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Category Archive: ‘Interest Rates/Loan Limits’

Lower Rates Offset Prices

I hope more media types use actual real-life examples, but while we are talking about how they like to apply their opinions to vague, general data, let’s consider the other side of the coin.

Want evidence to explain the red-hot market conditions?

Look at mortgage rates, and how they’ve offset the rise in prices:

SD Median SP
80% Loan Amt
Int. Rate
Mo. Payment

The cumulative CPI inflation since 1990 was 79.6%.

Add the 79.6% to the 1990 payment of $1,300, and today’s inflation-adjusted payment would be $2,335 – and we are 24% UNDER that now.

Bernanke is going to be called a hero.

Want more? The population of San Diego County has risen 29% since 1990 too – and apparently a lot of the newcomers were affluent!

Posted by on Mar 30, 2014 in Interest Rates/Loan Limits, Jim's Take on the Market, Market Conditions | 0 comments

‘Affordability Shock’

Hat tip to daytrip for sending this in from

The sharp rise in home prices in 2013 caused two conflicting results: The return of positive home equity for hundreds of thousands of borrowers and considerably weaker affordability for an equally large pool of potential homebuyers.

While positive equity allows more borrowers to move, weaker affordability keeps them in place. So which will be the greater driver of housing this spring?

  “There’s going to be a reality check in the spring in terms of realizing that what we saw in 2013 is not a real market,” said Daren Blomquist of RealtyTrac, a real estate sales and data website. “It’s a nice bounce-back market, but ultimately you need the biggest pool of potential homebuyers out there to be able to afford those homes.”

In an analysis of housing affordability, RealtyTrac found that the estimated monthly house payment for a median-priced, three-bedroom home purchased at the end of 2013 was a whopping 21 percent higher than it was at the end of 2012 in more than 300 U.S. counties. That includes mortgage, insurance, taxes, maintenance and the subtracted income tax benefit.

The rise is the result of higher home prices and higher mortgage rates. RealtyTrac used a 30-year fixed-rate mortgage with an interest rate of 4.46 percent and a 20 percent down payment. That is versus a 3.35 percent interest rate the previous year.

Some metro regions, especially in California and parts of Michigan, saw monthly house payments rise about 50 percent from a year ago.

Read full article here:

Using the same calcs, the difference was closer to 30% higher around NSDCC.

Posted by on Feb 21, 2014 in Interest Rates/Loan Limits, Mortgage Qualifying, Sales and Price Check | 9 comments

Mortgage Rates Look Steady

Yellen was confirmed last night to be the next Fed chief, which should be calming news for mortgage rates.  But they haven’t changed much anyway since the Fed announced the $10B taper on December 18th.

30-Year Fixed Rate:

December 12: 4.42%

January 7: 4.62%

Just the mentioning of the taper caused rates to pop up 1/2% in one week at the end of June, so losing only 1/4% after the actual taper should mean a fairly steady road ahead.

Another benefit for the Fed this year is that the volume of MBS has dropped dramatically, so they could spend less without much, if any, effect.  With rates in the mid-4% range, the refinance market has had its head caved in, and mortgage apps are at a 13-year low:

mortgage applications

Mortgage rates should stay reasonable for now, but the market doesn’t really get cooking until next month.  Hopefully we’ll be coming off a big Chargers victory in the Super Bowl!  It could happen – Manning always chokes, and New England has a lot of injuries!

Here’s how a computer simulation figured the winner:

Posted by on Jan 7, 2014 in Interest Rates/Loan Limits, Local Flavor | 8 comments

New Mortgage Rules/Pricing

Fannie Mae and Freddie Mac are too big, and changes are coming.

moneypitBeginning on January 10th, the new QM rules take effect – limiting the debt-to-income ratios to 43%, and capping points and fees charged by lenders to 3% of the loan amount.

Because lenders will be subject to repurchasing any mortgages that don’t comply, some lenders are talking about limiting the DTI to 39% to provide a margin of error.

In the past, borrowers with compensating factors have been able to stretch their D-T-I ratio as high as 50%.  Now they won’t.

Is it a big deal?

It is for lenders, but to home buyers and sellers all it means is that there will be fewer people in the buyer pool for each house for sale.  Buyers may need to lower their sights, which will make the cheaper homes in each market more competitive.

The other change is how Fannie/Freddie will add more fees depending on your down payment and credit score.  It is rather arbitrary too, where borrowers with 680-740 FICO scores get hit the worst.  They can look forward to a nasty choice; to pay 1/4% to 3/4% higher in rate, use a 30% down payment, or manipulate your credit score downward to pay less fees.

The gritty details can be found Here.

For home buyers who are looking for more to reasons to stay on the fence, this is a truckload of fun.  But for the highly motivated buyers (the ones making the market), all it means is being more determined to fight for the best deal you can find, and hope that home prices will reflect the new era.

For anyone selling a great house on a great street, these changes won’t mean a thing.  For those trying to sell an inferior home for retail-plus, don’t be surprised if 2014 brings a more-measured response.

Posted by on Dec 20, 2013 in Interest Rates/Loan Limits, Mortgage News, Mortgage Qualifying | 10 comments

Low Rates To Stay

santa hits brakes

The Fed’s taper announcment didn’t rile the markets, and so far it seems to be well received. How will impact home sales?

Here’s what Bill McBride said,

“Rates will be low for a long long time …”  As far as the “Appropriate  timing of policy firming”, the participants moved out a little with three  participants now seeing the first increase in 2016.

Buyers should be rejoicing at the thought of rates staying low for the next couple of years, and be very deliberate about what home they buy, and for how much.  Conditions are ideal for the wait-and-seers!!

But can buyers keep a hold of themselves?

In spite of every reason to stay patient, buyers will be tempted to jump at every decent deal they see.  The definition of ‘decent deal’ will likely be a moving target in 2014!

Posted by on Dec 18, 2013 in Forecasts, Frenzy, Interest Rates/Loan Limits, Jim's Take on the Market | 9 comments

Investor Activity in 2014

investors2014The Trulia predictions earlier this week included several references to less investor activity in 2014, due to higher prices.  In particular was his #2 point:

2) The Home-Buying Process Gets Less Frenzied. Home buyers who can afford to buy won’t be as frantic as buyers in 2013. That’s because there will be more inventory to choose from, less competition from investors, and somewhat looser mortgage credit in 2014.

Investor activity is less than what the media will have you believe – at least in San Diego. According to this article by the Fed, investors made up less than 4% of total sales in San Diego in 2012.  Flippers came on strong this year, so the 2013 investor count is likely to be higher than last year’s, but probably still under 10% of the overall market.

I don’t think investors are done.

They will only quit when they’ve been burned – and it will probably take a few big losses to run them out of the business.

Instead, I think we will see increased competition for the deals – the standard listings that are priced at the comps or under.  There should be a solid floor to the market.

But investors/flippers will be under increased pressure to pay more than they are comfortable paying – everyone is!

They will try to pass it on to the retail buyer, and bump their list prices even higher.  Because of their confidence from recent successes, they will main contributors to the OPT pool (over-priced turkeys).

It’s already happening - there are flippers sitting on OPTs everywhere, confident that once the holidays are done, the buyers will be back.

However, the market has been extremely active the last couple of months – there hasn’t been much of a holiday dip in buyer interest, there just aren’t many quality homes for sale at decent prices.

Coming off a boisterious 4Q12 and fueled by mortgage rates in the low-to-mid 3% range, the spring selling season went gangbusters this year.

But now that the hyper-frenzy is done, buyers aren’t jumping at everything any more.

The current environment is much more cautious, which is ideal for a standoff.  With (over) confident flippers continuing to push their list prices, and regular sellers tacking on an extra 5% to 10% just to make sure they get all their money, we are ripe for the Big Stall in spring.

P.S. Trulia’s other comment about ‘somewhat looser mortgage credit in 2014′ is suspect too.  We haven’t covered the QM yet, but back-end ratios will be limited to 43% starting January 1st - and they have been as high as 50% this year.

fed investor share

Posted by on Dec 13, 2013 in Forecasts, Interest Rates/Loan Limits, Jim's Take on the Market, Mortgage Qualifying | 8 comments

Let Rates Be Your Guide

The 2014 Spring Selling Season will be impacted mostly by mortgage rates and the number (and quality) of homes coming to market.

rateswilldictateThe mortgage rates will likely dictate everything, and though thankfully the jumbos are still tracking the conforming rates, it won’t take much for both to get back around 5%.

From the Mortgage Bankers Association:

Rates for jumbo mortgages remain two basis points lower than for the 30-year conforming loan as both increased 10 bps for the week ended Dec. 6, according to the Mortgage Bankers Association.

The average contract rate for the 30-year conforming is at 4.61% and for the 30-year-fixed jumbo it is at 4.59%, the MBA says.

A rate of 5% won’t be the end of the world.  But buyers have a natural expectation of higher rates being reflected in the pricing – and yet sellers will have a hard time resisting the urge to tack on a little extra.

The super-premium properties won’t have much trouble selling.  The impact will be felt in the ‘tweeners’ – the homes that aren’t fixers, but are in between.  Their locations are so-so, condition is average to dated, and in general just not anything too special about them.

The tweeners got picked up in the frenzy, as buyers were is such a rush that they overlooked things they shouldn’t have.  Without frenzy conditions, that won’t happen again – will it?

The housing stats in news have been fairly negative, and the foreclosure crisis is apparently over.  Without a frenzy-push to ignite the market, there should be plenty of hesitation on both sides in early-Spring.

Rates will probably be a deciding factor for many buyers on whether to pay more, or wait.  Where will they be in a couple of months – especially when dancing around the Fed-taper question?

Susan said this morning, “Rates are following the 10 year treasury yield.  This morning as I type it’s up to 2.89.  As soon as we are over 3.0, I’m afraid there’s no looking back!”

Posted by on Dec 12, 2013 in Interest Rates/Loan Limits, Jim's Take on the Market | 3 comments

Rates Looking For Bad News

Rates have come down nicely, and may break into the 3% range again, which could ignite the market.  It may already be happening – I ran into four different bidding wars in the last week!

Mortgage rates continued flying their recent holding pattern just over 4 percent.  Most lenders’ rate sheets were essentially unchanged compared to yesterday’s latest.  Additionally, we never saw enough bond market movement during the course of the day to justify any mid-day changes.  The most prevalent Conforming rate (at zero points) has been pinned to 4.125% with very little change in associated closing costs for a week now.

Because most lenders adjust rates in 1/8th (0.125%) increments, the next time the best-execution quote moves lower, 30yr fixed rates will be back at 4.0%.  Some lenders are offering that now, but it’s not the norm, and may involve additional closing costs.

So is it possible that we’ll see a more broad-based move down into the high 3′s?  In a word, yes, but caveats apply.  The concept of a “holding pattern” is carefully chosen because rates are indeed circling the runway, waiting for permission to land.

That permission can only be granted by economic developments that are “negative enough.”  Specifically, markets would need to see more evidence that the labor market is weak enough to unequivocally delay the Fed’s timeline for reducing its bond buying program–one major factor in lower rates overall.

The surest bets when it comes to such data are the once-a-month Employment Situation Reports, such as last Tuesday’s.  Due to shutdown rescheduling, the next report is coming up next Friday!  Even tomorrow, we’ll get several pieces of data that will help decide the fate of the “circling plane,” including the ADP Employment numbers which attempt to forecast next Friday’s numbers.  The FOMC releases a policy announcement in the afternoon, and although traders agree we’re not likely to see any policy change that hurts rates, it could still make for an afternoon where rates are actually higher or lower than the past afternoons.

Posted by on Oct 29, 2013 in Interest Rates/Loan Limits | 1 comment

Happy Anniversary

We’ve heard all the hubbub about higher mortgage rates having a negative effect on the real estate market.  But the non-taper has caused rates to come back a bit – we are now down around 4.375% for 30-year conforming rates.

For those who had their heart set on having payments lower than what you get with a 4.375%, 30-year mortgage rate, then there are options available:

  • Buyers can pay more points to lower their rate.
  • Buyers can have the sellers buy down their rate.
  • They can take an interest-only loan, instead of fixed-rate.
  • Buy a cheaper house.

Or, in this cash-happy environment, they can borrow less:

Microsoft PowerPoint - 2013 Florida Saltmarsh Conference [Compat

The stir-up from higher rates might cause some changes in the buyer psychology, but the baseline problem hasn’t changed – there aren’t any great buys available, and even the decent buys are loaded with compromise.


We’ve wrapped up eight years of!  Thanks for participating, and most of all, thank you to those have become clients. 

I do this to demonstrate my abilities, and want to help more people buy and sell homes.  If you, or someone you know, is thinking of moving, I’d love to hear from you!

Posted by on Sep 25, 2013 in About the author, Ideas/Solutions, Interest Rates/Loan Limits, Mortgage News | 7 comments