Weekly Rate & Market Update 9-9-16
Question of the week: Why should I pay more than the seller is asking?
Answer: Because you want the home.
We are currently in a sellers’ market in most Southern California housing markets. Buyers are writing offers on homes and being told by their agents that there are multiple offers on the property, which could mean you and someone else offer or ten others with offers on the property. It is not unusual for us to send several pre-approval packages out for clients as they write offer after offer trying to get one accepted.
Which brings up the question of the week: why should you pay more than the seller is asking? In many markets that is what it takes to get your offer accepted.
Here are some common scenarios:
Seller has multiple offers and listing agent lets agents with buyers know. One, or more, of the offers comes in 2, 3, 5% over listed price from very well qualified buyer who has the funds to close the transaction even if appraisal comes in at original list price.
Seller has multiple offers and sends counter out to all qualified bidders to send in “best and final” offer. This leads to multiple offers over listed price from which the seller can choose that which is highest of the best qualified.
Seller has multiple offers and send counter offer out to one or two they like best for price over the list price. If buyer turns down counter then seller sends same counter to next buyer on their list.
This begs the question, if homes are going over list price why are sellers not listing their homes for higher prices to start? Because they would get fewer offers and less competition is one reason. Home in neighborhood that prices out very solidly at $500,000—recent sales of $495,000, $505,000, $490,000. Agent puts house on market for $499,999 and five or so offers come in. Buyers up their offers and house enters escrow at $510,000. This is a real scenario that we had a buyer go through last week and was the “winner” of the bidding.
Why should I pay more than the seller is asking, that does not sound like much of a deal. Let’s take the scenario above where our client paid $10,000, or 2%, over the seller’s asking price. First, we anticipate the appraisal to come in very close to the sales price, meaning an independent valuation determines the price paid is market price. Second, if property values average 2% growth in the neighborhood for the next ten years the home will be worth approximately $620,000, your gross profit is $110,000. Does that seem like a good “deal” to you?
“But if I had bought it for $500,000 then I my profit would be $120,000.” Yes, “if” you bought it for that price but you could not buy the property for $500,000 as it took $510,000 to buy it.
A “deal” in the current market may be buying a home, while it may be higher than what the seller was asking, it is probably less then what it will be worth in the future.
The Weekly Rate & Market Update of August 8th touched a little on the issue of future value and the potential cost of waiting to buy. The reasoning in August also applies to our question of the week in September.
If you are in a market with multiple offers on every home for sale that is in your price range, neighborhoods you desire and condition you are willing to accept then be prepared to outbid your competition, which may mean buying your new home for more the list price when it went to market.
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Not a lot of data this week to move interest rates. Mortgage Backed Securities (MBS) spent the early part of the week drifting up (higher price = lower rates, for those who missed my series on how mortgages work go to my blog page and read entries for last four weeks, 8/12, 8/19, 8/26 and 9/2). Yesterday afternoon and through this morning however we saw a reversal and MBS prices started falling (lower price = higher rates).
The primary causes for the decline in MBS prices are demand in bond market and Fed officials speaking. the Japanese taking a break from buying U.S. Treasuries ( lower demand leads to lower prices, lower prices = higher rates) and some speculating that other foreign nations may also slow their purchase of our debt. This morning one of the Federal Reserve bigwigs said in a speech that he thinks there is no reason the Fed should not raise its discount rate later this month, causing investors to quickly sell off bonds, including their MBS holdings, anticipating a rate bump. Later another voter for the rate hikes said there is no reason to raise the rate and the markets calmed down. The markets are not moving on data it seems but on speeches, this means the market is in flux and could be ready to break out of the nice steady range we have had for the past three months and begin to trend higher. “Could be…”
Rates for Friday September 9, 2016: The drop in MBS prices yesterday and today puts prices at the bottom of the trading range we have enjoyed for the past three months causing conforming rate to go up a bit from last Friday. After seven weeks in a row of flat rates it is not surprising we finally see a change, nor that the change is to the higher.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS
30 year conforming 3.375% Up 0.125%
30 year high-balance conforming 3.50% Flat
30 year FHA 3.00% *** Flat
30 year FHA high-balance 3.25% *** 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. ***FHA rates have may have no points and credit towards closing costs, changes daily.
It is hard to believe that it has been fifteen years since the tragic events of 9/11 that changed our country, and world, forever. I am torn annually when the anniversary of the terror attacks are front and center in the news. On the one hand I do not want to remember how I felt that morning standing in our kitchen watching the news. Leslie was watching with me as the first tower collapsed and her emotional reaction was so deep I was concerned for our baby as she was several months pregnant at the time while at the same time horrified by what I was watching.
On the other hand I know we need to revisit that day to not only remember those who lost their lives in the attacks and immediate aftermath, and subsequently the many first responders who died from effects of their responding, but also to stay reminded that unfortunately evil still exists in the world and there are those who wish to destroy us for our freedom and the liberties we all enjoy on a daily basis.
Growing up I remember knowing it was Pearl Harbor Day every December 7th, but it never really resonated with me as I did not experience it. My grandchildren may have the same reaction to 9/11, and I am hopeful that they do and that they never have to experience their own national tragedy as we have.
This year 9/11 falls on the Sunday that is will be the first game of the NFL season for almost all of the teams and stadiums will be full of cheering fans. Those cheering fans gathered together show those who would bring us harm that we are winning in the war of good versus evil and will continue to win.
Have a great week,
Dennis
