Inflation, Inflation, inflation means the Fed Has to Raise Rates.  – What can you do to afford a house in rising interest rate environment?

Mortgage rates and the 10-year Treasury yield have been going higher in 2018 because of inflation, higher wage growth, strong economic signs and strong earnings for corporations.

The Fed has been raising interest rates with four forecast for 2018, with the possibility of a fifth on the way too. Many people who are in the real estate and mortgage markets are advising you to buy a home now before rates and prices rise further, and inflation causes home prices to go up too.

But another way to look at it is like this: Higher rates make homes less affordable for many people. If homes are not as affordable, that could hurt demand, which can cause prices to drop. This is a different way to look at buying homes in a rising interest rate and inflating market.

There is no question that the housing market has recovered from the last downturn and we will see inflation. Since 2009, the stock market is up more than 200%, and the housing market is seeing an average of 7% price growth across the county. Unemployment is near 4% in 2018.

rate hikeThat is why the Federal Reserve has been raising rates. It wants to keep inflation down while keeping unemployment as close to full employment as it can. The Federal Reserve accomplishes this through monetary policy – mostly by raising and lowering interest rates, printing greenbacks and purchasing bonds. Overall the Fed has done a good job since the 2008 crash, but inflation was inevitable when the markets recovered.

If you are thinking about buying a home and worry about inflation raising prices, don’t worry too much. Most of the inflation we are talking about in this country is in the 1-3% annual clip. It is when we see inflation of 5-10% that people start to have serious problems affording homes, gas, groceries, and savings and investments lose purchasing power.

The Federal Reserve has been raising rates and causing mortgage interest rates to rise to keep inflation from going crazy. The Fed knows it needs to get ahead of inflation because by the time it is here, it is too late for the Fed to do anything effective because there is a delay in the effectiveness of a new monetary policy. Higher interest rates slow down the desire to borrow money and that reduces the production pace, investing and job growth. The rate of inflation eventually will drop.

Some experts say what the Fed would like to do if it could would be to have 2% inflation and 5% unemployment forever. That is the general goal.

As rates are rising, and inflation is higher than it was in a down economy, it is important to remember that higher interest rates and inflation are signs of a strong economy. A strong economy is the most important factor to determine the price you pay for a home. If the unemployment rate in your area is dropping and people’s wages are rising, this means home prices will continue to go up even if rates are going up. If people feel relatively flush with cash in a strong economy, they generally weather higher interest rates and inflation.

The bottom line is that inflation and higher interest rates are here. If you want to buy a home soon, hopefully you have been getting more work and rising wages like a lot of people. These factors will make it easier to buy a home. If your wages have not risen as much as you like, there is a possibility of picking up more work. The economy is strong and it is possible to get another part time job or to pick up more hours.

 

References: https://www.financialsamurai.com/should-i-buy-a-home-in-a-rising-interest-rate-environment/

remove pmi

Easy Steps to Make Your Monthly PMI Payment Disappear

Did you buy a home with less than a 20% down payment? Then you probably are familiar with private mortgage insurance, or PMI (if you have an FHA loan, you know it by mortgage insurance premium or MIP). Mortgage insurance is usually required on loans with less than a 20% down payment.

It is necessary because lenders will not take on the risk of lending that much money with a low-down payment unless they are assured they will be reimbursed if you default. Mortgage insurance reimburses the lender if you stop making your mortgage payments. PMI is an annoying extra cost each month on top of your mortgage, and it is great to get rid of it if you can.

Below are ways to eliminate PMI or MIP that you can try.

PMI Removal Steps

To get rid of your monthly PMI payment, you are required to have at least 20% equity in your home with a conventional mortgage backed by Fannie Mae or Freddie Mac. You can write a letter to the mortgage lender when you have reached 20% equity and ask them to remove your mortgage insurance. This may be possible when you have paid down your mortgage balance to 80% of the original appraised value of the home.

Also, in these times of rising property values in 2018, it is possible that appreciation could cause you to reach 20% equity faster than just through paying your mortgage on time. You may want to order a new appraisal on the property if you think that your home value has gone up significantly. You can get an idea by looking at the sold prices in the past year for similar homes in your neighborhood. Also, if your property tax assessment went up substantially in the past year or two, you may have reached 20% equity faster than you thought.

When you write a letter to your conventional mortgage lender, you will need to ask them to remove the PMI payment because you believe you have reached 20% equity. You will need to provide proof that the home value supports your request, such as with a recent appraisal report. Or, you can refer to your original amortization schedule to show that you have paid down the mortgage so that you have 20% equity.

The mortgage lender generally will drop the PMI requirement when you reach 20% equity and make a written request. But do not assume they will do so automatically! Some lenders will drag their feet and hope you continue to make PMI payments after you reach 20% equity. However, recent federal law changes do require conventional lenders to drop your PMI requirement when your loan balance has reached 78%. To get the payment dropped, you will need to have made your mortgage payments on time for at least the past year.

MIP Removal Steps

Unfortunately, if you have an FHA lien that was underwritten after early June 2013, your mortgage insurance requirement is for the life of the loan, UNLESS you made at least a 10% down payment. In this case, you can have your mortgage insurance cancelled after 11 years. This is a recent change to FHA rules that was enacted because the emergency fund for FHA to tap in case of mortgage defaults had gotten below the legislatively mandated minimum amount, so the MIP requirement was made permanent for most borrowers.

If you think it sounds unfair to be paying mortgage insurance when you have 50% equity, we agree with you. Who is going to default on a mortgage when they have possibly hundreds of thousands of dollars of equity in their home? Virtually no one.

So, if you have an FHA mortgage and have above 20% equity, it is highly recommended that you refinance your FHA loan and move into a conventional loan. But you need to have a good enough credit score to do so. Plus, if you have an FHA loan that was approved in 2016 or 2017 for example, you are probably enjoying a much lower interest rate than you can get in 2018 or beyond. You will need to run the numbers to determine if you can save more money by cancelling PMI and moving into a possibly higher interest rate with a refinance into a conventional loan.

Whether you have a conventional or FHA-insured loan, you can speed up your ability to cancel mortgage insurance by prepaying on your loan; even an extra $50 per month will mean a serious drop in your balance over the years. Also, consider remodeling, which can add substantial value to your home. Then ask your lender to recalculate your loan to value to see if you have gotten to the magic 20% equity mark.

 

References: https://www.foxbusiness.com/features/how-to-dump-pmi-asap

2018 Tax Deduction Changes for Home Buyers and Homeowners – Is Buying a House Still Worth It?

The summer home buying season in 2018 is in full swing, with rising prices and interest rates encouraging many buyers to get the deal done before the cost of buying a home rises even further.

But the landscape for buying a home from a tax deduction standpoint has changed a good deal since last year. Congress has reduced some of the tax incentives to buy and keep a home of your own. But don’t worry: For many Americans, it is still better to buy a home than rent over the long haul.

You Should Know What Home Buyer Tax Deductions Are Available to You Before You Purchase a House.

The new tax laws passed by Congress have doubled the standard deduction to $24,000 for married couples, and has capped state and local tax deductions to $10,000. These changes will limit the tax deduction incentives to buy a home rather than renting. Zillow has estimated that homeowners who are taking tax deductions and listing mortgage interest as a deduction will drop from 44% to 14%. You also cannot write off the interest on many home equity loans and lines of credit today, unless you are using it for home improvements. Further, you only can deduct mortgage interest on debt on a home from $750,000 and below.

These changes in tax laws have reduced the tax advantages of buying a home, but evidence continues to suggest that buying generally beats renting.

Economists believe the tax law changes will reduce the number of purchase offers enough to drop home prices by approximately 4% in some of the more expensive cities, but the data does not show this yet.

Mortgage Interest Tax Deductions

Learn How to Maximize Mortgage Interest Tax Deductions

Tax law changes were laid out in December 2017, and we currently have resale pricing data available through February 2018. In the top 20 cities of the country, year over year price hikes were about the same or even higher than a year ago. This was especially the case in more expensive markets such as San Francisco, Los Angeles, San Diego and New York City.

The majority of home buyers have more disposable income to make their mortgage payments. In their weekly take home pay, a higher standard deduction provides them compensation for not taking property tax and interest deductions. And lower rates overall will actually increase the buying power of many taxpayers.

In hotter markets such as New York City, foreign buyers who often come in and pay cash to park wealth in the US, have played a major part in hiking prices. US personal income tax laws have little to do with this.

In June 2018, the Freddie Mac average for a fixed rate, 30-year mortgage is about 4.7%, which is up from the 4% range a year ago. For a $300k mortgage, this will add about $150 per month to your payments. But keep in mind that landlords are paying more to get loans for their apartment buildings and that affects rents.

How long you plan to stay in your home will also affect whether you want to buy or rent, regardless of the tax law changes. Closing costs, realtor fees and so forth raise the cost of owning a home, even if you can roll the costs into the mortgage.

For example, if you were to buy a home with a 30-year mortgage, 4.6% interest rate and a 20% down payment, if you occupied the home for at least four years, owning would still beat renting even if you cannot take the mortgage interest deduction anymore.

Families might decide to continue to rent and invest the down payment in stocks. From 2000 to 2017, equities measured by the Standard and Poor’s Index were up an average of 5.3% per year. But appreciation in homes in the top 20 markets in the last several years have shown approximately 6% increases each year.

There is also tougher zoning around major cities where the big employers are, and rising costs of materials and slower home building is making single family housing stock lower than in past times. As more young buyers are starting to get into the market, it is a good bet that continued home appreciation with continue to beat the stock market average. This is another argument for buying a home over renting, even without the previous tax incentives as enticing. Homeowners also have their fully equity working for them and not just the down payment.

While it is true you are not able to write off as many expenses as before as a home owner, there are still major advantages to buying over renting, especially in a growing economy with rising home prices and interest rates, and higher demand for homes. It is expected that home prices and rates will continue to rise, making home owners somewhat sitting in the cat bird’s seat, especially if they bought several years ago when rates and prices where much lower.

 

 

 

References: https://www.marketwatch.com/story/even-with-mortgage-rates-up-buying-instead-of-renting-makes-sense-for-many-2018-05-29 and https://www.whitehouse.gov/sites/whitehouse.gov/files/images/Effects%20of%20Changes%20to%20the%20Mortgage%20Interest%20Deduction%20FINAL.pdf

 

deep staate

How the Deep State and Its Criminal Behavior Affects Consumer Confidence and the Overall US Economy

For the most part during the Trump era, consumer confidence has been very high. The May 2018 Consumer Confidence Index read 128 and was 135.6 in April. The assessments by consumers of current economic conditions has been improving a lot this year as there are better attitudes about business conditions. This is after a report of 127 from March and 130 in February, which was the highest Consumer Confidence Index seen in 18 years.

Experts say that the consumer assessment of current economic conditions has increased to a record high, which tells us that economic growth levels in Q2 is very likely have improved from Q1. Consumers also have been slightly more positive about the shorter-term outlook in May even though there is a small decline in the percentage of those surveyed who anticipate business conditions to improve over six months. Overall, consumer confidence levels are quite high and they should continue to support solid spending by the consumer in the near term.

On the housing side, things are also looking bright from the consumers’ perspective. The Fannie Mae Home Purchase Sentiment Index increased .6 points in May to 92.3, which is an all time high in the survey for the second month in a row. But consumer attitudes about buying or selling a home are diverging somewhat. The number of respondents who say it is a good time to sell a home did increase to 46%, it is up 14% from the previous year. But the net share who said now is a good time to buy dropped to 28% and this showed little improvement from the previous year. The total share of consumers who said home prices will rise in the next year was unchanged at 49%. Americans also have reported more job confidence this past May with a boost in household income over the last year.

But the National Housing Survey results also indicated that the consumer share who expect their financial situation personally to improve in the next year dropped six points to 48%.

Some experts wonder how the Deep State that Trump talks about so much might affect consumer confidence and the economy. It is speculative at this point. However, it is real that a deep state of sorts is in the US and it does include national security and economic bureaucrats who can use secretly collected information to affect the actions of our elected officials. The deep state can in some ways be a threat to democracy and a savior of it, depending upon the situation.

The Deep State has gotten the blame for a lot of things since Trump took office. But if you look just on the intelligence bureaucracies that include the FBI, NSA and NSC, there is evidence that the deep state secretly gathered information illegally to sabotage the president and some of his senior officials. This might be part of a concerted effort of by people more or less acting on their own.

Since Trump took office, sensitive intelligence leaks came out that were made to discredit him and his top leadership. They have continued to poor from both current and former officials in the government.

Even the harshest critics of the Trump administration should be concerned about some of the leaking that has been going on about matters that are usually only known at the highest level of government. The national security bureaucracy is set up to defend the national interests and people of America. If it is weakened, the security of the American people is at stake. And if enough people become concerned about the security and viability of our government and country, this can cause a drop-in consumer confidence and economic activity.

It is very important to the economic health of the country for people to have faith in our major political institutions, so hopefully, some of these Deep State leaks that have been occurring in the first half of the Trump presidency will end soon.

Everyone wants the American economy to continue to do well, add jobs and have more people buy homes, after all.

 

 

References: https://www.theguardian.com/commentisfree/2018/apr/22/leaks-trump-deep-state-fbi-cia-michael-flynn And https://www.cnbc.com/2018/05/29/consumer-confidence-may.html

 

 

appraiser tips

What to Make Sure Your Appraiser Knows When They Come to Inspect Your House

So, you want to sell your home or refinance? Then you probably need to have an appraisal. You know how great your home is, but your appraiser needs to know it too, so you get the best possible value. A licensed professional appraisal is generally necessary if you want to refinance so the lender knows the house is worth what they think. It also is a good idea to spring for an appraisal when you sell your home, so you really know how much to sell it for.

There is no need to stress out when you are going to have your home appraised. But if you prepare for your appraisal beforehand, you will probably get a better price. Here are some tips to keep in mind when you are going to have your house appraised:

Tell Appraiser About Improvements

When your appraiser first comes to your home, you should sit down with him for a few minutes and tell him about any improvements you have made on the property. It can be helpful to give him a written list. Mention any rooms that have been renovated, windows replaced, AC system upgraded, new roof or bathroom, etc. All of these items are very important for increasing the value of your home.

Many home experts say the best renovations in terms of adding value are new windows, and an upgraded kitchen and bathroom. Keep this in mind if you are thinking about doing upgrades before your appraisal.

Update Easy to Replace Materials

There are many easy to upgrade things in the home that you can do yourself or with minimal help that can increase the value. Upgrade old countertops, paint walls and cupboards and replace carpet or flooring. Upgrading flooring can be surprisingly inexpensive. Also consider replacing the front door; this is an easy upgrade that is easy to do and adds value.

Of course, tell your appraiser about any of these simple upgrades you made.

Keep the $500 Rule in Mind

Things in the home that need to be updated or corrected, such as broken tile or doors, old wallpaper or an outdate bathtub, usually will take $500 off the value of the home for each item. Generally, you can assume that every negative the appraiser sees will take off $500. If he sees a lot of these items, you can lose thousands in home value. You should try to fix any problems immediately that would cost you less than $500 to repair.

Look at Your Yard

First impressions do really matter, especially on the front of the home. Keep the grass mowed, remove any dead tree limbs and shrubs, and remove all clutter from the front and back yard. Also, weed flowerbeds and add mulch where you need it. Houses that have higher curb appeal always get a higher appraisal.

Tell your appraiser about any upgrades you made to the lawn and landscaping, such as trees and flowers and shrubs.

Research Other Homes Around You

Take a look at homes that sold recently in your area. What were some of the problems that may have been encountered during their appraisal? Many of these things are in the public record, but you can also talk to your neighbors. They could help you to figure out some home improvements that you should consider getting a better appraisal. Remember that many homes in the same neighborhood were built at the same time by the same builder, so they could have common features and problems.

Clean

Completely clean the home from top to bottom before the appraiser arrives. Wash down walls and doors, shampoo carpets, clear clutter, power-wash the driveway and deck, and the exterior of the house if you can. A clean home will always look newer and more attractive to potential buyers and the appraiser.

Spruce Up

Nothing is better than a new coat of paint on a tired, old looking room, and it does not cost much. Install new doorknobs and faucets – these are also inexpensive upgrades that can make a big difference. Outdated décor can really have a negative effect on your appraisal and upgrading them will not cost you much at all.

Check Safety Equipment

All smoke and carbon monoxide alarms should be fully functioning.

The bottom line on an appraisal is there are many things you can do to increase the value of your home without spending a bundle. But any major upgrades you have made should be pointed out immediately to your home appraiser. Communicate everything that you have updated on the home as soon as the appraiser arrives, so he keeps that in mind throughout the entire appraisal process.

us real estate markets

Top 7 Real Estate Markets for 2019

Everyone likes to predict things but determining what is going to happen in real estate is always challenging. Realtor.com recently gave it a try and predicted that the following markets in the US should experience robust growth this year.

#1 Las Vegas

Sin City was hit hard by the real estate crash, but the economy here is expected to grow by nearly 9% in 2018. This is compared with 6.4% for the other top 100 markets. This means there will be a lot of people moving in and looking for a home. It is expected the median sales price in Las Vegas will be $285,000.

A major factor in the growth of Las Vegas is the relatively low cost of living and its proximity to California. Many people are tired of the high cost of living on the West Coast and are moving to Las Vegas. With many new residents coming into town and the return of previous buyers who lost their homes in foreclosure, homes that are properly priced in nice neighborhoods are moving fast.

#2 Dallas TX

This oil and tech town is booming as many companies are moving here from higher tax states, expanding and opening up in the Texas market. Companies are drawn to Texas by the very low taxes, including no corporate income tax, and the low cost of living.

For example, Toyota recently moved its HQ to Plano near Dallas, and asked 4,000 employees from other parts of the country to come as well.

The median home sale price is $339,000 and sales growth is expected at 6% this year. Housing experts here say most of these houses that are sold are newly built and builders cannot keep pace.

Others say that some houses in the $250,000 to $350,000 may experience a drop in price this year as they may have become overpriced.

#3 Deltona FL

Deltona’s great location, between Orlando and Daytona Beach, is a major attraction. In fact, many people work in Orlando and drive home to Deltona, where prices are lower. The median home price inside the city limits is only $159,000, while in the entire Deltona metro area it is $275,000.

The city was hit hard by the last recession, but it has made it most of the way back. The area economy is expected to grow by 8% this year and employment will increase by nearly 3%.

Real estate investors helped to boost the market when prices dropped in 2009. Now many of the rentals they refurbished are hitting the market.

#4 Stockton CA

Stockton has a lot of crime, so it does not have the best reputation. But it is becoming more popular because of the low cost of living. It is possible to buy a home in Stockton for under $300,000 which is less than a quarter of what you pay in San Francisco for the same property. Many people in the Bay Area who were priced out of the market move to Stockton and discover they can buy a fixer upper for $250,000.

Some say that Stockton has seen a major revitalization in the past five years; major historic buildings are being brought back to live, and new neighborhoods are being built. The area has been aided by its proximity to the Lodi vineyards.

#5 Lakeland FL

Like Deltona, the major attraction of Lakeland is its excellent location. It is only 40 minutes east of Tampa and an hour from Orlando to the south. It makes it a desirable place to live for commuters who want to save money.

The median price for homes here is in the low $200,000s and sales growth is predicted at 3% for the next year. Inside city limits, it is possible to find a home for under $200,000. The county also has several down payment assistance programs for qualified buyers. This is giving the local real estate market a lift.

#6 Salt Lake City UT

Salt Lake City has become hot in the past three years with a median home price of $360,000 and predicted sales growth of 4.6%. Buyers inside city limits are seeing offers on their homes 25% above asking price. Many people are tired of high taxes and high cost of living, and also long commutes. So they are relocating to downtown Salt Lake City.

#7 Charlotte NC

Just like Dallas, much of the boom in the real estate market here is thanks to many people moving in from out of state. Many people move in to relocate for work. Charlotte is now a major financial hub for the south. Others are moving in to retire and find attraction in the low cost of living.

The median home price here is $325,000 and sales growth is predicted at 6% for the year.

 

 

References: https://www.realtor.com/news/trends/top-housing-markets-of-2018/

 

maxine waters

5 Reasons Why Maxine Waters is Right About FHA and Mortgage Insurance

Perhaps the current FHA requirement for mortgage insurance (MIP) for the life of most FHA loans could be a thing of the past, if Rep. Maxine Waters has her way. The California Democrat recently proposed a bill in the House of Representatives that would repeal the life of loan standard for FHA mortgage insurance. It would reinstate the past policy of requiring loan holders to pay until the principal balance is 78% of the original loan value. That is the standard currently for conventional loans.

FHA changed the policy in 2013 as an effort to improve the financial health of the Mutual Mortgage Insurance Fund that is the flagship fund for FHA. The Federal Housing Administration needed a nearly $2 billion bailout in 2013 because of a shortfall in that fund. Since that time, the fund has seen four straight years of growth and exceeded its mandated financial target set by Congress for the last two years.

Now that the MMI Fund is on better financial footing, Waters wants to eliminate the policy to keep mortgage insurance for the life of the loan.

Cutting this policy, which requires FHA mortgage holders to keep mortgage insurance for the entire loan life, is a big change that many in the housing and mortgage business have wanted for years. Waters stated that families that choose FHA financing should not be required to have expensive mortgage premiums for the life of their FHA loan. The bill would remove this requirement and would make FHA mortgages more affordable for many American families.

The president of the National Association of Realtors, William Brown, agrees with Waters’ assessment. He stated in late 2017 that lower income Americans often want to get an FHA mortgage, but policies such as life of the loan MIP make it more difficult for borrowers to afford the loan. He also said that mortgage insurance for life encourages people with a lot of equity to refinance to a conventional loan after they have 20% equity in their homes. This is a missed opportunity to boost the strength of the FHA program.

We support the bill that Waters has sponsored and hope it is passed soon so people can cancel their MIP once they have 20% equity in their home.

Below are some of the reasons we support Maxine Waters on this mortgage bill:

#1 Cost of MIP

Private mortgage insurance is expensive, and FHA loan holders are among those least able to afford it. MIP can cost as much as 1% of the loan amount on a yearly basis. This means for a $100,000 loan, you could pay $1000 per year, which is $83 per month. It can easily be $200 per month for many homes in the US in the $200,000 range. Two hundred dollars per month is a lot of money for people with a lower income!

#2 May Not Be Tax Deductible

As of 2017, PMI and MIP were tax deductible, but this is only true if the adjusted gross income for the borrower is under $109,000. This means that many families with two incomes will be left out. The ability to deduct mortgage insurance costs from your taxes is due to a special tax law that has been extended every year for years. But it is unknown if this will continue.

#3 Heirs Get Zero

When most homeowners hear about insurance, they think that their family will get something if they die. This is not true with mortgage insurance. The mortgage company is the only beneficiary if you die. The proceeds will be paid to the lender. If you want to protect your family so they have money if you die, you have to have a life insurance policy. Do not think that your mortgage insurance will help anyone other than the lender.

#4 Throwing Money Away

Paying mortgage insurance for the entire life of the loan is crazy. If you were able to take that money and invest it into a mutual fund with deferred tax obligations, such as in an IRA, you easily could have hundreds of thousands of dollars after 20 years.

#5 Cannot Be Cancelled

It is simply unfair that MIP on FHA loans cannot be cancelled at all, but you can do so if you are paying PMI on a conventional loan. This is essentially discriminatory against people with lower incomes who get an FHA loan.

The only way that you can ever cancel MIP on an FHA loan for loans issues after mid 2013 is to put down 10% or more. In those cases, you can cancel your loan after you have paid on time for 11 years. So even when you put down well more than the minimum of 3.5%, you can only cancel after 11 years!

Maxine Waters in the News

In April, Rep. Maxine Waters introduced a bill aimed at reducing the burdens of homeowners that have FHA mortgage insurance. The GOP in Congress and the Trump Admin did not take up her bill, but this was another example, of Waters once again fighting for American homeowners.

On Monday, June 18, 2018, Rep. Maxine Waters introduced a bill to increase homeowner protections to prevent foreclosure. She is the ranking Democrat on the House Financial Services Committee, and Waters has made reforming the FHA and FHFA a few of her missions.

Maxine Waters said in a statement “Despite the lessons learned during the foreclosure crisis, we continue to uncover evidence of bad behavior by our nation’s mortgage servicers.” She continued, “Borrowers can’t choose their servicer so it’s especially important that Congress provide strong protections to prevent servicers from taking advantage of borrowers and to protect borrowers from foreclosure.”

This new bill would grow the Federal Housing Finance Agency’s oversight of mortgage service companies that do business with Fannie Mae and Freddie Mac.

house bubbles

Economy Strong. Consumer Confidence Up. Why Are Home Prices Static in Most Parts of the Country?

The economy is doing well, with unemployment well below 4% and economic growth anticipated to be in the 3% range at least in 2018. Consumer confidence is high. Mortgage interest rates are also on the rise, which indicates generally a stronger economy. Also, in much of the country, home prices have continued to rise. According to CNBC, US homeowners gained $1 trillion in equity last year as their home values increased. The website noted that home equity increased 13% in the first quarter of 2018 from a year ago. For the typical borrower, this means $16,300 in additional equity from a year ago. That is the largest gain in four years.

Still, while some homeowners are doing very well with their home values, others are still having problems. In some areas of the middle of the country, home prices are static. For approximately 2.5 million borrowers, they are still underwater on their mortgages, which means they owe more than their homes are worth. But in the first quarter of 2018, 84,000 borrowers did come out from underwater, gaining enough home value to be in positive equity territory.

The negative equity rate dropped by 21% from a year ago, when three million borrowers were underwater. Negative equity was at its peak in 2009 with 26% of all mortgage properties underwater.

As with all things in real estate, the gains vary a lot depending upon the location. Some areas are doing well and others not so well. In Washington state, prices are generally soaring with people gaining an average of $44,000 in home equity. In California, homeowners gained an average of $50,000. In the far Western states, equity gains are also substantial and being fueled by home price escalation in a stronger economy.

Experts say gains in home equity are probably fueling an increase in home remodeling. But they are not causing homeowners to list their houses for sale. Trading up to a bigger home is too expensive with interest rates at their current levels, and the supply of homes in many parts of the country is lean.

Ironically, many homeowners that are gaining equity in much of the country and homeowners who have negative equity are some of the reason why home prices are rising fast in some of the US. Supply is limited and demand is strong so new listings are selling fast, and many are selling above the list price. In the hotter areas of the country on the West Coast in particular, bidding wars are common.

In April, it took only 64 days to sell the typical home across the country, according to Trulia.com. That is nine days faster than last year. The previous record was set in July at 70 days. It is not a surprise that homes in the West are moving the fastest. Homes are going under contract in an average of only 26 days, according to NAR.

There also are parts of the country with overvalued real estate. Experts say Las Vegas home prices are rising at some of the fastest rates in the US, with builders getting record amounts and resale values are getting close to the highs of 2006. The growth is so rapid that prices are probably the most overvalued in the US.

Experts note that southern Nevada home prices were 20% overvalued at least in the first quarter of 2018. That is an increase of 15% to 19% in the same period from the year before, and 10% to 14% more overvalued from 2016.

Las Vegas was determined to be the most overpriced market in the country for the 20 listed in a recent Fitch report. Many locals wonder if Las Vegas in in another real estate bubble actually. That said, others say that household income is up and unemployment is way down in Vegas and this real estate boom is more stable than the one that led to the last economic downturn.

Overall, prices on homes are rising in the US, but there are certainly areas where prices are more static. Where the population is not growing and unemployment is higher, you will see less home price increases.

 

 

References https://www.cnbc.com/2018/06/07/us-homeowners-are-1-trillion-wealthier.html

 

What Do Rising Mortgage Rates Mean to the Housing Market in California?

Home prices in Southern California rose 7% from a year ago in April to hit an all-time high. This is a big increase in a time when increasing interest rates are making it more difficult to afford a home in the US, but especially in more expensive areas in California.

Mortgage interest rates on a 30-year, conventional, fixed mortgage is approximately 4.55%, and generally on the rise. Meanwhile, southern California’s median sale price for new and resale homes and condominium was up $520,000, which was an increase of $1,000 from the last high set in March. According to one real estate agent in Los Angeles even though rates are rising and making borrowing money more expensive, the market is still hot and not showing a sign of ending.

But agents here say buyers also are asking the same question. They wonder if price appreciation will start to slow as people find it more difficult in California to find an affordable home. But it is not likely home values will plunge any time soon unless the economy gets worse fast.

One of the problems in southern California is job growth continues to be strong and not enough homes are being built. This is creating a mismatch between demand and supply. So, even with mortgage rates much higher than a year ago, it seems that many buyers in this part of the country continue to want to buy.

Home sales did fall 1.5% last April though compared with a year ago. This could be because the number of homes that were offered for sale fell in recent months, compared to the same month last year. The drop-in sales also may indicate that some buyers are having difficulty affording the homes that are listed on the market.

Another reason there may not be a major downturn in prices here is because lending standards are tougher than a decade ago, which was in part what crashed the economy.

A lender in Los Angeles said that the real estate market here is not at a breaking point yet. There is no ticking time bomb like the last time when there were too many home owners with stated income. In the mid-2000s, it was possible to get a mortgage with little documented evidence that you had the income to support the loan.

To get a better idea of what is happening to prices in southern California, look at this data from April 2018:

• Los Angeles County: Median increased 7.3% to $590,000
• Orange County: 5.9% to $715,000
• Riverside County: 6.1% to $375,000
• San Bernardino County: 10% to $330,000
• Ventura County: 4.4% to $585,000
• San Diego County: 8.6% to $570,000

Home mortgage rates have been rising in 2018 largely because investors think inflation is going to rise. Last week, the typical interest rate for a 30-year mortgage rose to 4.61%. At that rate, the typical home in this area at a value of $520,000 would have a $2,781 mortgage payment for buyers who can put down 20%. In January, the median home price was $507,000, and rates at the start of the month were only 3.95%, which would have made a monthly payment of $2,554 when putting down 20%.

Rates across the country were in the low threes to low fours for many years. But the very low cost of borrowing, plus steady job growth and a lack of home building caused the rise in home prices that are being felt in California.

Theoretically, higher mortgage rates can cut buyer demand and slow the climb of prices. But the evidence of this happening in the real world is still rather murky. Some agents in southern California say the increase in mortgage rates could cause would be home buyers to make a smaller bid for a home or to stop their home search. But others say clients are doing the exact opposite: Stretching even further because they think the rates are going to be climbing higher next year.

The bottom line is that the mortgage rates have not yet had a major dampening effect on the housing market in places such as southern California. But if they keep rising into the 5% range next year, this could change.

References: http://www.latimes.com/business/la-fi-home-prices-20180523-story.html 

Fake News, What About Fake Economy.  Job Numbers Are Good but Payrolls stagnant.  How Many Real Quality Jobs Created Under TrumpEconomics?

Are you thinking about buying a home? Then you are probably curious to know how the American economy is doing. Generally, under President Trump, Americans think the economy is doing well. How much of that is reality and how much of it is perception is open to question.

A CBS poll from May 2018 found that two out of three Americans believe the economy is in good condition. Most of them also believe Trump’s policies are at least partially responsible. Naturally, more Republicans rate the economy as doing well than Democrats.

That survey has generally tracked Trump support and opposition levels over the first two years of his presidency. These days, more Americans are feeling positive about the economy; the ranks of the strongest Trump backers have gone up 22% from 18% in January. Many of these Trump supporters had had more of a wait and see attitude about Trump.

However, some question how rosy the economy really is; Trump is a good salesman, and it could be that some of what is going on is hype. Consider the following points:

  • Some economists say the economy has not changed much since the end of the Obama administration, in terms of measured economic growth. GDP continues to grow but at a relatively modest rate of 2.3%. That is what it grew at in Obama’s second term, too.
  • Unemployment is doing, but hiring has not been as robust as some believe. Since Trump took over, payrolls have expanded by 186,000 jobs per month. Over Obama’s second term, it averaged 216,000. Also, the unemployment rate was falling under the latter half of the Obama presidency.
  • Wage growth has been disappointing under Trump, but it was under Obama, too. Adjusted for inflation, earnings each hour grew very little over the last year – just .4% in March compared to the year before. Obama did see a few periods of real wage growth above 2%, but his record was not good either. Some companies announced plans after the Trump tax cut to use the money saved to increase worker pay. But many of the companies probably were going to do it anyway and used the big PR announcement to curry favor with Trump.
  • Federal deficits as part of the whole economy did grow under Obama in the first term. This was largely because there was a major financial crisis. Tax revenues shrank. Federal spending went up thanks to unemployment benefits being used and stimulus efforts. As the economy got better, deficits did shrink but they did not disappear. Under Trump, the deficits have exploded again; this is due to spending increases and tax cuts.
  • It should be noted that we have not seen the full impact of the Trump tax cuts yet. But experts contend that their effects will probably be short term and not that significant. Consumers have not really noticed their increased paychecks yet. Also, people who get the most benefit are the wealthy who are not as likely to spend their windfall.

In the end, experts generally agree that presidents get too much blame and credit for good and bad economies. Trump is very good at promoting economic numbers that put him in a good light, and it is true that the economy is much stronger than a decade ago. But a lot of that is just because of the economic recovery that has been occurring under two presidents for a decade. It also is important to remember that Trump is known as a pro-business person, and some of the good ratings of the economy under him could just be because people think a businessman would have to be good for the economy.

If you are thinking about buying a home now, it really comes down to your personal financial situation. Keep in mind that rates are generally on the rise, and home prices have increased by 6% on average since last year in the US. It seems we are generally in a rising interest rate environment in 2018, with it unlikely that rates will fall below 4% again anytime soon.

 

References: https://www.washingtonpost.com/opinions/6-questions-about-trumps-economy-you-were-too-embarrassed-to-ask/2018/04/30/663a3a1a-4cb6-11e8-af46-b1d6dc0d9bfe_story.html?utm_term=.465948d00fd8