Month: June 2014

Housing market pundits have been all abuzz about the millennial age group after the U.S. Census reported that through 2013, the largest “age cohort” in the United States was 20 – 24, followed by 50 – 54, 25 – 29, and 30 – 34. Put differently, three of the four largest age group populations in the United States run from ages 20 – 34. (Calculated Risk )

Not so coincidentally, it is also the “millennial” age group (those born after 1982) that is a key reason for the changes in the housing market outlook. Though we have seen notable steps to recovery in the past several years – prices, values, and sales are all up – a lag in first-time buyer activity – just 27% compared to the historic 40% “norm” – has been cause for speculation and concern.

When we talk about millennials and changing demographics, these are the usual statistics that are listed:

– Millenials are delaying household formation.  According to a recent Pew report, 26% of people born after 1982 (Aged 18 – 32) are married… compared to 36% of Generation X at the same age and 48% of the Baby Boomer generation. (Pew Research Center)

– Millenials are opting to rent or live at home rather than purchase a new home.  During the downturn, more young people lived with their parents – 2.1 million adults in their 20s and 300,000 more adults in their 30s. (RealtyTrac). 

– Millenials are staying in school longer and taking on student debt. (HousingWire)

– Millenials are having a bit of trouble finding work. The recent U.S. recession slowed entrance to the workforce. Just 75.6% of U.S. citizens between the ages of 25 and 34 are employed. (CNBC)

All of these factors add up to a lower homeowners rate (37.9%) for the 25-34 age group than has been historically average. In 1980, the ownership for that age group was over 50%.

Now for the positive part. Just because millenials are deferring homeownership (and household formation) does not mean they are eschewing it. A recent study by the Harvard University’s Joint Center for Housing Studies projected 24 million new households will be formed by millenials between 2015 and 2025 (RealtyTrac).

But when the households form, will they be looking to purchase? RealtyTrac demographer Peter Francese thinks so (LINK):

“Despite their low rates of household formation there are now about 33 million Millennial households, and most of them are renters. In five years we conservatively project that there will be over 40 millennial Millenial households ages 25 to 44, and at least half of them will be homeowners.”

Francese argues that new household formation will account for 5 to 7 million more home sales. And as first-time buyers ramp up activity, property values will increase. Increased demand will spur construction and give incentive for existing owners to sell at lower ends of the price spectrum.

So how do you solve a problem like millenials? Just give them a little more time to grow up.

 

About Last Week…

First quarter GDP was revised downward, from -1.0 percent growth to -2.9 percent growth. Gross Domestic Product, which measures to sum of all goods and services produced, slowed partially due to weather, which weighed on consumption.

Merrill Lynch noted, “the downward revision owed to two primary factors: weaker consumer spending on healthcare and a wider trade deficit.” (Calculated Risk)

Consensus seems to be that the poor reading was a mix of seasonal factors and bad luck, and that the economy is stronger than the contraction would indicate.

Mortgage rates dipped notably as a result of the poor news. In the past seven days, the 30-year fixed has dipped about 0.750% of a point in cost, moving the APR on a 4.000% 30-year fixed from 4.173% APR to 4.109% APR. The lower rate is a nice little incentive to close sooner rather than later.

See our post HERE for a rundown of the downward movement.

Last week we wrote about the FHA 203k loan, which helps buyers purchase a home and renovate / improve it – all in one mortgage. For more information.

 

This Week…

Markets will be closed on Friday for the holiday. The big news that will impact mortgage rates will come on Thursday with the release of June employment statistics in the U.S.

 

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Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email info@centralcoastlending.com to set up a free pre qualification. We are The Mortgage Experts: ask us anything!

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About Last Week…

The Federal Reserve has downgraded growth expectations for the United States economy. Back in March, the Fed had expected 2014 growth for U.S. gross domestic product (GDP) to reach between 2.8% and 3.0% . Upon close of its meeting last week (June 18), the Fed downgraded expectations to between 2.1% and 2.3%.

Gross Domestic Product quantifies economic output by totaling the market value of all goods and services produced.

Despite the GDP downgrades – of which prolonged poor winter weather is partially to blame – Chairman Janet Yellen spoke optimistically about the future, citing improvements in employment and the housing market.

The Fed expects 2014 to end with an unemployment rate between 6% and 6.1%, and in the long run, a dip to the mid-5.00% level.

Of particular relevance for mortgage rates, the Federal Open Market Committee (FOMC), the Fed’s policy-setting wing, has continued to “taper” quantitative easing. The bond-buying stimulus program now calls for $35 billion in monthly purchases, including $15 billion per month in mortgage-backed securities (MBS). At peak, the Fed bought $40 billion in MBS per month, which had helped mortgage rates fall to record-low levels in late-2012.

As the Fed has extricated itself from U.S. Treasury bond and MBS markets, mortgage rates have increased, though perhaps not to the extent that some might have expected.

Elevated demand for U.S. bonds (including MBS), correlate to downward pressure on mortgage rates.  The Fed helped juice the housing market by guaranteeing such demand. As they have exited the market, investors have stepped in, buying into U.S. bond markets to find safety from the slowing U.S. economy, and geopolitical turmoil.

 

Also in the news last week…

Home construction activity fell in May. Housing starts fell 6.5 percent month-over-month, but was still 9.4% higher than the same time period in 2013. Permits for new developments actually fell 1.9% yearly.

Jobless claims dipped to 312,000 for the week ending June 14. Meanwhile, the manufacturing sector noted some good news: industrial production rose 0.6% in May.

 

This week…

It is a big week for economic data. Releases on existing home sales, new home sales, U.S. GDP, durable goods orders, jobless claims, and personal income and outlays will make headlines.

Mortgage rates have started at lower levels than they ended last week (see sidebar to the right). Pricing has dipped for the 30-year fixed 4.125% rate by 1/8 of a point.

[ATTENTION REALTORS: To provide your open house customized rate and loan scenarios for any property, email rylan@CentralCoastLending.com]

Stay tuned for our full 10 program rate update on Wednesday.

Any questions about home loans? We have the loan portfolio to meet the need of any client, and the expertise to make every closing simple and timely. Give us a call at 805.543.LOAN or an email at info@CentralCoastLending.com.

SLO County Real Estate: Home Sales and Prices

Through May of 2014, there have been 1,012 sales of single family homes in San Luis Obispo County for a median price of $480,000.

Last year through the same period of time, there were 1,101 sales for a median of $430,000.

The outlook for the real estate market continues to change. Through the first five months of 2013, “distressed” properties (short sales and foreclosures) accounted for 21% of listings. In 2014, distressed properties are just 6% of listings.

Though total sales have declined, sales of “normal” properties have increased 9.7% year-over-year, from 865 to 949. As normal sales increase, foreclosures decline, and supply re-enters the market, the housing market continues to near a healthy balance.

All data according to Keith Byrd’s aggregation of Scenic Coast MLS data.

 

SLO County Real Estate: Construction

The SLO County Department of Planning and Building keeps construction statistics for non-incorporated parts of the County. Though not a holistic measure of local construction activity, the statistics are broad enough to reflect general trends in the local housing market.

Through May of 2014, we have seen a slight uptick in construction activity year-over-year, as measured by application input and permits issued. Please see our graphs of construction activity below.

 

SLO County Real Estate: Mortgage Rates

Mortgage rates have  dipped in 2014, despite the Federal Reserve’s “tapering” of its stimulus program quantitative easing (QE).

The Fed enacted the bond purchase program to inject cash into the economy and lower borrowing costs. In September of 2012, the Fed added a monthly $40 billion mortgage-backed securities purchase to its existing $45 billion of bond purchases. The total purchase of $85 billion in bonds per month helped mortgage rates drop to record low levels.

In November of 2012, Freddie Mac measured the lowest-ever national average of the 30-year fixed, at 3.31%. Last week, Freddie Mac measured 4.20%.

One reason the 30-year fixed has jumped nearly 1.0% is that the Fed has started to “taper” QE by reducing monthly bond purchase. Interestingly enough, most of the jump in rates occurred prior to the “tapering” process, as markets anticipated the Fed’s exit from the market. Since the actual tapering program began, the opposite has happened – mortgage rates have dipped.

As housing market commentator Dan Green explains on his website The Mortgage Reports, “However, since the QE3 taper began, mortgage rates have managed to drop; the result of safe-haven buying and a smaller pool of available mortgage bonds. Investors are buying U.S. bonds at a faster pace than the Fed can exit the market.”

The Federal Open Market Committee – the policy setting wing of the Federal Reserve – will conclude its latest meeting on Wednesday, June 18. We would expect to see tapering continue at its current measured pace.

Turmoil oversees (most lately Iraq) continues to send investors to relative “safe havens” to put their money, so even as the Fed exits the market, investors are queuing up to take its place. Expect rates to remain near current levels.

Daniel Podesto, Central Coast Lending co-owner and co-host of Mortgage Matters radio on KVEC 920, had this to say about current lending conditions:

Rates are stable and remain historically low. A slow economic recovery continues to support low interest rates and hopefully the Federal Reserve Board agrees with that assessment when they meet shortly.  Rates have fallen about one quarter of a percentage point so far this year.

The low levels could “stimulate” the housing market, Nobel Prize-winning economist and home-price expert Robert Shiller said.  “These declines matter,” Shiller said in a CNBC interview. “People are watching interest rates.” Shiller’s remarks echo comments earlier this year from Federal Reserve Chairwoman Janet Yellen, who said that low rates “should serve as a stimulus to people coming back into the housing market.

We publish weekly updates of mortgage rates for 10 loan programs on our website. Click here for June 9 – June 13.  

 

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Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email info@centralcoastlending.com to set up a free pre qualification. We are The Mortgage Experts: ask us anything!

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Central Coast Lending allows borrowers to qualify for a mortgage with income represented by just one year of tax returns.

The loan qualification process requires documentation of income to gauge how large of a home loan the borrower can afford. In most cases, the borrower must submit two years of tax returns to determine the maximum loan qualification.

In situations where the borrower’s income spiked in the most recent year, the two-year standard might limit the loan amount that he or she can afford today.

In today’s market, that extra bit of affordability can make all of the difference.

 

One year… not worth the wait?

Mortgage Rates

Homeowners and buyers currently have a window of opportunity to grab a low mortgage rate, but that window won’t remain open forever.

The popular 30-year fixed mortgage rate reached its lowest level in seven months to begin June (2014), according to Freddie Mac’s weekly survey of United States lenders.

For its May 29 reading, Freddie’s 30-year national average was 4.12%, down from a 3-year high of 4.58% set in August of 2013. The all-time low was set at 3.31% in November of 2012.

By comparison, the 30-year fixed sat between 6.0% and 8.0% from 2000 and 2006.

Today, mortgage rate movement is dictated largely by the Federal Reserve’s stimulus program called Quantitative Easing (QE).

The Fed put significant downward pressure on interest rates with its monthly bond purchases, helping rates drop to their record low levels. The policy setting wing of the Fed (Federal Open Market Committee) has already enacted “tapering” – or reduction – of QE bond purchases. As the Fed continues to leave the bond market, rates will continue to rise.

 

Home Prices

The median price of single-family home listings in San Luis Obispo County has jumped 30% over the past 24 months to $480,000.

Every dollar counts. Central Coast Lending broker associate Bob Moss estimated that in the past 24 months, higher mortgage rates and home prices have reduced affordability by 35%. More specifically, a buyer would need to make 35% more to afford the median home at the national average of the 30-year fixed mortgage rate.

The median price remains 18% below the 2006 peak of $587,000, but prices will continue to rise – even as buying activity slows.

With mortgage rates and home prices poised to keep rising, now is a good time to buy.

 

Qualify With One Year of Returns

Central Coast Lending co-owner Daniel Podesto offers a convenient shorthand for estimating buying purchasing power.

“Roughly, for every $100,000 you borrow, your mortgage payment will be $500 per month,” said Podesto.
At a 50% debt-to-income ratio – the upper limit – a buyer would need to make $12,000 per year for every $100,000 borrowed assuming no other monthly liabilities.

Consider then: a $6,000 jump in income offers another $50,000 in purchasing power.

The bottom line is if all of our number play got confusing: moving from an income of $36,000 per year to $42,000 per year allows the borrower to move up from a loan of $300,000 to $350,000. This purchasing power makes a significant difference in today’s market.

[Click here to submit an online loan application or contact us to arrange a free consultation]

This situation applies for income that increases resulting from a promotion or raise, but more commonly we see qualification issues pertaining to self-employment, rental property, or farming. Consider these examples:

Situation 1: You are self-employed. Your business survived the recession, but your bottom line shrunk. As the economy has improved, your income has finally made significant, sustainable strides. Only problem: this growth only happened in the past 12 months.

Situation 2: Part of your income is derived from almond trees. After 30 years, your trees went dormant. You spent five years cultivating a new crop, and last year you finally started to see almond sales spring back.

Situation 3: Part of your income comes from a rental property. After a years worth of renovations, you are again able to rent your property out – and for a higher monthly rent.

In each situation above, the potential borrower is able to qualify for a loan based primarily on what they make now (and in the future), rather than two years ago.

Give us a call at 805.543.LOAN or an email at info@CentralCoastLending.com to learn more!

 

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Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email info@centralcoastlending.com to set up a free pre qualification. We are The Mortgage Experts: ask us anything!

About   ||   Mortgage FAQ   ||   Market Update Blog   ||   Radio Show   ||   Contact

Live the best of both worlds: a private lakefront country lifestyle full of natural wonders just minutes from city conveniences. You’ll find it at this immaculate and updated 2,654 sq. ft. home, situated on the neighborhood’s largest lot at 17,000 sq. ft. This 4-bedroom, 2-bath home has been completely renovated for turnkey convenience and a relaxed, comfortable lifestyle. Expansive windows, vaulted ceilings holding multiple skylights bring the beautiful park-like backyard into view, adjoined by Laguna Lake and framed by unobstructed views of Bishop’s Peak, Cerro San Luis and Cerro Ramualdo. During the day, be amazed by the multiple species of migratory birds soaring right in front of you. At night, be lulled to sleep with the soft distant sounds of horses and cows in the fields. Pick green apples, grapefruit, oranges, lemons and avocados. Or maybe just relax in the soothing massage of your 58-jet therapeutic jacuzzi tub. All this just minutes from shopping and downtown SLO.

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An Olympia, Washington resident lives in a house with an 84 square foot floor plan, which is about a Mini Cooper Coupe crossed with a standard couch (right).

Dee Williams uses solar power to cover her electricity use, while eschewing the use of running water. Nor does she use a refrigerator. Check out a profile of her home on Zillow including pictures!).

And speaking of the smaller side of life… Pickleball is gaining popularity on the Central Coast. Pickleball is racket sport with a play space that look very similar to a tennis court – only much smaller. Paso Robles has installed five new pickelball courts at Centennial Park. The game is good for all ages! (Paso Robles Daily News).

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All this about size, and we are really just talking perspective. Take mortgage rates, for example.

The 30-year fixed mortgage rate has retreated to its lowest level in 12 months, according to Freddie Mac’s weekly survey of lenders. At a national average of 4.12%, a 30-year fixed rate in the low-4.0% level would be a bargain for buyers who have sat on the fence while looking at a 30-year fixed in the mid-4.50s.

For qualified buyers willing to a pay 3/4 of a point in cost, Central Coast Lending is advertising a 30-year fixed rate at 4.000% (4.078% APR). The 15-year fixed has dropped to 3.000% (3.122% APR) for 5/8 of a point. For about one point in cost, we offer borrowers 3.375% (5.447% APR) for an FHA loan.

Despite all the drops, the average 30-year fixed is nearly 1.0% higher than the record 3.31% set in November of 2012. Size is all about perspective. Buyers with 30-year fixed in the 3.00% level had a historic opportunity. To them, today’s rates might seem high.

But let’s zoom out a bit. Rates have been relatively flat over the past 12 months:

Compared to the last 40-years of history, though, current rates are an amazing deal. See this graph of Freddie-reported 30-year fixed movement by Calculated Risk:

Sales activity reached a fever pitch in late-2012 and early-2013 due to the unique window of affordability offered by record low rates and bargain home prices.

Today, we hear quite a bit about the “slumping” housing market. Sales pace has slowed as: 1) mortgage rates have ticked higher, 2) inventory remains hard to find, and 3) lenders continue to maintain strict qualification standards.

Is there cause for concern? Well, let’s return to the perspective question. The 2001-2006 bubble years flowed with easy credit and skyrocketing prices. Today’s market is a different one. Competition is high for fewer properties, but on the bright side, 1) rates are much lower today, 2) loans are high quality and come in all shapes and sizes, 3) home prices are still below peak-bubble years.

A recent report by Black Knight Financial Services shows just how far we have come. Just 10% of borrowers are now “underwater” (owe more than their home is worth) compared to over 33% during the worst of the recession. Just 7.64% mortgage holders are delinquent or in foreclosure. In other words, today’s housing market is much more stable.

Give us a call at 805.543.LOAN or an email at info@CentralCoastLending for more information about mortgage finance, and to learn what you qualify for!