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You are here: Home » 2013 » August

Interest Rate Impact

Last week I told you that mortgage rates have risen from about 3.5% to about 4.5%. Let’s look at a hypothetical example to see how this could impact our market. Let’s say that every home in Brentwood is priced at $375,000 and that all buyers are getting loans (no cash buyers). Then let’s say that all buyers are putting 20% down which means a loan for $300,000. When rates are at 3.5%, their principal and interest payment would be $1,347. Let’s say that all the buyers make exactly the same amount of income, and this payment maxes out their debt ratio (payment divided by gross income). But when rates go up to 4.5%, their payment is now $1,520, about $173 more. That means their debt ratio is now too high. Prior to 2007, someone would just waive a magic wand and “fix” this problem with a stated-income loan, or negative-amortization ARM loan, etc. so the buyer could still qualify for a higher mortgage. Those days are long gone and now the buyer actually needs to qualify for the payment. So to keep the debt ratio in line, we have to keep the payment at $1,347, which means they can now only afford a mortgage of about $266,000. This means that the only option is for the price of the home to come down in this example if the buyer can’t come up with a bigger down payment.

Obviously there are still cash buyers out there, and not all buyers are maxed out on their debt ratios and/or down payments. But as prices have risen, we are seeing fewer cash buyers, and we are seeing quite a few buyers who are “maxing out” their debt ratios and down payments to afford homes already. So this recent increase in interest rates IS taking at least some buyers out of the market. Since we still have low inventory and lots of buyers, it hasn’t hurt the market much at the moment. But if rates continue to rise, and if income doesn’t rise along with it, we’ll start to have more and more buyers “maxed out” on what they can afford. That could certainly put a lid on price appreciation until either rates go down, or income goes up, or buyers find more funds to put down for a down payment.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Interest Rate Update

Mortgage rates have been in the news quite a bit lately, and with good reason. After being at historical lows just a few months ago, they’ve jumped up quite a bit. People are wondering if this is going to slow down our real estate market, or maybe even prick the new “bubble” that some people say has formed.

Rates for a 30 year fixed-rate mortgage were about 3.5% a few months ago. They are now hovering around 4.5% and they seem to have stabilized (please note that rates may have changed by the time this article is printed). What happened is that as there were some signs of improvement in the overall economy a little while ago, the Federal Reserve announced that they may taper off their bond-buying activities sometime in the near future. This bond-buying is credited with keeping rates low. Well, as soon as they made this announcement, mortgage rates spiked and the stock market had some really rough days. Soon after the Federal Reserve clarified that they were going to continue their bond-buying for the foreseeable future. At least until the unemployment rate gets back to or below 6.5%. Unemployment is about 7.5-8% right now in the U.S. (Well, that’s what the government SAYS it is. Most people understand it’s quite a bit higher than that, but that’s for another article another day…). So after that the markets calmed down quite a bit, however, interest rates have stayed up around 4.5%.

So on a percentage basis, this is a big increase. While 1% doesn’t sound like much, 4.5% is almost 29% more than 3.5%. However, 4.5% is still a VERY low rate historically.

So the bottom line is that rates are higher than they were a few months ago, but are still very attractive. Next week I’ll discuss the impact these higher rates are having on our market, and if this will indeed slow the market down.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

What Is A Multiple Counter-Offer?

Real estate standard contract forms seem to grow every year. Starting as a one-page contract years ago it grew and grew to longer and longer pages plus lots of attachments for disclosures, advisories, etc. It’s not uncommon for a buyer to sign 15 pages or more just to submit an offer. While agents try to explain as much as we can, I’m sure some buyers don’t read every word on every page due to the volume. I would like to caution buyers to be aware of one particular check box on one form that is REALLY important.

It is on the counter-offer form. It is box #4 on the November, 2010 version of the form. This box only applies if it is checked, and it’s vitally important to notice if it’s been checked or not. If the Seller checks this box when they send you back a counter-offer, that means they are countering more than one buyer. They can counter all the buyers back at the same terms, or different terms, and they don’t have to disclose to you what those terms are. It also means that if you accept the seller’s terms, you are NOT officially in contract with the seller until they accept your acceptance.

One strategy you can discuss with your agent is whether you want to accept the terms of the counter-offer, and then hope that the other buyers DON’T accept, which would mean it’s likely yours will be accepted OR do you want to improve your terms somehow? That way in case all the other buyers accept the seller’s terms that your offer may stand out. Of course, the seller could come back with another round of multiple counter-offers at that point and keep the party going until they are ready to accept an offer. However, the seller is running the risk that some or all of the buyers simply walk away and look for another home. I’ve seen that happen where buyers get frustrated at the process and give up. Sometimes they ALL do that and the seller is now scrambling to get one of them back in the fold.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Help For Owner-Occupant Buyers

If you are looking to buy a home around here, you have my sympathies. It is just HARD! Seems like there are more investors and cash buyers than there are homes available. If you are using FHA or VA financing and putting very little down, your offer will often not even be considered by a Seller that has 10 cash or high-down payment offers that are willing to waive all contingencies. FHA and VA financing have a reputation for taking longer and having more red-tape than a 20% down loan. And obviously a cash offer can close sooner with less hassle. This is why some sellers will actually take a lower offer just to make sure it closes and on time with fewer hiccups.

So what is a buyer to do? I’ve heard of people that have written 8, 10, 15 or more offers, going over asking price each time, but they still can’t buy a home. I do have one small bit of advice that may increase your odds of success. Several of the larger lenders give owner-occupant buyers a “free-look” period of about 5-10 days on their bank-owned properties when they first hit the market. This means that they won’t look at any offers from investors until AFTER that period is up. This will give the owner-occupant buyers a fighting chance to buy a home!

To look for homes in our area that may have this “free-look” period, go to the websites listed below. And then let your agent know, because they can still represent you on all these homes.

Fannie Mae – http://www.homepath.com/

Freddie Mac – http://www.homesteps.com/

HUD – http://www.hudhomestore.com/Home/Index.aspx

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Another Short Sale Benefit

If you are faced with losing your home, it’s generally considered more beneficial to do a short sale versus a foreclosure. Most of the time the hit to your credit score is usually less, and you can buy another home sooner after a short sale than a foreclosure. The other big benefit is that after a short sale, it appears that California law now forbids lenders from pursuing you for the amount of the deficiency, where in a foreclosure they may be able to. There is also an argument to be made that a short sale could have better tax implications for some borrowers than a foreclosure, although I don’t have room to go into those details here.

But recently another benefit has come to my attention that I wanted to let you know about. If your loan is an FHA or VA loan, it’s possible that the FHA or VA may be able to pursue you for the deficiency after a short sale or a foreclosure. Note that they are the ones insuring your loan, so they are separate from your lender, who may be forbidden by California law from pursuing you. So this could be a big problem for many people who thought they were all done with their lender after the short sale or foreclosure.

However, the good news is that I was just reading through some major fine print on a FHA short sale, and I saw a small comment that if the borrower at least attempts a short sale, then the FHA may not pursue them for the deficiency, whether it winds up foreclosing or if the short sale is successful. I couldn’t verify if VA has a similar policy or not. But if you have an FHA or VA loan, this would be something to consider before you let a property foreclose. It may be worth making a good-faith effort at a short sale first.

I AM NOT AN ATTORNEY. PLEASE CONSULT YOUR OWN TAX EXPERT FOR YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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