Weekly Rate & Market Update 7-14-17

Question of the week:  Do you write your update every Friday?

Answer: Yes. Well almost every Friday, I have been known to not compile a Weekly Rate &Market Update Thanksgiving week or if Christmas and New Year’s fall on a Friday or if on vacation and it is not possible to compile and distribute, otherwise it goes out every Friday.

This Friday it is coming to you from our quaint cabin-room at an old fashioned motor court in Three Rivers, California just a few miles from Sequoia National Park. Leslie and I are on the middle leg of a trip to Yosemite, Sequoia and San Luis Obispo. With the preamble written the night before and the economic and rate update plugged in this morning I am able to quickly get you the vital information you need, absolutely need and wait for every week, before we go wandering in the wilderness.

One reason I write every Friday is that several years ago I missed an update due to major computer issues and several people contacted me to see if I am okay—so here is the update and I am okay!

Thank you for reading and next week we will have a more traditional question of the week involving mortgages and real estate.

Have a question? Ask me!

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

The data on prices and consumer spending this week were bleak. The Producer Price Index was up only 0.1% in June and up 2.0% from last June. Stripping out volatile food and energy to arrive at the “core” price index the monthly growth was the same and year over year wholesale prices managed only 1.9% gain. Following the almost flat growth in PPI, the Consumer Price Index was flat in June and as reported by the Wall Street Journal one of the “very weakest 4-month stretch in 60 years of records.” Year over year consumer prices rose only 1.6%, well below the Fed’s targeted inflation rate, with core prices up only 0.1% for the month and 1.7% for the year. Housing which has driven much of CPI the past year and more was up only 0.1% for the month, offset by dropping prices in apparel and vehicle prices.

Despite soft prices consumers have not taken advantage by increasing their purchases. Retail sales in June were down 0.2% following May’s drop in sales (revised from down 0.3% to down0.1%). The decline in consumer’s buying will have a negative impact on second quarter GDP, which is due to be released the last Friday of the month.

The third and final major data that influences the Gross Domestic Product for the nation was consumer sentiment. The sentiment for current conditions remains high, however the component of future economic expectations has fallen to its lowest since before the election in November.

Individually and combined the data points to economic slowdown in the second quarter. How much of a slowdown we shall see at the end of the month. Investors see the inflation numbers, consumer purchasing habits and sentiment and will anticipate smaller growth than the 1.4% in the 1st Quarter growth, and a negative number is not out of the question. This news, while negative for the economy is positive for lower interest rates.

Rates for Friday July 14, 2017: Rates were edging up this week as investors anticipated stronger numbers on prices and consumer purchasing. The data coming in below expectations has caused a run on mortgages this morning putting downward pressure on rates, enough to reverse the increase we saw last Friday. With lower GDP expectations in the market we can expect a soft rate environment ahead.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%             Down 0.125%

30 year high-balance conforming                        3.875%           Down 0.125%

30 year FHA                                                      3.25%             Down 0.125%

30 year FHA high-balance                                  3.75%             Down 0.125%

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.

We are off to walk through the giant Sequoias!

Have a great week,

Dennis

 

 

 

Weekly Rate & Market Update 7-7-17

Question of the week:  I have an owner-occupied loan, can I rent my house out later or do I have to get a new loan for investors when/if I want to do that?

Answer: Now that we are about seven to eight years away from the bottom of the real estate market his is a question that has become more frequent, especially from those living in the first home they purchased and from first time refinancers. With a low mortgage balance on their home, money saved for a down payment on a new home and ability to qualify, many families are wondering if they can retain their current primary residence and convert it to a rental property and purchase a new home for their residence. The question is whether in doing so they are violating their original loan contract, the note, in which they agreed to occupy the home as their primary residence.

When you sign loan documents for your primary residence there is a certification of occupancy form whereby you affirm that the property will be your primary residence.  It includes rather strong language regarding loan fraud, loan may be called due and payable, etc, if you affirm your intention to occupy and do not occupy the property.  The key wording is your pledge that it is your intent to occupy.

If you have lived in your home for several years then you have fulfilled the intent to occupy the home and yes, you can move out of your home at a later time and use it as a rental/income property and you do not need to refinance from your current mortgage into a new non-owner occupied loan.

If you are refinancing your current residence and fully intend to purchase a new home in the near future then it is strongly advised that your refinance be with a non-owner occupied loan.  We have had applicants who wish to refinance their current property and make application for an owner occupied loan.  While the refinance is going they present us with an offer to purchase a new property that will be their primary residence.  We cannot have two owner occupied loans going simultaneously, or one on top of the other, with the same client—obviously one is an investment property and must be declared as such.  The only exception to this would be if it is evident and a case can be made the new home will be a second or vacation home (in vacation destination location such as desert or mountains or geographically distant).

We have had scenarios where a client is declaring their current residence will become a rental and are purchasing a new home that will be their primary residence and underwriters have denied the occupancy of the new property and required non-owner occupied financing be used.  Typically this scenario arises if the new home is considerably smaller than the current home, the new home is geographically distant from the current home and the clients’ employment or if new home is extremely similar to current home and in same neighborhood or area.  Often we can overturn this if we can make a very good case for the occupancy.

Must you live in your home for the duration of your owner-occupied mortgage? No.  Must you intend and fulfill the intent to live in your home with an owner-occupied mortgage?  Yes.

For how long?  There is no exact answer to that question other than, lenders, Fannie Mae and Freddie Mac have become more diligent in post-closing audits and investigation of loan files to ensure accuracy of all documentation and guidelines are followed.  This includes occupancy.  If you have moved out of your primary residence with a recently funded owner-occupied mortgage you must be able to show you fulfilled the occupancy intent to the strictest aspect of the definition to prove yourself innocent—generally speaking staying for a few months after closing would be a hard case to present for intent to occupy being satisfied.

If you are considering converting your current property to a rental and purchase a new primary residence please give me a call to discuss not only your purchasing and financing options for your new home but the logistics and scenarios of maximizing the financial opportunities that present themselves.

Have a question? Ask me!

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

We found out what members of the Fed whispered about last month when the minutes from the Federal Reserve Open Market Committee (FOMC) meeting were released. The FOMC are the members of the Federal Reserve Board of Governors who set the Fed’s interest rates and policy. The minutes of the FOMC meetings are important as they give some insight as to what may happen next, enabling investors to plan ahead and not be caught by surprise if the Fed makes a move with interest rates or their buying or selling of assets. The minutes from June indicate that the FOMC members are not overly concerned with the lack of inflation in the economy, feeling that a strengthening labor market will lead to increased consumer spending and demand. And the split on the discussion as to when to start selling off the $4.5 trillion in United States Treasury bonds and mortgages from Fannie Mae and Freddie Mac that were purchased starting at the end of 2008 to stabilize the economy and push interest rates down. The purchasing continued well until late 2014 under a policy called “quantitative easing.” Now the Fed is going to undergo a sale of these assets, not all at once as that could crash our economy, but slowly over the next several years. The questions are when and how much should the reverse easing occur and the minutes from the FOMC show more members are wanting to start sooner than later.

What happens? When the Fed begins to sell the bonds and mortgages the impact should be for long term rates to increase—just as they decreased when the Fed bought the assets rates should go the opposite way when they sell them. How much rates are impacted will depend on the overall state of the economy when the assets are sold and how much are sold at various periods. Put too many assets on the market at once and prices tank causing rates to jump creating unstable environment for labor markets and inflation, put too few on the market and they may not be purchased among other competing investments and the Fed does not fulfill its desire to rid itself of the bonds and mortgages. As the year progresses this future sale by the Fed is an underlying issue for investors and the economy. Overall the news and whispers of the unwinding by the Fed is negative for interest rates.

Today is Labor Department Day as it on the First Friday of every month when data for the prior month’s employment markets are released. Very mixed news in the June jobs report as on the one hand it was positive with 222,000 new jobs were created, and prior month’s data on new hires were revised upward by 47,000 to reverse what had been slow hire months to strong hire months. Also positive was the incremental increase in the labor participation rate after a dip in the prior two months. Somewhat positive is an slight increase in the unemployment rate to 4.4% as more people left the sidelines to look for work due to the increase in hiring by employers. On the negative side is that wages and salaries are not showing any significant growth despite the increase in hiring. Essentially employers are able to fill positions without increasing wages to attract workers. Wages increased only 0.2% in June and are up 2.5% from a year ago, barely ahead of inflation. In a strong economy if wages are stagnant then hours worked will increase to show employers paying for more hours to increase productivity from current workers before hiring new workers. That is not the case as the average hours worked has remained steady at around 34.5 hours per week for several months. Over all I see the report as positive for rates as it does not suggest a real strong labor market, more people are working but there is not a significant strength in earnings which would translate into spending.

Rates for Friday July 7, 2017: Well the rates have broken their flatness, but to the upside. Following the FOMC minutes release investors sold off bonds causing rates to bump up, after six Fridays in a row of flat rates we are up 0.125% this Friday from last. I feel the sell off was somewhat technical and then not wanting to be caught and investors should come back to market pressuring rates back down sometime in the next week to two weeks. “Should” being the critical word in the sentence.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.875%           Up 0.125%

30 year high-balance conforming                        4.0%               Up 0.125%

30 year FHA                                                      3.375%           Up 0.125%

30 year FHA high-balance                                  3.875%           Up 0.125%

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.

I hope everyone had a fun celebratory day on Tuesday, we were pretty low key most of the day and went to friend’s home in the evening as they have very good view of fireworks from local country club—I have always loved fireworks, probably because my mom went to the hospital not long after a fireworks display at the club in Tulsa to deliver her third child and second son the next day, Wednesday marked my fifty-fifth trip around the big fireball and I am looking forward to the fifty-sixth trip!

Have a great week,

Dennis

This evening we will be having our Annual Flag Collection and Retirement Ceremony in Bixby Knolls as part of the monthly First Friday event. If you have a flag that needs retiring please bring it and we will collect and give to the Boy Scouts for proper disposal. We will be at Georgie’s Place, 3850 Atlantic Avenue, Long Beach at 6:00 and at 7:30 the Boy Scouts will conduct an official retirement ceremony of a flag. A great event if you have never witnessed a retirement ceremony.

 

Weekly Rate & Market Update 6-30-17

Question of the week:  Should I refinance to pay-off debt, like my car and credit cards?

Answer: This question came in after last week’s question (should I refinance to pay-off my equity line?), and the short answer is the same as last week’s: Yes. No. Maybe.

As a rule it is not wise to use your home’s equity to pay-off consumer debt. Using home equity for consumer debt hurt a lot of people during the housing bubble. Families were increasing the mortgages on their homes to buy boats and/or to pay off credit cards that were run up to pay for extravagant or excessive consumer goods or vacations. Our term for this is “eating equity.”

The primary issue with eating equity is too often after clearing off their debt with a newer, larger mortgage, there was no alteration in spending habits so in a year or so they would look for another mortgage, increasing their balance to pay-off another round of consumer debt racked up in restaurants, sporting goods stores and local malls. And a cycle started where by the time real estate values crashed families that had bought a house in 2002 for $300,000 with a $240,000 lost it in 2009 with $450,000 mortgage they could not, or would not, pay.

That said, there can be an argument made to refinance and use proceeds to lower other debt.

For instance you have incurred one-time extraordinary expenses for emergency home repair, college expenses, helping out a family member or medical expenses. Or perhaps you did have a period of excessive spending on consumer goods and services, but have curtailed the spending habits and after trying for a few years to reduce the debts have found you not making a very good dent in the balances. If one of these is the case then using a new mortgage for debt relief may be a sound financial decision.

When going through a debt consolidation refinance consultation it is important to discuss the reasons for the debt accumulation, and also make certain that there is a very strong commitment to ensure that once the debt is paid off it is not temporary; i.e. that the accounts that were paid off will not have large balances again in the near, middle or long term.

As with most mortgage questions the answer then becomes a math problem that involves current home value, amount of mortgage the value will support, current debt outstanding and total monthly payments. We then look at expected net equity that can be used to pay-off debt, if this is enough to pay-off all the outstanding debt, and if not targeting which accounts to pay-off that will provide us the greatest payment relief. Note my approach is to eliminate the highest payments, not the highest rates or necessarily balances. If you have one card with a $14,000 balance and a $200 payment and two cards at $7000 each with $300 payments each I would suggest paying of the two cards saving $600 per month instead of one card and saving $200 per month.

Part of the consultation is what to do with the money saved every month, ideally the savings goes to pay-off remaining debt and then put the money into savings.

Here is an example of clients we have helped:

Due to business issues they had accumulated about $60,000 in revolving debt with payments of about $1500 per month, plus they had two auto loans totaling $1200 per month.  They were not late on any of their payments but had a hard time making more than the minimums and were unable to save. As well they have young children and were unable to put money away for college.

Because of the equity they had in their home we were able to refinance their mortgage of about $400,000 with a payment of about $2100 per month to a $475,000 mortgage with a payment of just under $2400 per month. We increased their mortgage payment almost $300 per month but were able to pay off all the credit cards and one of the cars, lowering their monthly consumer debt payments from $2700 per month to $575 for one car with just under two years remaining. Total savings for the family almost $2000 per month, which they divided into savings account and two 529 accounts for their kids. Since the refinance about a year ago they have been paying off their credit monthly and spending what they earn as well as building their savings.

Not everyone will have such dramatic savings by consolidating their debt, but the savings can still be pretty dramatic. The key however is to ensure that the use of your home’s equity to consolidate debt is not a recurring practice, that it is done to provide relief and enable a change in financial habits.

If you would like to run through your numbers to see if you may benefit from a debt consolidation please give me a call and we can discuss your situation. Often the conclusion that is reached is we do not need to refinance, but by restructuring your spending habits and how you are paying your debt you may be able to achieve debt relief without increasing your mortgage.

Have a question? Ask me!

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

Continued mixed data on the economy. Reports for economic activity in May reflect the mixed data of prior months. Consumer confidence almost reached a sixteen year high in May, mostly on expectations for income and jobs. That should be reflected in increased spending and economic growth when 2nd Quarter GDP data is released next month. The final revisions to 1st Quarter GDP data however does not reflect strong consumer confidence. While the final growth number was revised up to 1.4% from 1.2%, the growth number is still considered not strong, bordering on weak. Within the GDP report consumer spending was upgraded, but only enough so that spending in the quarter went from the weakest in seven years to the weakest in four years.

Personal income and spending data in May did not reflect the consumer confidence data. Personal income for the month rose only 0.4%, but wages and salaries only increased 0.1% from April and transfers were the bulk of the general increase in income. Spending matched wages, increasing only 0.1% from April. One constant in the report over the past several months has been personal savings, which rose 0.4% in May and is at a very high 5.5% of personal income.

Overall the data is somewhat positive for rates. While the slight revision to GDP could push rates higher, the personal spending and wages are a drag on the economy and creates a soft rate environment. There will be a lot of attention on the 2nd Quarter GDP numbers to see if increasing consumer confidence pushed the economy higher—if so we can expect upward pressure on rates.

Rates for Friday June 30, 2017: Last week it appeared that rates would break down with any soft economic data. We got the soft data but rates did not break down, late in the week we saw rates strengthening on technical issues. The end result is another week with no change from the previous Friday.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%             Flat

30 year high-balance conforming                        3.875%           Flat

30 year FHA                                                      3.25%            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.

I hope everyone has a wonderful Independence Day celebration. My favorite holiday, not necessarily for the fireworks, hot dogs and get togethers, but for why we celebrate. Enjoy your freedoms and give thanks for those with the courage and resolve to declare the “united Colonies are, and of Right ought to be Free and Independent States…”

If you are replacing your flag as part of your celebration, or know someone who is, see below about our Annual Flag Collection and Retirement Ceremony next Friday July 7th.

Have a great week,

Dennis

Next week, on Friday July 7th, we will be having our Annual Flag Collection and Retirement Ceremony in Bixby Knolls as part of the monthly First Friday event. If you have a flag that needs retiring please bring it and we will collect and give to the Boy Scouts for proper disposal. We will be at Georgie’s Place, 3850 Atlantic Avenue, Long Beach at 6:00 and at 7:30 the Boy Scouts will conduct an official retirement ceremony of a flag. A great event if you have never witnessed a retirement ceremony.

 

Weekly Rate & Market Update 6-23-17

Question of the week:  Should I refinance to pay-off my home equity line and fix the interest rate?

Answer: Yes. No. Maybe.

The answer to this question, like for many Questions of the Week, is situational.

Everyone who has an outstanding Home Equity Line of Credit (HELOC) has seen their rate increase one percent (1.00%) since the Fed began raising interest rates in December 2015, and increase half a percent (0.50%) since December. Common wisdom is that the Fed plans on increasing its Federal Funds Rate as many as two more times this year and perhaps a few more times in 2018. Whenever the Fed raises or lowers rates banks follow and the result is an increase or decrease in the Prime Rate, which is the base rate for HELOCs.

Most HELOCs have a margin over Prime that sets your interest rate. For instance is your HELOC rate is Prime + 1.5% then your rate is the current Prime Rate of 4.25% + plus the 1.5% margin resulting in your interest rate of 5.75%.

Because the Prime Rate is near the 30 year rate, either below, at or above depending on many factors, many homeowners are deciding now is a great time to lock in the rate on their HELOC before the Prime Rate goes up further, or mortgage rates climb.

Should you refinance and lock in your interest rate on your HELOC?

There are several factors we look at when advising clients whether to refinance and consolidate their mortgages or not.

  • What are your balances on your primary mortgage and HELOC?
  • How much equity do you have in your home? (Estimated value less combined balances of your primary, or first, mortgage and your HELOC)
  • What are your current rates and payments on your primary mortgage and HELOC?
  • Are you in a position where you can pay off the HELOC in the near or medium future?
  • When is your HELOC due? When does it go from interest only minimum payments to fully amortized?

There are more questions that come into play once we get into the nitty-gritty details but these basic questions provide a lot of guidance.

If you have a very low rate on your primary mortgage and a small balance on your HELOC that you can pay off in a few years then it probably does not make sense to refinance.

If you balances on your mortgages are about equal and you have enough equity we might be able to refinance your HELOC and your payment is equal to or slightly less than your paying now on both loans, in this case it may make sense to refinance.

When considering the payment on the HELOC, if you have been paying interest only and have a large balance owing on the HELOC it may make sense to refinance, fix the rate and start paying down your principal.

There are several variables to consider if you have a HELOC as to whether you should refinance and pay it off, to go through your situation and determine options available regarding your HELOC please call me and we can go through the numbers and options.

Have a question? Ask me!

Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.

Housing making headlines this week as existing home sales across the country surged in May after slowing down in March and April. Nationally sales are up 1.1% from April, with single family homes up 1% and condo sales up 1.6% for the month. Year over year existing home sales have grown by 2.7%. Prices jumped up in May as well with the national median price up 3.2% from April and 5.8% from May of 2016. After a strong start of the year and then a big slow-down in the Spring the May housing report is very positive.

Locally the California Association of Realtors reports that sales of existing homes jumped 5.4% in May from April and are up 2.6% from last May. The median price in California in May was $550,200 (more than double the national average of $252,800) which was 2.3% higher than April and 5.8% from a year ago. Southern California markets were very hot in May. Los Angeles County saw a 2.5% increase in the median price for the month (to $494,040) and 5.3% for the year while sales were almost 25% higher in May than April and up 7.3% from last May. In the OC the median price saw similar increase to LA County at 2.6% with the median price at $795,000, 8.6% higher than last May, sales in Orange County were up 8.6% from April and 22.6% for the year.

Rates for Friday June 23, 2017: Rates are ready to break to the down side, and have come close but so far the line is holding steady. Next week we get the final revision for the 1st Quarter GDP, if there is no surprise upward revision that could be the event to push rates through the current resistance. In the meantime we have our fifth week in a row with no change.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%             Flat

30 year high-balance conforming                        3.875%           Flat

30 year FHA                                                      3.25%            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.

This past week Mother Nature looked at the calendar and saw “Summer, June 21st” and decided to throw some real summer weather at the West, not much June gloom to keep us cool!

In two weeks, on Friday July 7th, we will be having our Annual Flag Collection and Retirement Ceremony in Bixby Knolls as part of the monthly First Friday event. If you have a flag that needs retiring please bring it and we will collect and give to the Boy Scouts for proper disposal. We will be at Georgie’s Place, 3850 Atlantic Avenue, Long Beach at 6:00 and at 7:30 the Boy Scouts will conduct an official retirement ceremony of a flag. A great event if you have never witnessed a retirement ceremony.

Have a great week,

Dennis

Weekly Rate & Market Update 6-16-17

Question of the week:  Should I refinance to pay-off my home equity line and fix the interest rate?

Answer: Yes. No. Maybe.

The answer to this question, like for many Questions of the Week, is situational.

Everyone who has an outstanding Home Equity Line of Credit (HELOC) has seen their rate increase one percent (1.00%) since the Fed began raising interest rates in December 2015, and increase half a percent (0.50%) since December. Common wisdom is that the Fed plans on increasing its Federal Funds Rate as many as two more times this year and perhaps a few more times in 2018. Whenever the Fed raises or lowers rates banks follow and the result is an increase or decrease in the Prime Rate, which is the base rate for HELOCs.

Most HELOCs have a margin over Prime that sets your interest rate. For instance is your HELOC rate is Prime + 1.5% then your rate is the current Prime Rate of 4.25% + plus the 1.5% margin resulting in your interest rate of 5.75%.

Because the Prime Rate is near the 30 year rate, either below, at or above depending on many factors, many homeowners are deciding now is a great time to lock in the rate on their HELOC before the Prime Rate goes up further, or mortgage rates climb.

Should you refinance and lock in your interest rate on your HELOC?

There are several factors we look at when advising clients whether to refinance and consolidate their mortgages or not.

  • What are your balances on your primary mortgage and HELOC?
  • How much equity do you have in your home? (Estimated value less combined balances of your primary, or first, mortgage and your HELOC)
  • What are your current rates and payments on your primary mortgage and HELOC?
  • Are you in a position where you can pay off the HELOC in the near or medium future?
  • When is your HELOC due? When does it go from interest only minimum payments to fully amortized?

There are more questions that come into play once we get into the nitty-gritty details but these basic questions provide a lot of guidance.

If you have a very low rate on your primary mortgage and a small balance on your HELOC that you can pay off in a few years then it probably does not make sense to refinance.

If you balances on your mortgages are about equal and you have enough equity we might be able to refinance your HELOC and your payment is equal to or slightly less than your paying now on both loans, in this case it may make sense to refinance.

When considering the payment on the HELOC, if you have been paying interest only and have a large balance owing on the HELOC it may make sense to refinance, fix the rate and start paying down your principal.

There are several variables to consider if you have a HELOC as to whether you should refinance and pay it off, to go through your situation and determine options available regarding your HELOC please call me and we can go through the numbers and options.

Have a question? Ask me!


Stretches hands over head, has a big yawn….
That was the markets on Wednesday after it was announced that the Federal Reserve Open Market Committee raised its benchmark discount interest rate by one-quarter of one percent to a rate of 1.75%, this is the rate the Fed charges member banks to borrow money. The rate increase by the Fed has been priced into the rate markets for a few months, as a result an action that should have seen mortgage rates increase resulted in no change in rates.

Impact on the Fed rate increase will be felt immediately by those with Home Equity Lines of Credit as the Prime Rate follows the Fed discount rate. As a result of the Fed’s increase the Prime Rate is now 4.25%.

That was the headline news but more importantly was the economic data released this week, and it wasn’t very good. Three big pieces of economic data for May, the Producer Price Index, the Consumer Price Index and Retail Sales, show an economy that appears to be slowing. Leading the way was PPI which was flat from April and is up 2.4% from May of 2016. As for consumers, the CPI dropped 0.1% in May from April and is up only 1.9% from a year ago. Pulling down CPI was an increase of 0.2% in home prices—which have been carrying the price index for the past several years—as well as a drop of 6.4% in gasoline prices. Of big concern is that prices are trending down. And following our economic lesson above supply and demand has led to the lower prices as retail sales in May were down 0.3% from April, retailers will likely drop prices in June to capture more sales. The reports on prices and sales are very mortgage market friendly.

Rates for Friday June 16, 2017: Given the sluggish economic growth and stagnant prices as a backdrop for the Fed increasing rates there has been a fundamental shift in what the Fed considers is important in determining rates. For decades the primary focus has been inflation as an indicator of economic activity and the primary gauge for the target rate for the Fed. For the past year plus the Fed has indicated that the labor markets will be a more important factor in determining rates and this was proved out on Wednesday when the Fed faced with slumping prices increase rates stating the primary reason is strengthening labor markets.  Looking ahead we will see investors begin to price in the next anticipated Fed rate increase in the next several weeks, as such in the medium term we should see an increase in mortgage rates. There should not be a tremendous increase but somewhat of an increase. Rates run their streak of flatness to their fourth week in a row.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%             Flat

30 year high-balance conforming                        3.875%           Flat

30 year FHA                                                      3.25%            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.

A lot of people have Alice Cooper’s classic song for summer running through their heads this week as School’s Out for Summer. I told the girls the other day that I won’t see them in the morning until early September with one or two exceptions given our different natural sleep habits.

At this point summer seems infinite to them and other K-12 kids, and in two and a half months they will be telling us how short summer seemed.

Have a great week,

Dennis

 

Weekly Rate & Market Update 6-9-17

Question of the week:  When should we release our loan and other contingencies from our purchase contract?

Answer: Never**

For new buyers, or those entering the market in the future, as part of your offer to purchase a new home you will ask the seller to provide you the opportunity to cancel the transaction and have your deposit returned if certain contingencies are not met. The big three for most transactions are your offer is contingent upon your obtaining loan approval, contingent upon the appraisal report having sufficient value and conditions for the transaction, and contingent upon your having the property inspected by someone of your choice for defects and/or material issues with the structure(s) and property that will or may cause costs to repair, remediate or cure in the future. The boiler-plate purchase contract used in almost all residential purchase transactions from the California Association of Realtors has a default 17 days for these contingencies to be met, by which time the buyer is to either remove the contingencies or issue notice to cancel—at which point the seller may agree to re-negotiate the transaction to preserve the deal; this usually happens due to a low appraisal or items discovered by the professional home inspector that need repair, replacement, etc.

**Why “never?”

It is the policy of our company to never tell a buyer to release their contingencies, especially the contingency for receiving loan approval. This is sound legal advice we have received and follow based on the many factors that may happen after a contingency is released that may prevent complete and final loan approval thereby putting Stratis Financial is potential jeopardy for any deposits or other costs for our client if we indicated they could remove the contingency.

This is a bit of a sticky subject, especially with the several hundred real estate professionals who read the Weekly Rate & Market Update. For every transaction when we get to the seventeen day mark in the transaction we are contacted by the buyer’s agent, and not infrequently the seller’s, asking if the buyer can remove the loan contingency.  What is our response?

Our response depends on where we are in the process. First, let’s address the arbitrary seventeen day contingency period for loan contingencies. No one in the lending industry is quite sure how the seventeen day period was determined to be the standard for a buyer to have loan approval. The seventeen days is from the date the buyer and seller agree to purchase price and terms and includes weekends and holidays. It is not from the date the buyer makes a formal application, so if they are communicating with several lenders and take a week to submit and application that lender now has ten days by which time they are expected to deliver an approval for the buyer to receive loan approval. The seventeen days does not take into consideration the buyer’s specific lending requirements that may create some delays in obtaining approval, do they have foreign income or funds, are they self-employed with complex tax returns, have they switched jobs, transferred funds between several accounts, do they need to have their credit scores increased, or any one of many other factors that can require more time to process and prepare for underwriting.

Granted these are items the buyer should be aware of and could start working on with their lender prior to writing an offer to minimize risk of losing their deposit once in escrow. There are however other factors that can impact the seventeen day period that many agents either seem not to be aware of or disregard, primarily what is the nature of the market at that time? Is the market extremely hot with very high volumes impacting the flow of files from application, through processing, loan submission and approval? Are there issues with access to the property due to tenants or uncooperative seller or unavailable agent? Are there title issues which the seller may or may not be aware of? We have had all these issues and more pop up in transactions and agent representing the seller or the buyer maintaining the seventeen day period is sacrosanct and they must either release the contingency or cancel the transaction—on more than a few such circumstances I have advised the buyer to cancel the transaction due to delays beyond their control and inevitably the seller, read: the listing agent, has backed down on their demands for contingency removal and extended the contingency period.

What does Stratis Financial reply when asked if the loan contingency can be removed? We reply with the status of the loan at that time: we initiated they file in most cases with Automated Underwriting System (AUS) from Fannie Mae or Freddie Mac and have received all, most or none of the information requested to support the AUS approval. If we have submitted the loan to underwriting we indicate that and if we have not received the initial approval with conditions yet when we expect to receive the approval. If we have received the approval we indicate what the conditions are that are required for final approval and whether any of the conditions create concerns as to ability to complete the approval process. Based on the information we can inform the buyer that we consider the file able to be approved should there be no material change in any of the information we have received.

Are we not saying that they can remove the loan contingency with this information? We are not saying the loan contingency can be removed due to the statement, “no material change.” In the past I have had a buyer lose their job between loan docs being issued and signed, I have had a lender pull a back-up credit report that showed new credit that created an issue with the buyer’s ability to qualify, I have had a buyer presented with a summary judgement altering child support and alimony payments impacting ability to qualify, I have had a buyer have to delay the sale of their home due to his buyer losing half of her down payment in Las Vegas the weekend before closing (one of my favorite stories of all time—worth a beer or other beverage to hear this one).

This does not include the non-buyer related delays I have faced including a death in the property between loan docs and funding, a truck driving through the front door just before loan docs, earthquake delaying all closings until inspections could be made to satisfy lender the property is sound and flooding caused by El Nino.

There are many issues that can impact a real estate transaction any of which can occur between the removal of loan contingencies and closing, many of which are beyond the control of the buyer. In many cases, most actually, as long as the agents and seller are aware of what is happening on the file and the factors involved any delays needing an extension of the contingency period is understood and agreed upon. In most cases, almost all that I have been involved with, buyers have not lost deposits after removing loan contingencies due to cooperation between the parties involved to make the deal work and close. There have been a few cases however, usually because of an unprepared buyer, or one who did not provide all the necessary and material information needed for obtaining loan approval, where a deposit has been lost.

When should your remove your loan contingency? When you feel comfortable based on the information we have provided you as to the status of your loan in the approval process that we will be able to get through underwriting, obtain loan documents and fund your mortgage. Ideally this information can be provided to you during the standard seventeen day contingency period, but not always and if this is the case by keeping the agents informed as to our status through the process we can generally assist with an extension to protect your deposit until you feel secure in releasing your contingency

Have a question? Ask me!


Was there any economic, or other news this week? Yesterday’s Congressional testimony by former FBI Director James Comey has sucked all other news out of most of the national consciousness, not just yesterday and today but starting Monday as the media dedicating their resources waiting for the testimony. As it happens there was no economic news that had any significant impact on rates.

Rates for Friday June 9, 2017: There is plenty of non-economic news that could impact mortgage rates favorably, the circus in Washington, the election results in Great Britain, the ultimatums to Qatar from other Middle Eastern nations. However investors are not making any moves in any markets, as a result rates are flat once again this week from the week prior. There is little on the horizon that should snap rates out of their current range and stability.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%             Flat

30 year high-balance conforming                        3.875%           Flat

30 year FHA                                                      3.25%            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.

It looks like a wonderful late spring weekend in Southern California, perfect for gardening and outdoor chores as well as getting some practice in for the summer barbecue season!

Have a great week,

Dennis

Weekly Rate & Market Update 6-2-17

Question of the week:  Do you think home prices will fall in the near future; are we in another housing bubble?

Answer: Many of the “question of the week” inquiries come up several times in a short period of time from different areas of my life, this week’s question is no different. From a lunch meeting with a real estate agent, to conversation with client thinking about selling her current home and buying a new one, to breakfast conversation with my mom’s cousin, people are wondering with the increase in home prices the past several years if real estate prices will continue to increase, or are in danger of collapsing.

The root of the question is of course the housing bubble burst that caused real estate prices across the country to fall from their peak in 2006 to their lows in 2012. Prior to the price collapse prices rose at first steadily and then dramatically. Fueled by a combination of low interest rates and the availability of mortgages from all sources, especially Fannie Mae and Freddie Mac that required essentially no documentation of ability to repay the mortgages, home prices surged beyond sustainability. Once some borrowers began missing payments causing more scrutiny of outstanding mortgages the price increases slowed, stopped and then reversed. After dropping slowly at first starting in 2006, by 2008 markets saw prices drop at historic rates.

The current market is similar in many respects to the market from 2001 to 2006. During that six year run the national median home price increased from $170,000 to $250,000—a 47% climb in the median price. From 2012 to May 1, 2017 the national median sales price increased from $220,000 to $320,000—a 45% climb in median price.

Just looking at the very large and quick climb in median prices the supposition is that the market parallels are such that we should be ready to experience a sharp and prolonged decline in market prices. That might be true if the reason for the home price increases were the same. They are not.

Our current housing market also has very low interest rates making homeownership more affordable. Our current housing market is supported by low unemployment, just as the 2001 to 2006 market was for much of the price increase.

There are a couple of very strong factors to the current housing market supporting the increase in prices. First, people qualify for the mortgages they are using to finance their purchases. Long gone are the non-qualifying mortgages that were used to finance millions of homes across the country—especially those using conforming (Fannie Mae/Freddie Mac) financing which is approximately 65% of mortgage financing.  Because lending standards reverted to those used historically until the early 2000’s there is no price inflation caused by buyers purchasing more than they can afford.

Second, buyers have a financial stake in their home. Not only was the early 2000’s housing price bubble caused by low rates and no-qualifying loans, it was also fueled by the lack of need for down payment. A significant number of purchases across the country were completed with no-money down transactions where buyers would get a 1st and a 2nd mortgage to cover 100% of the purchase price. With none of their own money in the home and suddenly seeing their home is upside down with a large mortgage payment there was no financial risk in walking away.

Third, the housing crisis and subsequent loss of housing has had an impact on the mindset of the average American, to the extent we now have clients who were in high school or college when they parents lost their home and they do not want to have that happen to themselves.

Fourth, and very importantly, an overwhelming majority of the mortgages being financed in the past several years have been fixed rate mortgages at very low interest rates. This removes future uncertainty for housing costs if a homebuyer hits a rough patch.

I am not saying the current housing market will never undergo some type of a price correction at some point—all market do. When will there be a correction, how big of a correction and how long will the correction market last are the questions that are of interest.

If/when there is a correction I believe it will be driven mostly by employment, or rather unemployment. When our current economic cycle ends and we have our next recession the impact it will have on employment will determine when our real estate market will also have a correction, or reversal in price increases. The length and depth of the recession will determine the length and depth of any drop in market prices.

Because of the overall strength of the average homebuyer I do not feel that any market correction will be deep or long lasting. We may see a prolonged period with very little or no growth in prices, but as for sharp decline in prices I do not foresee a major correction occurring in the next cycle because of the down payment investment from homebuyers and the fixed rate financing on their home.

The statistics on the current market prices are very similar to the housing bubble that burst starting in 2006, however the underlying factors are extremely different. The strength of our housing market today is qualified well employed buyers purchasing a home for the long term as opposed to underqualified buyers leveraging into properties with the purpose of making money as prices climb.

Were I in the market for a new home I would not let the possibility of a contraction in home prices in the short or medium future deter me from pursuing the purchase of a new home. I would not know when that would occur, so prices can climb into the correction. I would not know how much of a correction may occur, it could be only enough to put prices where they are today. Nor would I know how long such a corrective market would last, so I may miss the next “bottom” and end up paying more. Finally, I do not know what rates will be when the market corrects.

In summary by trying to time a market correction I could end up paying more for my home in price and interest rate than if I purchased today.

Have a question? Ask me!


Confidence remains high for consumers across the country. For the sixth straight month the Conference  Board’s consumer confidence survey has a very strong reading. Although the index is lower than April and March, that is not a surprise since they were the two best months for the confidence index through the economic expansion which began in June 2009. As I have been writing recently, there has been a disconnect between consumer confidence and consumer spending and retail sales. Perhaps May will be the month to break out of the lackluster spending from the very confident consumers. A strong, especially a consistently strong, consumer confidence index should be negative for interest rates.

Jobs data for May is interesting. Today’s data from the Labor Department shows an incredibly low 4.3% unemployment rate, down from 4.4% in April and a gain of 138,000 jobs. The former number is well received, the latter is a disappointment to the expectations of 185,000 new jobs for the month. Also in the report was a downward revision of March and April job gains by 66,000 jobs. Drilling into the report we see that the participation rate declined from 62.9% of eligible workers to 62.7%. Wages continue to be stagnant, up only 0.2% in May and 2.5% from May of 2016, slightly ahead of inflation. Overall the report is not a bad employment report, in fact is shows a somewhat healthy but not strong job market, but missing expectations has many thinking the Fed may hold off on a rate hike this month. Overall the news is rate friendly due to the speculation that the lack of a strong job report gives strength to those on the Federal Reserve Open Market Committee who want to hold rates steady.

Rates for Friday June 2, 2017: Rates are softening a bit this week but hang onto last week’s numbers giving us three weeks in a row of flat rates, which is a good thing! Looking ahead we may see some movement with every little report as investors make bets as to whether the Fed will or won’t raise rates. For the most part a rate increase is priced into the market so there should not be any major change in rates.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%             Down 0.125%

30 year high-balance conforming                        3.875%           Down 0.125%

30 year FHA                                                      3.25%            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.

The calendar flips to June and our kids and their friends at school look at the longest two weeks of the year. As most parents know this is also the busiest time of year as every sport and activity wraps up with final games and performances. Tonight we will be doing something special with many other families. The music teacher at our middle school is retiring after over twenty years and past and present students and families are gathering for a good-bye/thank you party. We look forward to the alumni band playing as well as all stories about the success many have had in music through their lives, with a start from Ms. Norwick at Hughes Elementary.

To all the teachers, and the students, hang in there just nine days left!

Have a great week,

Dennis

 

Weekly Rate & Market Update 5-26-17

Question of the week:  Why is there no question this week?

Answer: I am a little pressed for time this morning as heading out on a road trip in a little bit with our oldest to look at some colleges in Northern California. Looking forward to spending three days with her as we do not get too many opportunities for prolonged one-on-one time with the kids.

Have a question? Ask me!


Last full week of the month brings some important data. Early in the week we learned that new and existing home sales were down in April from March. Existing home sales, which is of the highest interest in Southern California, were down 1.2% nationwide for the month, prices may have impacted the slow down as the national median price was up 3.3% from March and 6.0% from April of 2016. The news had no big impact on rates but does put upward pressure on rate.

Look some Fed news! Like saying “squirrel!” to a dog, saying “Fed news!” to an economist results in immediate attention. The minutes from the latest Federal Reserve Open Market Committee meeting revealed no increase in their short term interest rate, but that several members urged immediate action. Of great importance in the minutes was that the Fed is going to slowly start to unwind much of its $4.5 trillion ($4,500,000,000,000) balance sheet. Long time readers may remember waayyy back to 2008 when the Fed started buying mortgages and government bonds to provide liquidity and support the credit markets. This bloated the Fed’s assets and now it is time to put those assets back to the market. The sell-off, no matter how slow, will have an impact on interest rates and the economy as by selling its holding the Fed is taking liquidity out of the economy, and by selling rate bearing assets the prices of like instruments, i.e. other mortgages, will increase—when it comes to interest bearing investments as prices drop rates increase. I am uncertain as to how fast or soon the impact will be on rates for consumers, but any sale this large over a relatively short period of time (two, three years?) should put upward pressure on rates.

Our final item for the data-geeks was the first revision of 1st Quarter GDP. The initial GDP report for January through March showed the economy growing at a less than stellar 0.7%, the revision released this morning showed a bit more positive news of 1.2% growth. The news is a little negative for rates but no real impact today as most traders in New York have already left for the Hamptons for the long weekend leaving their minions in charge with the instructions, “don’t lose us any money.”

Rates for Friday May 26, 2017: Rates are flat from last Friday, not a lot of activity this week, and as mentioned above with the three day weekend looming traders are not taking any risks. Memorial Day weekend is the official summer kick-off and as we head into the summer buying season rates are fantastic and very stable over the past eight weeks.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%             Down 0.125%

30 year high-balance conforming                        3.875%           Down 0.125%

30 year FHA                                                      3.25%            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.

Enjoy the Memorial Day weekend. Known for the Indy 500, swimming pools being opened back East and the kick-off of barbecue season, let’s not forget the true purpose of the holiday and take time to give thanks for those who lost their lives defending our nation, its liberties and freedoms.

Have a great week,

Dennis

Weekly Rate & Market Update 5-19-17

Question of the week:  What steps should I take to protect myself following the datahacks this past week?

Answer: This is tangentially mortgage and real estate related as one of the major companies that was hacked was DocuSign. For those not familiar DocuSign is the primary technology used in the mortgage, real estate and financial services industries for consumers to “sign” applications, offers and counter offers and account paperwork electronically.

DocuSign is on the record that no documents were accessed by the hackers, however email addresses were accessed. As a result many people who have used DocuSign have received malicious emails with subjects: “Completed: docusign.com –Wire Transfer Instructions for recipient-name Document Ready for Signature” or “Completed *company name* -Accounting Invoice *number* Document Ready for Signature”. The DocuSign logo is in the header and body creating an illusion email is from DocuSign, if you click the link and download the Word document malware will enter your computer and go to work accessing information.

When you are working with a company that uses DocuSign, or other electronic enabled signing, cloud or storage services, do not open any links unless you have confirmed with the sender they have sent you the link for action. Essentially if you receive a generic email that does not address you specifically do not open it. This sounds like common sense in this day and age, however many people using DocuSign and other services are doing so and are not familiar with the protocols and processes of the service or the company with whom they are working. So verify, verify, verify before opening links on services that are new to you, and if you are a long time user be suspicious of anything not normal to your prior experience.

At this point DocuSign says that only people with DocuSign accounts, myself and Stratis Financial for example, however my concern is that in a few days or weeks we learn that the hackers were able to go a level deeper and access participants emails as well—hence my cautionary communication to everyone.

The international hacking last week shut down hospitals, financial companies and other industries around the world last week. One benefit of situations like this is they raise our awareness to be prepared and be wary—just like a minor earthquake locally or a major one not far away has us repacking our earthquake kits and replacing the five  year old canned food and kids’ shoes that are now three sizes too small.

I encourage everyone to click the links below and take some time for some computer and password maintenance. The first link is an article from CNET about 560 million passwords being exposed. A very good read to motivate you to spend some time cleaning up and changing passwords and user names and deleting old sites you no longer use.

The second link takes you to a site where you type in your email address and it will tell you if you have been breached and by scrolling down you can see what sites you many have been breached on. Think you are safe? One of the top 10 sites that has been breached in the past year is LinkedIn—do you have a LinkedIn account?

Click here for the CNET article.

Click here to see if your email has been used to breach passwords on a site you use.

Spend a few minutes and see if you have a potential issue or two—I did and discovered a few sites that I use and were hacked. I spent about ten to fifteen minutes going to my most frequently used sites, especially banking, financial, credit cards, and changed user names and passwords, easy-peasy.

Have a question? Ask me!


Words don’t have the power to hurt you. This is a fairly common saying, indicating that you choose if words will hurt you or not as they are just words. Well….this week words hurt a lot of people financially, and benefited some others. The war of words in Washington this week caused a big drop in equity markets—hurting investors, and a drop in Mortgage Backed Security (MBS) prices—assisting borrowers. There was no economic data or significant events, like an act of war or natural disaster, to cause the market moves, just words and speculation from politicians and members of the media. The net result was slightly favorable to mortgage rates as traditionally when stocks prices fall so do interest rates as investors flee the uncertainty of stocks for the certainty of bonds.

Rates for Friday May 19, 2017: The turmoil in Washington broke MBS prices out of their rut and we finish the week a bit lower than last Friday. Since the price change was not the result of data and events in the economy but rhetoric and politics I am not confident the lower rates will be long lasting and that we will float back up to the previous range.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.75%             Down 0.125%

30 year high-balance conforming                        3.875%           Down 0.125%

30 year FHA                                                      3.25%            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.

Hearing from agents in different markets that more inventory has been coming to market ahead of schools letting out for summer, and as a result a bit of a slow-down in offers being presented and multiple-offer situations. The information is anecdotal to these specific agents and what they are experiencing, however even with the small sample size it appears there could be an strong influx of new inventory on the market—meaning it is a great time to be in the market for your new home. Please call to go through your numbers and develop a strategy for you to purchase your new home!

Have a great week,

Dennis

 

Weekly Rate & Market Update 5-12-17

Question of the week:  We are buying a home that has just been completely remodeled/rebuilt, should we still get a home inspection?

Answer: YES!

In case my answer was a little vague, yes, get a home inspection if you are buying a home that has been recently completely remodeled or rebuilt, I almost want to say especially if buying a home that has had extensive work done recently. (Or a brand new home from a builder for that matter.)

Let’s quickly review the home inspection and its purpose for new home buyers who have not been through the buying process yet. Once you have an offer accepted to purchase your new home one of the conditions of sale you will most likely enact is the right to have a professional inspect the dwelling. The home inspector will spend quite a bit of time in, under, on and around the structure testing all the electrical, plumbing and HVAC systems, inspecting the structure and grounds for apparent water seepage or leaks. At the completion of the inspection you will be given a very comprehensive report that details the quality of condition of all the systems and aspect of your home and note any deficiencies, concerns or items you may wish to have further inspected by a specific professional. The purpose of the report is to notify you of any work that may need to be performed to eliminate a safety issue, ensure that a specific system is working, if anything is not to code, or is deferred maintenance you will want to keep an eye on for future repair or replacement.

Once you have the inspectors list you have the ability under your purchase contract to provide the seller with a list of repairs/replacements you want the seller to perform or you will not proceed with the sale. The seller can agree to the list, part of the list or none of the list of repairs. Essentially the inspection can create the opportunity for additional negotiations between the buyer and seller.

When you are buying an existing home there is a decent chance the inspector will come up with items that s/he recommends be corrected—after all their job is to find things wrong.  Once you have the report you and your agent can determine what items are very important, what items are “it would be nice if this was fixed…” and what items are not worth potentially upsetting the transaction over, i.e. cracked electrical switch face plates or hairline plaster cracks in 80 year old home.

Many buyers expectations are that if they are buying a home that is being advertised as completely remodeled/rebuilt that everything with the home should be in perfect working order, after all the seller just spent a lot of money repairing/replacing everything that was wrong with the home and put it on the market as “like new.”** A reasonable expectation and sometimes one that some sellers count on.

The newly remodeled/rebuilt home is pretty common on the market and is most likely a “flip.” A flip is when someone purchases a property that is in distress below market value due to its condition, rehabilitates the home and then puts the property back on the  market  as a complete remodel, or “like new.” The Flipper’s objective is to make money, hopefully a lot, by selling the home for more than the cost to acquire the property, pay the holding costs of the property between purchase and sale (i.e. any mortgage costs, insurance, taxes, utilities), the rehab costs and the costs of sale. The biggest variable in the cost-profit equation is the cost to rehabilitate the property.

It is not unusual, I will not it is common because there are plenty of Flippers in the market who do not do this but enough to make it not unusual, for a Flipper to put most of their rehab money into cosmetic repairs and maintenance, masking some serious issues that can only be found with an inspection.

A very recent example occurred this week with a buyer we are working with. He purchased a flip that looked fantastic with new paint inside and out, flooring, kitchen counters, cabinets, appliances, bathrooms completely redone with tubs, toilets and sinks. Perfectly staged with nice furniture, wall hangings, etc the place looked like it was in move in condition—and our buyer was ready to move in.

Not so fast. Wisely he understood while what he could see looked great, there was a lot he could not see so he hired a professional home inspector. The inspector’s report brought forth many deficiencies that the buyer would not have been aware of until he closed escrow and  moved in. The heater was not properly installed, the electrical system was fifty plus years old and unlikely to be able to handle modern appliances and constant loads with today’s electronics, many of the “fixes” the seller had done through the rehab were not up to code. Essentially the house looked great but underneath the cosmetics it wasn’t so great.

Our client drew up a list of repairs and items to be completed before he would close escrow. The sellers did not want to spend the money and said they would not do any of the requested repairs. Our client cancelled the escrow and will receive his deposit back from escrow. He is out the cost of the inspection, however he saved himself tens of thousands of future dollars by spending several hundred dollars on the inspection.

An interesting result for the sellers, should they follow real estate law and operate ethically, because they have been made aware of the issues brought forth by the inspector, should they not complete the repairs they are obligated under California law to disclose the issues to the next buyer as part of the Transfer Disclosure Statement that almost every seller must provide a buyer of a single family residence in California. If they do not disclose the deficiencies to the next buyer that buyer may have a case in the courts to seek damages after they close escrow.

**A very good friend of mine was an inspector in California for many years, and he was very, very thorough. He had several occasions when he inspected homes that were brand new and constructed as part of a tract of homes and discovered many deficiencies, items that were out of code and issues that would come up later as the homes aged. Just because they are brand new does not mean everything in the home is perfect and that the builder did not cut corners or the work performed was of a quality to last.

Every buyer of every home should engage a property inspector to provide an objective and clinical look at the property and structures so you can have a thorough understanding of the current and potential issues with the property.

The cliché for humans is that for someone their beauty is only skin deep, the same can be said for shiny looking, “like new” homes.

Have a question? Ask me!


The price is right….or is it? We have price data for April and it is good and not as good reflection the overall economy.  The Producer Price Index for April was pretty strong, especially after the drop in March, up 0.5% for the month and 2.5% for the year (0.4% and 1.9% stripping out food and energy, the “core” rate). This is a positive number and not real favorable to lower rates. What is favorable to rates is that the Consumer Price Index rose below expectations at 0.2% (better than last month’s drop of 0.3%) in April and 2.2% for the year (core rate 0.1% and 1.9%). This is weaker than expected and shows that retailers do not feel higher prices can be supported in the market. Overall the price indexes are choppy from March to April and from producers to consumers—a sign that our economy could be in transition.

Not showing a lot of support for economic strength were retail sales in April. After strong decline in sales from February to March the expectation in a strong economy would be a strong increase in sales from March to April. A 0.2% increase is not a “strong” increase, more of a “well its okay, not great, but okay” increase. As we have been writing about for the past several months, consumers are not putting a lot of gas on the economy. Prices remain low, wages are increasing and the number of people collecting regular paychecks is increase, but there has not been a translation to cash registers with consumers spending those wages. As regular readers know consumer spending is about 60-65% of our economy, slow consumer spending does not result in a strong and growing economy. Bad news for the economy is good news for rates, okay news for the economy is okay news for lower rates.

Rates for Friday May 12, 2017: For the third Friday in a row rates are unchanged, which we like. With the economic data the past several weeks it is hard to see any economic report that will come out to jolt rates out of their current range. If we saw really strong corporate earning reports that move the stock markets up we could shift rates up, or some international event of a catastrophic nature could shift them down. With the economy floating along there is not a lot of momentum, or sentiment, to cause a big rate shift.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:

30 year conforming                                            3.875%           Flat

30 year high-balance conforming                        4.00%             Flat

30 year FHA                                                      3.25%            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.

Happy Mother’s Day to all the moms! I was unfortunate to lose my mother while in high school, the silver lining, if there can be, is that throughout my life I have had the benefit of several great women who have filled in some way or another the “mom” role and I am very grateful for the support, guidance and love they have given.

I am even more grateful for the Mom in our home. As a sometimes bumbling dad with two teenage daughters I am so thankful that Leslie has the relationship she does with our kids, and is able to interpret to the guy in the house so I might closer to understanding the teenage female. I am very happy as well that the girls reflect the beauty, wit, wisdom and fun-loving spirit of their mom.

There are a lot of wonderful moms out there, not looking for accolades or rewards but getting them every day as they see how their children treat others and contribute to their communities. Thanks to all of you!

Happy Mom’s Day, and have a great week,

Dennis