Dennis' Mortgage Blog

Question of the week:  What is my home worth?                                  

Answer:  This is one of the more subjective questions in real estate.  If you are selling it could be said your home is worth what someone is willing to pay for it, if you are buying it is worth what you want to pay for it and hopefully you can get it for less, if you are refinancing it is worth what the appraiser says it is worth. 

For most people who need a loan to purchase their home your home’s worth is pretty much what an appraiser says it is worth.  And depending on the appraiser this could vary considerably depending on his point of view of providing the bank the minimum the property should sell for or the most it could sell for as seen by the comparable sales selected.

In Southern California we have a very diverse range of neighborhoods that are often juxtaposed offering mid-price range family oriented neighborhoods next to custom homes on one side, commercial properties on  another side and mixed high-density apartments and single family homes on another side.  Local knowledge is important because one tract can be more desirable for locals and garner higher sales prices historically than one that abuts it but for some reason has traditionally had lower sales prices.  Choosing comparable sales between neighborhoods can be challenging, or can determine a value that is lower or higher depending on the choices.

Impacting the value are the number of closed sales that were either short-sales or bank owned properties versus “traditional sales” where the sellers were the occupants and not in default.  A range of sales can be available that includes lower priced “flips” where investors purchased a distressed or foreclosed property and invested in remodeling and put the home back on the market to make a quick profit, to an owner upside down and in distress selling the home for less than the loan amount and not as concerned with the price so much as just getting out of the property, to a bank owned property that has no amenities or sold “as is” to the pride of the neighborhood being sold by a husband and wife who have lived in the home for many years.

Which sales to include on an appraisal will determine the value given on the appraisal that will be used by the lender to determine the loan to value and therefore the interest rate and cost of the loan and sometimes in the cases of refinances if a new loan is even possible. 

Every neighborhood has a range of values for the properties sold and currently on the market.  The biggest challenge the industry has faced over the past several years has been the range between the bank controlled sales (short-sales and REOs) versus the traditional sales and how those differences have been addressed by appraisers on a case-by-case basis making it difficult to determine the value of your home before a purchase or refinance application is taken.  Taking only the bank controlled sales can result in an appraisal at the low end of the market range and taking only traditional sales can result in an appraisal at the upper end of the market range.  Neither value is necessarily wrong, but which method and value results has a big impact on a mortgage transaction for either a purchase or a refinance.

When determining what your home is worth try to examine the data available with impartiality and ask yourself, “if I was a buyer or an appraiser looking at what has sold and what is available comparable to my home what would I think my home is worth?”  If you consider only the highest comparable sales what are the consequences if an appraiser uses the lower sales?

Your home’s worth is pretty subjective, but for you to accurately estimate your home’s value you need to be objective.  And that can be pretty hard to do.

Have a question?  Ask me!

Speaking of home sales, the big news in the real estate industry this week is the announcement by the National Association of Realtors (NAR) that it will be revising all of its home sale data reports from 2007 through October of this year significantly lower.  While no data collection this vast if ever perfect, the estimates for the data are that total home sales will be revised downward in the neighborhood of 20%. This means the housing crash was worse than previously reported, far worse.  As a matter of curiosity I wonder how the numbers could be that far off given that NAR members report their listing and sales to regional Multiple Listing Services that are networked together.  With some variances being understandable, mining data from a national network that is fairly uniform across the country would seem to ensure some accuracy in the NAR being able to report total sales volume monthly and annually. 

What is the impact of the housing numbers?  The major impact the housing sales has is on confidence for consumers, potential home buyers and homeowners.  It can be argued, and is being argued, that by over-reporting the actual sales date a very bleak housing market during the run down to the bottom of the housing crisis dampens the negative impact and on any climb out of the bottom heightens and positive impact.  Would housing markets have performed worse had the actual numbers been reported when available instead of three or four years later? It is hard to say for certain, but all segments of the economy are tied together and the over-reporting of home sales has a ripple effect through the home buying public, stock markets and consumer confidence to spend and invest in other segments of the economy.  The NAR will report its corrected numbers on Wednesday December 21, 2011 when it puts out its monthly sales report.  It will be interesting to see their statement with the revisions.

Positive news continues to trickle in on the economy.  Today the Labor Department reported the Consumer Price Index (CPI) for November and prices were flat, no gain, from October’s prices due to dropping energy prices offsetting rising food and other commodity prices.  Taking out volatile food and energy prices and there was a 0.2% increase in prices.  Known as the “core” price index, the stripped down data increased 2.2% from November 2010, a bit above the Fed’s 2% annual target but not enough to generate concerns for higher rates from the Fed.

Rising prices generally mean rising economic activity, key word “generally.”  Earlier this year the concern was for rising prices and a shrinking or flat economy known as “stagflation.”  With prices increasing unless there begins to be corresponding movement in the employment markets then any significant growth in the economy that is pushing prices up through consumer demand and spending will be short lived. 

On the employment front initial claims for unemployment insurance dropped to 368,000, the lowest mark since early 2008 before we knew we were in a recession.  While this weekly number can be volatile from week to week, the trend the past few weeks has been for fewer initial claims being filed; hopefully because companies are laying off fewer workers and not because seasonal employment markets are just delaying filings for new claims.  We will know the answer to that in January.

Over the weekend I posted on my blog a piece on the President and Congress looking to use home mortgages as a way to pay for the payroll tax cut that is part of the spending bill that needs to be passed today or the government runs out of money.  The tax cut is a reduction in what workers pay into the social security system and since the social security program pays out more than it collects the politicians need to find a way to back fill the unnecessary cuts (in my opinion).  One of the many options is to increase the fees Fannie Mae and Freddie Mac charge lenders.  If this passes guess who the lenders charge for the additional quarter point per loan Fannie and Freddie are charging?  You are right, it is you when you get your new mortgage.  To read my post click here.

What would the weekly update be without Europe?  Every time a deal is made it falls apart or is not consummated and the deal-or-no-deal dance starts again.  Despite the bit of positive domestic economic news that has come out that should push stocks and rates higher the strain on the world financial markets and banks caused by the continuing possibility, likelihood for some, that the European Union will fail to stave off economic and financial failures in several EU countries stocks retreated this week and bonds benefited.  Next week the next number on the European Bailout Ball.

Rates for Friday December 16, 2011: Last week I pondered if the late week move in rates was a bounce off the trading range or a trend, well it was a bounce as this week Mortgage Backed Securities moved higher Wednesday and retained the high line.  As a result our 30 year conforming purchase rates have hit their all-time low today.  FHA rates are still moving across credits for closing since they have hit the rate floor offered by FHA.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS

30 year conforming                               3.625%             Down 0.125%

30 year high-balance conforming           3.875%             Down 0.125%

30 year FHA*                                                   3.75%               Flat

30 year FHA high-balance*                   3.75%               Flat

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked.  Rates are based on 20% down (3.5% for FHA)  with 740 FICO score for purchase mortgages.

* Current rates include credit towards closing costs, call for quote on rate and credit.

A very busy week ahead of us as schools wind down for Christmas break and our house becomes somewhat Nutcracker centric with performances in Long Beach on Sunday and Pasadena on Thursday and Friday for Blaire (tickest still available) and Jenna performing in her school’s Christmas pageant.  In the middle of all this is a special day as Leslie celebrates the anniversary of her 39^th birthday.  ‘Tis the season in the Smith house to experience all the joys and blessings of the holiday season and a birthday, er anniversary, celebration for my beautiful wife thrown in for added pleasure.

I hope your week is exciting, happy and filled with friends, family and joy.

Have a great week,

Dennis