the agreement, agents must share listings. They can only withhold listings if sellers request they do so.

In some cases, agents may try to convince sellers to use pocket listings in order to double their commissions by acting as agent for both the buyer and the seller.
"That's where it starts to get into the gray area," said Garfinkel. "If an agent is putting their own economic interest ahead of the seller's, it's a violation of state law."

They may, for example, steer the deal to a buyer they represent even though another broker's buyer put in a higher bid.

"Most of the time, pocket listings are done ethically and fairly," said Betty Graham, president of Coldwell Banker Previews International/NRT, Realogy's luxury brand.
Nevertheless, she believes listing the property publicly increases the likelihood that a home will sell for the best price.

The National Association of Realtors does not have an official policy on pocket listings, according to spokesman Walt Molony. But most agents, like Graham, profess that sellers are almost always better off getting as many bids from as many potential buyers as possible. To top of page 

Source: http://money.cnn.com/2013/05/02/real_estate/pocket-listings/index.html