Tag Archives: mortgage rates

Thinking of Selling? You Should Act NOW!

 

Thinking of Selling? You Should Act NOW! | MyKCM

If you thought about selling your house this year, now more than ever may be the time to do it! The inventory of homes for sale is well below historic norms and buyer demand is skyrocketing. We were still in high school when we learned the concept of supply and demand: the best time to sell something is when supply of that item is low and demand for that item is high. That defines today’s real estate market.

Lawrence Yun, Chief Economist at the National Association of Realtors, recently commented:

“Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”

Yun goes on to say:

“Current demand levels indicate sales should be stronger, but it’s clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions.”

In this type of market, a seller may hold a major negotiating advantage when it comes to price and other aspects of the real estate transaction, including the inspection, appraisal and financing contingencies.

Bottom Line

As a potential seller, you are in the driver’s seat right now. It might be time to hit the gas.

Rates Are Actually Much Higher This Week. Here’s Why

After spending more than a month holding fairly steady near 8-month lows, rates are moving quickly higher this week. Not only are the underlying reasons somewhat opaque but there are multiple media outlets reporting the “lowest mortgage rates of the year.” What’s really going on here?

The discrepancy between actual mortgage rate movement and certain news stories is easy to explain (as seen in a past newsletter), so let’s start there.  At issue is the fact that Freddie Mac’s weekly rate survey is a longstanding industry benchmark for mortgage rates.  It’s heavily relied-upon by analysts working in the secondary mortgage market as well as journalists who simply use it as their one source for a weekly mortgage rate update.

Because the report is released at 10am on Thursday morning, we tend to see a glut of news stories offering similar conclusions about mortgage rate movement.  This seemingly unified message only adds to the confusion.  After all, if all these big news organizations are telling us that rates are at the lowest levels of the year, it must be true, right?

WRONG!

Freddie’s data is GREAT for long-term analysis of general mortgage rate trends but it does a GREAT DISSERVICE to prospective borrowers keeping an eye on day-to-day changes.

The reason is strikingly simple: rates can move every day, but Freddie’s survey only covers the first 3 days of any given week.  Moreover, most of the responses tend to come in on Monday and Tuesday.

In other words, Freddie’s survey is best described as “Monday/Tuesday rates vs last Monday/Tuesday’s rates.” This creates obvious problems if rates are making bigger moves in the second half of any given week–especially if they moved in the opposite direction during the first half of the week.

Here’s how all of the above played out this time around.  Mortgage rates were indeed in line with the year’s lowest levels on Monday (only June 14th was any better as far as individual days are concerned).  But the next 3 days all saw rates move convincingly higher.  Freddie’s survey responses–being weighted toward the start of the week–simply didn’t capture the magnitude of the rate spike (it will be reflected in next week’s numbers unless we get a friendly bounce between now and then).

The bottom line is that rates are definitely not at 2017’s lowest levels.  In fact, in terms of day-over-day changes in actual lender rate sheets (remember, humans respond to surveys, and they might not all be cross-checking actual rate sheets before firing off their responses to Freddie), rates are as high as they’ve been since May 16th.

A major caveat is that the recent range of mortgage rates has been exceptionally narrow by historical standards.  It’s also been holding fairly close to the lowest levels in 8 months.  Still, the amount of movement over the past few days adds up to hundreds, even thousands of dollars for some borrowers’ loan quotes.  That could be quite the surprise if they’ve just heard about the “lowest rates of the year” on the evening news.

2017-6-29 nl1

What’s Moving Markets?

Now that we know WHAT mortgage rates have actually been doing, let’s talk about WHY.  If you remember the so-called “taper tantrum” in 2013 (the market reaction to the Fed signalling its intent to buy fewer bonds), then you’re halfway there.

This time around, the focus is on the European Central Bank (ECB), whose bond buying puts it in the same league as the Fed in terms of impact on financial markets.  Whereas the Fed has long since stopped expanding its balance sheet (they may even begin shrinking it later this year), the ECB continues adding more bonds to its balance sheet every month.

Given the huge impact of the taper tantrum in the US, investors are on guard for any indication of tapering in the EU.  ECB President Mario Draghi gave just such an indication in a series of comments earlier this week.  He spoke of deflation being replaced by reflation, above-trend growth, and the need to gradually adjust bond-buying parameters.

ECB Officials would subsequently try to explain that Draghi was aiming for comments that balanced positive developments with the ongoing need for substantial bond buying.  But the takeaway for market participants was that the ECB is moving closer and closer to tapering.

Why should rates in the US care about what’s going on with the European Central Bank?  To make a long story short, global bond markets (which drive interest rates) are interconnected and interdependent to a certain degree.  US rates might not respond to European rates in lock-step, but they definitely respond.  As such, it’s no surprise to see European benchmark rates surging and US rates following with a more measured version of the same move.

2017-6-29 nl2

Is this the end of low rates forever?  Not by a long-shot.  First of all, we’re only a few days into a move that took several months to play out in the US.  We can’t yet know if European rates are embarking on a similar journey.

Even if that happens, it’s good to keep in mind that rates generally move higher when central banks are actually in a bond-buying cycle.  True, that sounds terribly counterintuitive (after all, if the Fed/ECB are buying bonds, rates should be going down), but the following chart with QE time-frames in the US doesn’t lie.

2017-6-29 nl4

Don’t read too much into this chart because it could be competently argued several ways.  The point of posting it is to offer perspective.  What might seem like a surefire reason for rates to move higher could merely be the catalyst for a temporary correction in the bigger picture.  After all, most economists and analysts thought low rates were a thing of the past by the end of 2010 and 2013.  The subsequent years were the best 2 years of the recovery.
Housing-Specific News

There were several interesting developments in housing this week.  2 weeks after comments on a potential “housing emergency” due to tight inventory, The National Association of Realtors (NAR) now says the perception of a seller’s market could provide motivation for owners to list their homes, thus relieving some of the inventory pressure.

As for the month of May, there was no such relief in sight.  The NAR blamed lopsided supply and demand for the lowest Pending Home Sales levels since January.  Despite the justification, it’s worth noting that this index hasn’t been able to get back above its current range since the meltdown.

2017-6-29 nl3

Both Black Knight and Case-Shiller released their monthly home price indices.  Both set record highs at the national level, and both reports agree that the national numbers are being dragged higher by several outstanding regional markets.  Of the two, the Case-Shiller report did more to provide a counterpoint to the positivity, citing some signs of deceleration.

The TRUTH Behind the RENT vs. BUY Debate

 

The TRUTH Behind the RENT vs. BUY Debate | MyKCM

In a blog post published last Friday, CNBC’s Diana Olnick reported on the latest results of the FAU Buy vs. Rent Index. The index examines the entire US housing market and then isolates 23 major markets for comparison. The researchers at FAU use a “‘horse race’ comparison between an individual that is buying a home and an individual that rents a similar-quality home and reinvests all monies otherwise invested in homeownership.”

Having read both the index and the blog post, we would like to clear up any confusion that may exist. There are three major points that we would like to counter:

1. The Title

The CNBC blog post was titled, “Don’t put your money in a house, says a new report.” The title of the press release about the report on FAU’s website was “FAU Buy vs. Rent Index Shows Rising Prices and Mortgage Rates Moving Housing Markets in the Direction of Renting.”

Now, we all know headlines can attract readers and the stronger the headline the more readership you can attract, but after dissecting the report, this headline may have gone too far. The FAU report notes that rising home prices and the threat of increasing mortgage rates could make the decision of whether to rent or to buy a harder one in three metros, but does not say not to buy a home.

2. Mortgage Interest Rates are Rising

According to Freddie Mac, mortgage interest rates reached their lowest mark of 2017 last week at 3.89%. Interest rates have hovered around 4% for the majority of 2017, giving many buyers relief from rising home prices and helping with affordability.

While experts predict that rates will increase by the end of 2017, the latest projections have softened, with Freddie Mac predicting that rates will rise to 4.3% in Q4.

3. “Renting may be a better option than buying, according to the report.”

Of the 23 metros that the study reports on, 11 of them are firmly in buy territory, including New York, Boston, Chicago, Cleveland, and more. This means that in nearly half of all the major cities in the US, it makes more financial sense to buy a home than to continue renting one.

In 9 of the remaining metros, the decision as to whether to rent or buy is closer to a toss-up right now. This means that all things being equal, the cost to rent or buy is nearly the same. That leaves the decision up to the individual or family as to whether they want to renew their lease or buy a home of their own.

The 3 remaining metros Dallas, Denver and Houston, have experienced high levels of price appreciation and have been reported to be in rent territory for well over a year now, so that’s not news…

Beer & Cookies

One of the three authors of the study, Dr. Ken Johnson has long reported on homeownership and the decision between renting and buying a home. The methodology behind the report goes on to explain that even in a market where a renter would be able to spend less on housing, they would have to be disciplined enough to reinvest their remaining income in stocks/bonds/other investments for renting a home to be a more attractive alternative to buying.

Johnson himself has said:

“However, in perhaps a more realistic setting where renters can spend on consumption (beer, cookies, education, healthcare, etc.), ownership is the clear winner in wealth accumulation. Said another way, homeownership is a self-imposed savings plan on the part of those that choose to own.” 

Bottom Line

In the end, you and your family are the only ones who can decide if homeownership is the right path to go down. Real estate is local and every market is different. Let’s get together to discuss what’s really going on in your area and how we can help you make the best, most informed decision for you and your family.

Homeownership Is a Good Financial Investment!

 

Homeownership Is a Good Financial Investment! | MyKCM

According to a recent report by Trulia“buying is cheaper than renting in 100 of the largest metro areas by an average of 33.1%.” The report may have some people thinking about buying a home instead of signing another lease extension, but does that make sense from a financial perspective?

Ralph McLaughlin, Trulia’s Chief Economist explains:

“Owning a home is one of the most common ways households build long-term wealth, as it acts like a forced savings account. Instead of paying your landlord, you can pay yourself in the long run through paying down a mortgage on a house.”

The article listed five reasons why owning a home makes financial sense:

  1. Mortgage payments can be fixed while rents go up.
  2. Equity in your home can be a financial resource later.
  3. You can build wealth without paying capital gains.
  4. A mortgage can act as a forced savings account.
  5. Overall, homeowners can enjoy greater wealth growth than renters.

Bottom Line

Before you sign another lease, let’s get together and discuss all your options.

4 Reasons to Buy This Summer!

 

4 Reasons to Buy This Summer! | MyKCM

Here are four great reasons to consider buying a home today, instead of waiting.

1. Prices Will Continue to Rise

CoreLogic’s latest Home Price Index reports that home prices have appreciated by 7.1% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 4.9% over the next year.

The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.

2. Mortgage Interest Rates Are Projected to Increase

Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have remained around 4%. Most experts predict that they will begin to rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National Association of Realtors are in unison, projecting that rates will increase by this time next year.

An increase in rates will impact YOUR monthly mortgage payment. A year from now, your housing expense will increase if a mortgage is necessary to buy your next home.

3. Either Way, You are Paying a Mortgage

There are some renters who have not yet purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent-free, you are paying a mortgageeither yours or your landlord’s.

As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee your landlord is the person with that equity.

Are you ready to put your housing cost to work for you? 

4. It’s Time to Move on with Your Life

The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise.

But what if they weren’t? Would you wait?

Look at the actual reason you are buying and decide if it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe now is the time to buy.

If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.

How’s the Real Estate Market? Find Out What the Experts Are Saying

 

How's the Real Estate Market? Find Out What the Experts Are Saying | MyKCM

As we head into summer, it is a great time to review how the 2017 real estate market is doing so far. Here is what the experts are saying:

Doug Duncan, Fannie Mae Chief Economist

“Positive demographic factors should continue to reshape the housing market, as rising employment and incomes appear to be positively influencing millennial homeownership rates.”

Diana Olick, CNBC

“Even as more homes come on the market for this traditionally popular sales season, they’re flying off fast, with bidding wars par for the course. Home prices have now surpassed their last peak, and at the entry level, where demand is highest, sellers are firmly in the driver’s seat.”

Daren Blomquist, Senior VP at Attom

“I am guessing we will see it get even better… If you are considering moving, it could be a really good time to sell.”

Lawrence Yun, NAR Chief Economist

“The early returns so far this spring buying season look very promising as a rising number of households dipped their toes into the market and were successfully able to close on a home last month. Although finding available properties to buy continues to be a strenuous task for many buyers, there was enough of a monthly increase in listings…for sales to muster a strong gain. Sales will go up as long as inventory does.”

Mark Fleming, First American Chief Economist

“Despite higher mortgage rates, the potential for home sales increased on an annual basis driven by steady income and job growth, along with a surge in building permits. While it may be a little late for this spring, the increase in building permits is a welcome sign that some relief may be in sight for the inventory shortages that are holding back many markets from realizing their full potential this spring.”

Is Now a Good Time to Rent?

 

Is Now a Good Time to Rent? | MyKCM

People often ask if now is a good time to buy a home, but nobody ever asks when a good time to rent is. Regardless, we want to make certain that everyone understands that today is NOT a good time to rent.

The Census Bureau recently released their 2017 first quarter median rent numbers. Here is a graph showing rent increases from 1988 until today:

Is Now a Good Time to Rent? | MyKCM

As you can see, rents have steadily increased and are showing no signs of slowing down. If you are faced with making the decision of whether or not you should renew your lease, you might be pleasantly surprised at your ability to buy a home of your own instead.

Bottom Line

One way to protect yourself from rising rents is to lock in your housing expense by buying a home. If you are ready and willing to buy, let’s meet to determine if you are able to today!