Why Are Interest Rates So Low and What Does it Mean to Me?

Unasked2 copy Whether you are thinking of buying or already own a home the current historically low interest rates may help you save thousands of dollars.

Rates in the last week have averaged the lowest point since records were first kept over 30 years ago. Refinancing today may help you save hundreds of dollars in monthly interest payments but even more important are the long term savings.

Rates are low right now because the financial crisis in Europe is driving the appetite for U.S. bonds which in turn raises the price and lowers the yield (interest) payment. And since mortgage rates roughly track the 10 Year Treasury Bond you can see where rates are headed and why. Rates are the lowest they’ve been–period.

If you think about the past 30 year trend of interest rates, which have averaged around 9%, it’s easy to guesstimate that the odds are good rates will be higher in the future rather than lower. What does that mean to you? If you are considering a purchase it means that there are two ways to look at it: if you buy a home at today’s rates either your monthly payment will be substantially lower or you can buy a considerably larger home for the same amount of money. In fact a payment on a $1,000,000 home ($800,000 loan) would be around $4,234 per month as opposed to $6,437 at the average historic 9% rate. But that doesn’t even begin to tell the whole story.

Not everyone stays in their home for Fhfb_contract_rate30 years but this offers up a substantial savings in interest payments. Most people aren’t aware of the long term costs of home ownership so you’ll be interested to note that at today’s rate your total interest payments over 30 years would total $725,000 and at the historical 9% rate it would be as high as $1,517,000–over double the interest payment for the same home. What could you do with an extra $793,000?

Perhaps rates will never be as high as they were back in the late 70’s and early 80’s but rates have still averaged 6.7% over the last 15 years during a time of historically low rates.

Case-shiller MSANow combine this with the recent decrease in home values and it’s hard to argue that waiting to buy a home will significantly benefit you.

Case-Shiller study finds Bay Area Home Prices up 11.9% in February 2010

 Case-Shiller released their report on repeat sales pairs for the 20 major MSA’s (Metropolitan Statistical Areas) across the country.Arrow ride San Francisco faired rather well, climbing 11.9% over last year in February. Phoenix lost another 1.64% but faired far better than Tampa Bay, which sank another 6% over last year.

No doubt many of these areas saw sales figures buoyed by the Federal Tax stimulus plan that rebates first time home buyers up to $8,000 and resale buyers up to $6,500. Additionally, the shifting of the majority of sales from lower priced homes to a more even mix has helped raise the median price point substantially.

Mid Peninsula Housing Trends–2009

What happened in 2009 and what might be in store for 2010?

THE PAST2010 Key

The median price in San Mateo County ended the year at $678,750 which is a dramatic drop from 2008’s year-end median price of $795,000. It continued to drop precipitously throughout the beginning of 2009, though it appears that January of 2009 was its lowest level when the median price reached $553,750—the median price has not been that low since 2000.

It wasn’t until April of 2009 that the median price reached the $600,000’s and the last four month have seen small but steady increases culminating in December’s median price of $750,000. But don’t read too much into these increases. Much of the median price increase is a result of larger homes selling do to the low interest rates and higher conforming limits.

Belmont and much of the mid-peninsula were less affected by the declines. The median price in Belmont dropped from $920,000 in 2008 to $833,725 in 2009 (9.4%). There are several factors which contributed to mid-peninsula cities faring better in declining markets.

THE BACK STORY

Beginning around 2001, many first time buyers entered the market with very little cash and qualified for adjustable teaser rate loans at an artificially low interest rate. Zero down financing meant that that if prices were to drop, they’d be in a negative equity position, making it impossible to refinance out of their adjustable loan. When the banks allowed people to qualify for a loan based at the artificially low teaser rate, when rates adjusted many could no longer make the minimum payment. Without the ability to refinance into a new loan, they were forced into foreclosure.

There are far fewer entry level homes in many of the mid-peninsula communities (Redwood City excepted). Therefore, these cities were spared the bulk of the foreclosures and resulting price declines. Furthermore, many people in these communities have ample equity from previous home sales and were able to refinance, or sit on the sidelines and avoid a distress sale.

THE FUTURE

We won’t pretend to have a crystal ball, so we’re not going out on a limb to try and predict the future. The real estate landscape has changed dramatically in the last several years and how it will shake out is anyone’s guess. But what we imagine could be a probability is that in 2010 will see much more of the same. We expect the record number of foreclosures which have been temporarily withheld from the market to be released and continue to put downward pressure on prices—especially in areas which have yet to be affected. Interest rates are sure to climb above their historical low levels making the cost of home ownership rise. This could easily offset any momentum which could otherwise spur normal home sales. Investors will continue to snap up good deals on distressed properties causing the number of sales to increase, but the median price to decrease, or stay flat. In fact, we wouldn’t be surprised to see a period of flat home prices for many years before any appreciable increase. People will first have to return to the job market before they will consider buying a home. Frustratingly, home sales have a huge effect on creating jobs so it’s easy to see why the government wants so desperately to have people buy a home (and extended the $8,000 tax credit). Once more people are being hired than fired consumer confidence will begin to slowly return. Folks will invariably reenter the housing market but at a less frenetic pace. Lasting memories of the “Great Recession” will haunt many homebuyers; and with higher interest rates and the days of easy money gone, it will be harder for prices to climb at rates seen in the first decade of the new millennium.

Don’t forget you can always check out the stats for a city near you on our web page.

HOUSING REFORM-2009 Panacea or Panic?

The news is full of housing reform stores but the shelf life for reform legislation seems shorter than that of freshly baked bread—what made the news just yesterday is often obsolete by today.Congress

We expect 2009 to be a turbulent time in real estate. Knowing how to weather the storm is paramount to the survival of homeownership.

Key Elements

President Obama signed a $787 billion stimulus bill which includes many features to protect homeownership.

These are a few of the incentives targeted to help 4-5 million responsible homeowners stay in their homes:

\\· Provide access to low cost refinancing where borrowers who have less than the required 80% loan-to-value could refinance to lower their monthly payment.

· Seventy-five billion will be spent on homeowner stability initiatives to help struggling homeowners who, because of the recession, are hard pressed to make their mortgage payments and cannot afford to sell or refinance their home due to a drop in value.

· No aide to speculators. The initiative has no provision for assisting investors or speculators.

· Provide support for homeowners who are at imminent risk of default before they miss a payment.

· Provide loan modifications to bring monthly payments to sustainable levels.

· â€Pay For Success”—Initiative for loan servicers to receive $1,000 per month each month a borrow stays current on their loan.

· â€œHelp Borrowers Stay Current”—Provides a $1,000 per month reduction in a home owners’ principle loan balance for five years if the borrower keeps their payments current.

· â€œReaching Borrowers Early”—An incentive of $500 to loan servicers and $1,500 to mortgage holders if they modify at-risk loans before the borrow falls behind.

· â€œHome Price Decline Reserve Payments”—Holders of mortgages modified under the program would be eligible for an additional insurance payment (from a newly formed entity under the Treasury Department) on each modified loan to offset declines in the home price index.

There are quite a few more initiatives to help homeowners. Though many do not apply to the majority of the loans on the Peninsula since they are not held by Fannie Mae or Freddie Mac.

Lenders Are Worried.

Recently, many lenders have been modifying loans without incentives just to keep their head above water. However in contrast to the President's incentive plans, many banks require the homeowner to be months behind in payments before any relief is possible.

â–ºIf your mortgage is scheduled for an interest rate increase which you feel you may not be able to afford, we encourage you to contact your mortgage holder immediately and see if they will modify your  existing loan. It’s in everybody's best interest if homeowners can continue to make their monthly payments, even if it takes a loan modification to make it happen.

 

Belmont’s Beautiful Mountain Blog Revisited

 

In 2008 we began several new series on our blog site. Most of our content centered around the turbulent real estate market on the Peninsula, but we also endeavored to comment about the market in general and small town happenings in Belmont.

Some of our posts simply required too much time away from the business of selling homes, and we’ve decided to eliminate a few of those.

What we will be discontinuing is the weekly update of new listings and sales. Rather, we encourage you now to subscribe to our automated system for getting listing alerts in real time—including new listings and recent sales; we just felt that we were being a little redundant and this trade-off will allow us more time to concentrate on our business.

You can still count on getting a monthly wrap-up of homes that have sold. We feature Belmont home sales in detail on this blog site and you can always get surrounding cities and the entire San Mateo county stats at our MorganHomes.com web site under “How’s the Market”; we also implemented the Fusion style graphs that are more interactive and interesting.

We’ll continue to add occasional posts in our series “Frequently Unasked Questions” Unasked3 whenever we stumble across an issue we think you should know about, and probably don’t.

 

The Podcasts we began in 2008 will still be around when we want to discuss the market in general and we hope that you continue to stay tuned to those.Podcast

We think this more focused and succinct blog format will help our readers get the real estate information they want, and know that they can rely on our regular posts whicht have attracted the most readership.

Thanks for being patient as we enjoy an exciting 2009.

Real Estate re-cap–2008

Before we wrote this year’s forecast, we went back and re-read our assessment of where the market might be headed in 2008. Graphs

 

Of course very few people could have predicted that the dire real estate woes would drag the entire economy to the brink of collapse and we were no better than most.

 

However, for your enjoyment we’ve clipped a segment out of our 2008 market forecast made on January 4th 2008—and highlighted some of our more interesting comments:

 

“This is precisely why the Peninsula should fare better than other areas [in 2008]”.

 â€œHowever, it’s entirely possible we are on a precipice which could collapse at any time. What is [currently] impacting the Peninsula is the rising cost of energy—especially gasoline.”

“What could have an incalculable impact would be a prolonged recession and loss of local jobs; either of these would undoubtedly bring a decrease in home values to the Peninsula”.

In 2008, Investors eventually began to snap up undervalued properties in the central valley and a few of the nine bay area counties which were hard hit by foreclosures. This had the desired effect of liquidating the tidal wave of inventory but the undesirable effect of sinking the reported median price by skewing the sales mix to smaller homes (since smaller homes and distressed properties sell for less). The media meanwhile continued its relentless reporting of the falling median home price without appreciable application of responsible journalism. Bombarded by the media’s lack of analysis, invariably many buyers were frightened by the reports of falling home values and quite reasonably and expectedly took a “wait and see” attitude. That’s not to say the media’s information was wrong, but they do choose what to report and what to leave out and in many cases they reported numbers without the necessary perspective leading many to believe the housing situation to be far worse than it was in some areas, and far better than it was in others.

Although clearly there were several other factors which inhibited the ability of people to purchase homes—not the least of which was tighter lending standards and higher interest rates—our intrinsic evidence suggests that most credit worthy buyers on the Peninsula withheld from purchasing a home based on the fear of values spiraling down, not because they wanted to wait and “time the absolute market bottom” or couldn't get a loan.

 

Market Update-11.24.2008

Drew & Christine Morgan



 


Housing Update–November 2008

(650) 508-1441


dmorgan@morganhomes.com


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San Mateo County continues to out performed many of the nine bay area counties but a protracted deep recession could change all that.


Join us for our Podcast series now available at BeautifulMountainBlog.org


 












 


We’re very excited to bring you a new animated version of our graphs depicting the various housing market trends in San Mateo County and the cities which lie within.


Each month we download data from our Multiple Listing Service and analyze the market indicators. We provide this in-depth analysis for several of the many cities we serve on the Peninsula.


We’ve also added short audio tags to describe what we are depicting and help put the information in perspective.


Another feature will be our “Weekly Graph”. We’re not saying it will change each week but when an interesting trend develops you’ll find it under that tab.


We hope you’ll take a moment to check out our new graphical interface on our “How’s the Market?” link and give us some feedback.













Belmont Week in Review–November 1, 2008

Driving  This is an abbreviated version of our recap for the last week’s activity in Belmont because it’s been a busy week and I’m beat. That and not much transpired in Belmont real estate.

30 year mortgage rates on jumbo loans underwent a huge increase as money previously available to Fanny and Freddie Mac became more expensive.

And if you’re shopping for a home right now don’t forget, lenders are not taking applications for loans qualifying for the $729,750 conforming rate cap after December 1, 2008 of THIS year. Better lock down a home if you want favorable rates before then. Here’s an article we did that discussed the housing reform bill’s elements that apply to our market which explains the cost of getting non-conforming loan instead.

How’s this for a slow time of year—there were NO new listings last week—a first as I can remember.

One home went into pending status—our listing at 2825 Hallmark Drive. No we can’t tell you what it sold for until it closes—scheduled for December 16th 2008.

SOLD

These four homes closed escrow last week:

↓2105 Cipriani 4 Bed 3.5 Bath 2320 Square foot home LISTED for $ 1,199,000, lowered to $1,159,000 and SOLD for $1,057,500 two weeks after it was lowered.

↓80 Edgewood Place—3 Bed 2.5 Bath 2,030 ATTACHED home LISTED for $998,000 and SOLD for $970,000 in 25 Days.

↔512 Alameda de las Pulgas—2 Bed 1 Bath 1,230 Sq. Ft. home LISTED for $804,000 and SOLD for $804,000 in 37 days. This home needed a LOT of work but it was on a 9,375 Sq. Ft. lot.

↑1980 Alden Street—3 Bed 1 Bath 1,260 Sq. Ft. home LISTED for $799,000 and SOLD for $815,000 in 18 days with two offers.

This information is for entertainment purposes only and includes no legal, accounting or real estate advice nor is this intended to be specific to your situation-always consult a specialist who is familiar with the details of your situation. Homes sold do not necessarily represent homes sold by Drew & Christine Morgan.

Belmont’s Beautiful Weather

It was really neat to meet our Belmont neighbors at our open house on Hallmark Drive yesterday–thanks to all who stopped by. We had an amazing turn-out and the weather couldn’t have been more cooperative. Incidentally we did a survey at the open house where we asked our guests if they thought the home was a good value. Overwhelming, but not the least bit surprisingly, potential buyers gave lower scores for value than homeowners in the area–propagating the theory that sellers always view their home as worth more than a potential buyer.

The many nice compliments on our blog and web page were also appreciated. I had no idea so many of you read our blog and it inspires me to keep it up. Feel free to comment on anything you read too because it gives me a sense that there’s a real-time audience out there.

So the story of the day is about the last of the nice weather for awhile. We had an unusually warm October with 70+ degree evenings ‘til midnight. For those of you new to Belmont, September and October are getting to be our best months of the year. I say getting to be because my anecdotal evidence is my memory going back 40 years when I distinctly remember September being rather cool and October downright cold.

This graph looks at what is referred to as “Cooling Degree Days”. Cooling degree-days are used to estimate the amount of heat that must be removed (through air-conditioning) to keep a structure comfortable. Heating and cooling degree-days are based on departures from a base temperature, typically 65ºF (18ºC).

One cooling degree–day is the amount of cooling required to keep a structure at 65ºF when the outside temperature remains one degree above the 65ºF threshold for 24 hours. One cooling degree–day is also the amount of cooling required to keep that structure at 65ºF when the temperature remains 24ºF above that 65º threshold for 1 hour.

So the bottom line is the more cooling degree days the warmer the month. Don’t forget when we have extreme weather storms this winter you can go to our live weather station located in Hallmark for current rain rate, or frost conditions.

 

Belmont Week in Review–Week Ending October 25th 2008

The media continues its relentless barrage of horror stories and down at ground zero people continue to go on with their lives buying and selling homes to fit a lifestyle, not a portfolio.

There are currently 56 Active listings for sale in Belmont down from 58 last week. The six new listings are typical for the last big push before the holidays and the seven homes that went into contract demonstrate the desire to nest before the winter.

NEW LISTINGS

Six new listing hit the market this last week and one of them was ours—we’ll dispense with that one first:

2824 Ext 500 sh  2824 Hallmark Drive, 4 Bed 3 Bath, 2430 Sq. Ft. home LISTED for $1,298,900. Admittedly we are biased about this home not only because it’s our own listing but because we are also neighbors. Hallmark can be a busy street during commute hours but this home backs up to 300+/- acres of the Belmont Canyon open space with hiking and biking trails right out its back door. The orientation of the home is to the rear (as with most Belmont Height's homes) and you can’t get a more relaxing and tranquil setting. What truly makes this home unique is the level rear yard AND awesome canyon (and peek-a-boo) Bay Views. LIsted by Drew & Christine Morgan

OPEN SUNDAY 10/26 from 1:30-4:30 stop by and say hi, Christine and I will be hosting the open house. Here's a cool video tour if you want to get an early glimpse…

2835 Alhambra Drive 4 Bed 2.5 Bath 2,710 Sq. Ft. home LISTED for $1,348,000.

This is the second home to have been listed in as many weeks. Alhambra is a great seclude dead-end street in the Belmont Canyon. This home has seen its share of turn over as we’ve seen it sell several times. This time though it has been updated and shows very well. There’s no level yard out back but it’s a neat home. OPEN SATURDAY & SUNDAY 10/25-26 1:00-4:00. Listed By Philip Watson, Prudential California Realty

3416 Beresford 4 Bed 2.5 Bath 1,810 Sq. Ft. home LISTED for $949,915. Another nice Bay view home and with it, a yard two stories below. OPEN SUNDAY 10/26 1:00-4:30

Listed By Jimmy Chen, Out of Area Office

2949 Monte Cresta 4 Bed 2 Bath 1,670 Sq. Ft. home LISTED for $899,000. Too new to review but it’s open Sunday 10/26 from 1:00-4:00 Listed By Katrin Kaukull, Century 21 Alliance

3901 Christian 3 Bed 2 Bath 1,660 Sq. Ft. home LISTED for $868,000. This is a home where a thousand pictures isn’t worth one word—bad location. Nice home, but bad location. It’s the end home next to Ralston Ave. and every single homeowner and their cars must drive by this home to get in and out of this enclave. OPEN SUNDAY 10/26 1:30-4:30 Listed By Ron J. Bonhagen Sr., Intero Real Estate Services

3414 Beresford 2 Bed 1 Bath 890 Sq. Ft. home LISTED for $649,000. This is a contractor’s special so don’t think you’re getting any real deal here. Be prepared, but if you want a good project it’s OPEN SUNDAY 10/26 from 2:00-4:00. Listed By Rosa De La Rosa, Regency Prime Properties Inc

PENDING SALES

Seven homes went pending last week which is a good sign of overall activity in Belmont’s housing market—more than half were over a million dollars.

SOLD

Monroe â†“ 2037 Monroe 5 Bed 4+ Bath 2436 Sq. Ft. LISTED for $1,199,000 SOLD for $1,167,000 in 68 Days—19 after it was reduced.

This was a very nice home but it was on a smaller lot (4,000 +/-Sq. Ft.). It was remodeled nicely and had Belmont Country Club Canyon views. It was originally listed for $1,279,000 back in August. In September it was lowered to $1,199,000 where it finally received an offer a month after being reduced.

Square footage and/or acreage information contained herein has been received from seller, existing reports, appraisals, public records and/or other sources deemed reliable. However, neither seller nor listing agent has verified this information. If this information is important to buyer in determining whether to buy or the purchase price, buyer should conduct buyer’s own investigation. Information deemed reliable but not guaratneed.

The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario. These homes were not necessarily listed or sold by Drew & Christine Morgan.