| Mortgage Madness Update & Locking Strategy | January 29th, 2009 |
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RATE UPDATE & LOCKING STRATEGY Rates have traded in a half-point range in the last two weeks. This kind of volatility is standard right now as markets struggle to reconcile dismal economic news with massive government stimulus. While curent rates are displayed at the bottom of this report, it’s somewhat futile to present them because they swing so wildly each day. Zero-points rates are displayed but most lenders are pricing rates right now such that one-point rates are significantly better—normally one point gets borrower about .25% to .375% lower in rate, now it gets .625% to .875% lower in rate. This means borrowers break even on a one-point buydown in about 18 months. The approach to locking remains what it has been for the past year, which is a trader’s approach of setting a rate target and locking when market trading leads us to the target. The “normal market” approach of using macroeconomic predictions for the week or month to predict rate levels is out the window because markets are simply too erratic to make any accurate predictions. So instead we look at trading patterns in mortgage bonds. MORTGAGE BOND/FED POLICY UPDATE As of January 21, their third week into the buying program, the Fed had bought $52.6b of mortgage bonds and the next buying report comes out tonight. Yesterday after their first FOMC meeting of the year, the Fed left short-term overnight rates alone at .25% but said they’d continue to buy mortgage bonds and may extend beyond $500b and beyond June if needed. For those still holding out for 4.5% rates, this is yet another reminder about how rates on all loans up to $625k are openly traded. Fed buying was targeting lower rate ranges but as I’ve been saying for weeks, a good 30yr fixed rate target for loans up to $417k is about 5% and the target for loans up to $625k is around 5.25%. It’s possible to dip below those levels on certain trading days, but like buying stocks, locking rates is an exercise in determining your price target and executing—greed will cause more headaches than celebrations. Rates for loans from $625k to $1m are mid-6% range, but remember, these rates are not currently set by trading because these loans are not securitized—these rates are the only rates right now set manually by banks. The reason I think rates are not likely to go significantly lower and stay there is because of the private selling pressure in mortgage bonds that mutes the impact that Fed purchases can have. All this said, the Fed’s actions should keep rates on loans up to $625k within their current trading range for the next 30-60 days, perhaps longer. ECONOMIC STIMULUS/BANK BAILOUT PART 2 This is important but bank bailout plans are perhaps more important because credit is still the lifeblood of the consumer– and business segments of GDP growth (4Q GDP out tomorrow). There are two schools of thought here and the TARP so far has represented both. The TARP was originally proposed to buy up illiquid assets from banks to enable them to clean up balance sheets and get back to core activities. In the two weeks it took to get approved, the financial crisis was going through one of its worst phases (late-September), and it was determined that the best approach was to do direct capital injections into banks. These two approaches remain at the center of the debate. The ‘bad bank’ proposal uses the first approach. The shortcoming here is what it’s always been: how do you ensure taxpayer dollars are not overpaying for bad assets? Nobody knows precisely how to price these securities. This plan was abandoned in round one for this reason and because there was no time to price the assets after the Lehman domino fell. Given some time, the FDIC might be able to pull this off. The other approach is direct capital injections into banks which is what round one of the TARP ended up doing. But they did it with absolutely no prerequisites for banks. Banks must be forced re-deploy capital they receive and may even need capital requirements lowered temporarily so they don’t feel forced to hoard government infusions. George Soros thinks this is the better approach, but said it would take about $1 trillion to work. He accurately pointed out that TARP phase one rattled politicians to the point that we might not get a logical decision in round two either. But let’s hope the new administration and Congress can cut through the rhetoric and see the bank proposals for what they are: the only path to recovery. Conforming ($200,000 – $417,000) – NO POINTS Super-Conforming ($417,001 to $625,500 cap by county) – NO POINTS Jumbo ($625,500 – $1,000,000) – NO POINTS |
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This post comes courtesy of Julian Hebron at RPM Mortgage:| Ready for a Tax Reassessment on Your San Francisco Property? First You Need the Comps | January 26th, 2009 |
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When you call the Tax Assessor’s Office (at 415-554-8059) the first thing they’ll ask you for are comparable sales so you can demonstrate your property’s decline in value. That’s where a good Realtor (like me!) can step in. Just call me if you need the comps and I can grab some from the MLS. Don’t be disheartened if your appraised value comes in even lower than you thought it would. Appraisers rely heavily on square footage, and don’t always accurately factor in the extra value that comes from the quality of your building (if you have a condo), your proximity to goods and services, and your outlook/views. When you call the tax assessor’s office (at 415) 554-8059) |
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Those who bought in last the two-three years may want to look at getting a tax reassessment. With taxes running roughly 1.1% of your purchase price (and sometimes ratcheting up each year), a 10% reduction in value on an $800,000 purchase can save you upwards of $880/year. That’s about enough to get 16 hours (or more of handyman repair on your house, a cruise on the Mexican Riviera, or three good pairs of shoes at Nordstrom’s.| Hot Off The Presses- SF Condo Developers Hurting for Buyers | January 22nd, 2009 |
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San Francisco Condo Developers Hurting for Buyers Our New Homes Group constantly swaps tips and information on what’s selling for how much in different projects around the City. We also talk about which units seem to offer the best value and compare one project against another. I love having access to this ‘brain trust’ of information. It helps me negotiate the best deals for my buyers and lets me know what the pitfalls are around each project. Lately, we’ve seen new homes sales offices offer 72-hour sales with big discounts or ’developer’s specials’ priced significantly below the asking prices of comparable units in the building. |
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| Cool Links on a Cool Day | January 21st, 2009 |
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I hate cold, wet weather, but it feels good today because we need the rain so much. Plus, those endless warm days kind of freaked me out. Inappropriate weather always makes me think about global warming. It’s also hard to figure out what to wear– lightweight fabrics in summer patterns seem weird, but then dressing in dark colors can be a downer on beautiful sunny days. Now you know that when I don’t think about real estate, I worry about weather and fashion. I’m sure there are better ways to spend my time, but being a bit mindless is necessary now and then– with that in mind, let’s go internet surfing– ************************** Here are some fun links I found that are SF real estate related. The first is a diary of a San Francisco home remodel. I like Bernadette Fay’s story it because her project (converting part of the basement to useable living space) is so typical for San Francisco. We have lots of smaller single family homes that were built in the 40s and 50s. Many have her exact floor plan. I also enjoy Fay’s attitude — I love houses but hate remodeling, and empathize with her internal and external challenges. One of my favorite SF History websites is the Western Neighborhood Project. This site is extra special to anyone who has lived in the City for some time or are natives of the Richmond, Sunset, West of Twin Peaks, OMI, and Lake Merced District. My favorite sections is the Message Boards, where old-timers share memories of Playland at the Beach or the nuns at their local Catholic elementary schools. I’ll also put in a plug for Apartment Therapy SF here. I’ve mentioned this site before. It’s full of brilliant ideas on how to decorate and design small spaces, with lots of good resources. Beware! I’m told this is an addictive site where you can get lost and waste a lot of time studying dreamy little end tables and clever upholstery patterns. Happy surfing– |
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| Buyer Psychology in Today’s Market | January 12th, 2009 |
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Buyer reluctance is ironic since not so long ago buyers were incredibly excited about buying– and it was a sellers’ market. Just last summer people were buying like there was no tomorrow. Back then fear drove the market– buyers were afraid of losing out by not buying even through the advantage was all to the seller. Fear is still in the driver’s seat but now the tables are turned. Today it’s the fear of paying too much that stops buyers in their tracks. It’s ironic because they should have been afraid of paying too much last year. Now that there’s less cause to be fearful, they are still afraid to buy. There are two types of buyers– those who believe they can time the market and those who are always in the market and believe timing will find them. The first group defies logic– It’s impossible for any of us to know when we hit absolute bottom or when we are at the absolute top. The second group actively pays attention and may not always buy at the bottom or sell at the top, but always does well over time. People who buy in a buyers’ market are the smart ones. They know they’re in the ’safe zone’ where smart people plan to buy and sell. They aren’t looking for a killing because they know that’s a matter of luck not planning. Instead they seek a sound decision with a predictable result. Smart buyers also rely on experts who know the market and how to negotiate in it. You can read the papers all you want and listen to your buddies swap real estate war stories , but these sources can’t give you the whole picture. In a shifting market, reliance on good agents and seasoned mortgage professionals is more important than ever. We live and breathe the market every day and can offer you on the ground perspectives that go far beyond a single anecdote or media report. To real estate buyers, sellers and owners who haven’t been through this cycle before: You may have thought you could buy and sell every three to five years and make a killing on both ends. This economic idea is quite unrealistic. Any successful real estate investor will tell you that real wealth comes from the combination of appreciation plus debt paydown. There are certain facts about real estate that remain true in any kind of market. The most important one to understand is that real estate is a cyclical business. Market declines have happened before and they will happen again. What goes up must come down. But more importantly, what goes down has always come back up. Home values will most certainly continue their long-standing trend of appreciation over time. And equity buildup through mortgage debt paydown still remains a proven path to financial wealth. (This posting is a synopsis of an article published in this month’s Realtor Magazine by Gary Keller) |
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A buyers’ market should be just that– a buyers’ market. By its very name it means buyers should be doing one thing and one thing only– buying. But the irony of a buyers’ market is that even through the opportunity to buy is high, buyers’ urgency hits an all-time low.
