Month: July 2013

Outstanding Equestrian Residence in country club neighborhood. Custom one-story, 4,356 sq. ft., high-end home with separate guest house was built in 2002. The floor plan is open and flowing, featuring high vaulted ceilings, with the master suite and the remaining bedrooms on opposite wings; six garage bays. The property is gated and fenced. This home is ideal for a private equestrian retreat, with state-of-the-art horse facilities. The property features a custom-built 4,000 sq. ft. barn by Classic Equine, six 16′ x 16′ stalls, in addition to wash and grooming stalls, tack and feed rooms, a recreation room with half-bath. Dressage arena and exercise ring in a competition setting. Grass lawns connect the structures. This 4.8 acre parcel is a short walk to famed Cypress Ridge golf course. The owners have $2.4 million invested. Must walk property to appreciate. Phenomenal!

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When the Federal Open Market Committee met in June, mortgage rates rose 1% in the aftermath, thus raising concerns about harming the real estate market recovery. What is likely to happen this time?

When the FOMC policy meeting concludes this Wednesday (July 31), financial markets will look for any news about the future of quantitative easing, the Fed’s bond-buying economic stimulus program. Even a vague mutter about “tapering” could cause another bond sell-off and more significant mortgage rate movement (for the worse).

If the FOMC gives any kind of strong indication that it will continue with QE as currently constructed through 2013 and beyond, we would expect rates to drop.

After the last meeting, Federal Reserve Chairman Ben Bernanke said that the FOMC would consider reducing QE when the economy showed enough improvement. Even such a bland statement caused rampant speculation that QE would be wound down by the end of 2013 (read more here).

Since the late-June, early-July fireworks, markets have calmed. Mortgage rates have remained at a higher level, though they eased slightly lower during the previous three weeks.

Also this week, second quarter GDP data, July employment data,  and the S&P Case-Shiller home price index will be released. Manufacturing and factory data comes out as well.

The busy week started with the National Association of Realty showing that pending home sales fell slightly from May to June. The index fell 0.4% on the month, though this was from a six-year high Rising rates may have contributed to the fall, as has constrained inventory.

Mortgage rates have remained mostly unchanged from Friday. You can see the most recent update here.

We will be tracking the big data releases this week and updating mortgage rates as they move. Check in with our mortgage rate tracker later in the week here.

The National Association of Realtors (NAR) has reported that the pace of sales for existing homes sales fell by 1.2% in June. The 5.08 million result was well below the market expectation for 5.27 million, prompting concern that higher mortgage rates are beginning to negatively impact the housing market.

Mortgage rates have jumped by about 1% since the mid-June Federal Open Market Committee meeting prompted investors to sell off Treasury bonds and causing rates to spike.

Investors reacted to Federal Reserve Chairman Ben Bernanke’s press conference, seemingly nervous that the Fed would reduce (a.k.a taper) their $85 billion per month stimulus program called “quantitative easing” (QE).

It was QE that helped rates drop in the first place, and as investors left the market, bond yields rose and rates followed. (Read more about the events here).

About one month has passed since that initial spike, and Wall Street Journal writer Nick Timiraos recommends waiting another month before judging sales data.

Today’s home sales report reflects homes under contract before rates really began to rise. Wait 1 more month to pass judgment on rate impact

— Nick Timiraos (@NickTimiraos) July 22, 2013

Jed Kolko pointed out that the drop in sales comes in part as foreclosure and short sale activity has declined.

Existing home sales +15% YoY, but excluding foreclosures & shorts, home sales +32% YoY. Big swing from distressed to conventional.

— Jed Kolko (@JedKolko) July 22, 2013

Even as month-over-month data is down, over the previous year existing sales are up 15.2%. Meanwhile, prices continue to make significant, double digit gains.

Though the year-over-year data remains positive as we wait for additional monthly data, a few simple calculations suggest that higher rates pose a real danger to the housing market recovery.

Central Coast Lending owner Jason Grote walks us through the process.

“Matt” wants to buy a house. Matt will pay 10% down, and has a debt-to-income ratio (DTI) of 44%, which is the upper qualifying range for home loans. Debt-to-income shows what a borrower can afford given his/her income.

• With a 3.375% mortgage rate, Matt can qualify for a $400,000 house.
• With a 4.375% mortgage rate, Matt can qualify for a $365,000 house.
• With a 5.375% mortgage rate, Matt can qualify for a $335,000 house.

The first scenario represents where we came from in May, the second where we are now, and the third where we could be going if unfettered gains continue.

Higher rates reduce what borrowers can afford, simple as that. With affordability in danger, demand will drop and home price gains will slow. The recovery will lose a great deal of momentum.

“Rapid interest rates jumps could take the wind out of the sales of the housing recovery,” said Grote.

Grote points out that if rates continue to rise, the Fed may need to jump back into action.

“I am a little disappointed, because the Fed spent trillions on keeping mortgage rates down and when Bernanke made what what felt like misinterpreted, if not errant comments, rates spiked by a point,” said Grote. “All they have done is try to talk their way out of it. If rates don’t ease up, I think the Fed may actually increase quantitative easing to prevent hurting the fragile housing market recovery.”

This week, rates continue to inch back down. Since the July 5 spike, we have seen about three weeks of price drops, though they are still roughly 1% higher than in May.

Track mortgage rate movement on the CCL Rate Tracker every Monday, Wednesday, and Friday. For the most recent rate update (July 22), see HERE.

I needed a travel trailer towed from Pismo Beach (A-RV Storage) to Oxnard yesterday, so I had it towed by SoCal Delivery Service. I found Steve Britland on www.uship.com and can’t say enough positive things. He went above and beyond my expectations. Photos were taken before and afterwards, everything was double checked before he started towing, and he dropped it off safely. He is also really friendly and made me feel confident about his towing knowledge and ability.

If you are looking for someone great, call Steve! 714-305-6947

He tows in Southern California, and is based around Orange, CA www.socaldeliveryservice.com

-Tanya Knowles

On its July 11 calculation, Freddie Mac estimates that the national average of the 30-year fixed rose to 4.51%. On June 13, the average was 3.93% and on May 9, it was 3.42%.

As rates rise, mortgage application activity has tailed off. Refinance applications have dropped by over 50% over the past two months, according to MarketWatch, who cites a Mortgage Bankers Association report.

Applications to purchase a home have also dropped, but by a much smaller 9%.

We will see how the housing market continues to adjust to higher rates in the coming months, but early returns suggests that progress continues.

Through 251 single-family residential home sales in June, the San Luis Obispo County median home sales price rose 2.75% from May to $458,000. Year-over-year, the median sales price has jumped 15.9%. All data according to Keith Byrd’s real estate dashboards.

Foreclosure activity has continued to significantly drop in 2013. According to RealtyTrac, in June 2013, pre-foreclosures were down 11.8% from May, and auctions (-15.6%) and bank repossessions (-16.7%) also fell. Year-over-year, the data is even more stark: pre-foreclosures (-69.8%), auctions (-73.0%), and bank repossessions (-77.3%) are all much lower.

Across the nation, foreclosures are down 27% over the past year.

Perhaps the best news for the housing market, though, comes courtesy of a Forbes study. It is still much more financially advantageous to buy a house rather than rent. Forbes estimates that it would take a 10.5% mortgage rate for renting to be more affordable.

The rental market exploded in the wake of the housing bubble. For people looking to buy, the combination of low rates (historically) and discounted home prices (2003 level) makes housing a cheaper investment.

Even with 5% mortgage rates, Forbes estimates that buying is 34% cheaper than renting. Read the full report HERE.

As for mortgage rates this week, we saw little change. Rates are slightly lower across the board. Track rate movement for 10 loan programs HERE.

The real estate market seems to have stabilized  and you’re feeling confident that home prices are rising. However, last year California Association of Realtors – C.A.R. published a report that 30% of California mortgages were still under water, which explains why we’re experiencing low home inventory.   Yes, home prices have risen so more people can list their homes for sale – but for how much?  To understand the market, where to price your home, staging, marketing, and market trends, contact us for access to “sold reports” and listing information.  Please click the link: Selling a House, Don’t Over Price it  for additional information.