Category: Interest Rates (Page 23 of 31)

2019 Interest Rate and Housing Forecast – Sales and Appreciation

January 19, 2019 / Tom Bonetto

Now that 2019 is here, let’s take a look at what we can expect regarding interest rates and the housing market.

Experts are predicting some interesting shifts moving into 2019, including continued home appreciation (although at a slower rate) and slight interest rate increases.

Let’s take a look at the key components that drive the real estate market….

2019 Geopolitical/Finance Dynamics

One important way to understand what lies ahead has to do with taking a look at world events and the other issues that drive the economy. Here are a few things that will impact the market in 2019:

Trade issues with China
Possible economic slowdown, although early 2019 results have been positive
Late 2018 Stock Market pullback – Early 2019 Rally
The Federal Reserve – 2 planned hikes in 2019
Rates set to rise in year ahead – How much and what will the impact be?
Keeping an eye on inflation…watch oil prices and wage pressures
Continued stock market volatility?

The Federal Reserve

The Federal Reserve raised borrowing costs four times in 2018, ignoring a stock-market selloff and defying pressure from President Trump, while dialing back projections for interest rates and economic growth in 2019.

By trimming the number of rate hikes they foresee in 2019, to two from three, policymakers signaled they may soon pause their monetary tightening campaign. Officials had a median projection of one move in 2020.

The Federal Open Market Committee “will continue to monitor global economic and financial developments and assess their implications for the economic outlook,” the statement said.

Here are some things to watch in 2019:

Every meeting will have a press conference, making every meeting a live meeting, increasing speculation and volatility.
Federal Reserve “Dot Plot” shows 2 hikes in 2019
Inflation could rise with higher oil prices and wage pressures
Fed scheduled to reduce their balance sheet of mortgage-backed securities and treasury bonds by $50B per month

Prediction: Fed will hike 1 time to get the Fed Funds Rate (FFR) to 2.75%, although they would love to get the federal funds rate to 3% – and they will stay course on balance sheet reduction.

The pause in Fed rate hikes acts as important catalyst to turn the tide in favor of Stocks.

Interest Rates

It’s not very often that major players across an industry agree, but on this point, almost everyone does. Nearly all industry experts predict the 30-year mortgage will average above 5% for 2019.

Five percent used to be considered an ultra-low rate. But after years of rates in the 3s and 4s, it seems pretty steep. Still, affordable home payments won’t be hard to find, even as we adjust to the new normal.

The National Association of Realtors (NAR) predicts 30-year fixed interest mortgage rates to average around 5.3 percent in 2019.

“The potential buyer who’s thinking if now is the right time to buy needs to do the math and determine what the impact of potential rising rates would be on their payment,” said Paul Bishop, the NAR’s VP of Research.

Here are some of the key factors for 2019:

Inflation is main driver of rates, and inflation should tick higher with oil prices rebounding and wages increasing. Many states increasing minimum wages.
Fed will continue to allow $50B to roll off balance sheet and is no longer buying
US Government borrowing more in 2019, which will add supply to the market that will need to be absorbed
More supply and less demand = higher rates
Stock market increases will most likely hurt rates

Prediction: The 10-year Treasury Note will trade between 2.75% and 3.25% for most of the year. High point for 10-year is estimated at 3.5%. Mortgage rates will fluctuate in the low-mid 5% range

30-year Fixed Mortgage Rates in the 5% to 5.5% range for most of the year

Housing

Most experts predict the fevered bidding wars and snap home-buying decisions won’t be as big of a factor in most markets. Slower and steadier will characterize next year’s housing market.

That follows a 2018 that started off hot but softened into the fall as buyers – put off by high prices and few choices – sat out rather than paid up.

Affordability issues will remain a top concern going into 2019, exacerbated by rising mortgage rates. But some of 2018’s more intractable issues will begin to loosen up. The volume of for-sale homes is expected to rise and diversify, while the number of buyers is forecast to shrink.

Below are a few of the factors to watch in 2019:

Negative media
Rocky beginning of the year
Stocks begin to stabilize positively
Spring market rebound
Demographics still favorable – More demand than supply

Prediction: 3.5% – 4% year-over year. Appreciation still creates significant wealth – and the media will get this wrong.

Sales and appreciation moderate slightly, but housing remains healthy, especially after Q1 for much of the US

Finally, more homes to choose from

One of the biggest complaints among buyers in the last several years is that there weren’t enough homes for sale. In fact, the supply of houses hit historic lows in the winter of 2017 and has yet to rebound substantially. That fueled bidding wars, price increases and frustration.

The supply crunch is expected to ease some in 2019 with inventory rising 10 percent to 15 percent, according to many experts. But the increase will be skewed toward the mid-to-high end of the market – houses priced $250,000 and higher – especially when it comes to newly built houses, said Danielle Hale, chief economist of realtor.com.

That’s good news for move-up buyers, but not so much for the first-time millennial buyer. “There’s still a mismatch on the entry-level side,” she said.

If you have more questions about 2019 – and are thinking of purchasing, don’t hesitate to reach out to me, as it would be my pleasure to help!

Debt Consolidation Refinance – Estimate Your Monthly Savings

December 1, 2018 / Tom Bonetto

Featured Image: Jake Rustenhoven (gotcredit.com), Flickr

Tapping into home equity with a mortgage refinance is becoming very popular for many borrowers.

Many borrowers can now save hundreds, possibly thousands on their overall monthly payments by consolidating debt inside of a new mortgage.

As housing values across the country have appreciated nearly 35% over the last 5 years, homeowners now have access to a much larger source of equity.

With current mortgage rates still historically low and home equity on the rise, it’s a perfect time to refinance your mortgage to save not only on your overall monthly payments, but your overall interest costs as well – and take best advantage of today’s tax implications.

Improve Your Debt Profile

Using a refinance to reduce or consolidate other debt like credit cards, student loans, home-equity lines, and car payments is a great reason for a cash-out refinance.

We can look at the weighted average interest rate on a borrower’s credit cards and other liabilities to determine whether moving the debt to a mortgage will get them a lower rate. Some borrowers are saving thousands per month by consolidating their debt through their mortgage.

An Example

Let’s assume that you purchased your home 6 years ago (or longer) for $270,000 and you currently have a little less than $200,000 remaining on your existing mortgage.

Well, that home today may well be worth in excess of $350,000!

Even if you’ve refinanced since and have an interest rate in the 4% range, if you have any other sources of debt, a refinance will most likely result in a large monthly savings.

Debt List

Let’s assume you have a debt list that looks something like this – or a combination of similar liabilities:

A few credit cards, a car payment, and a student loan (or even a home-equity line of credit) can easily total nearly $50,000 overall and over $1,000 per month. Many of the customers that work with me are in situations very similar to the one listed above.

New Payment and Monthly Savings

So, when you combine all of your liabilities into the mortgage, here’s what your new overall payment looks like:

Note that the monthly savings is nearly $900 per month!!

New Loan

Here’s what a new refinanced loan might look like:

Your loan amount has increased by about $50,000 – and your mortgage interest rate has also increase by over 1.25%. However, your OVERALL interest rate of all debt will most likely be similar to where you are today (assuming credit card debt is more like 15% or more). Also, you will only have one payment to manage – versus balancing multiple payments.

Better Options

Now, let’s do a little more math…

Let’s say you take that $900 in savings every month and apply it to the new mortgage:

That’s right – you would save $55,000 over the life of the loan and reduce your number of payments by 213! You would be turning your 30-year mortgage into a 12.25 year version.

The numbers are staggering. One other thing to do would be to check with your CPA or financial advisor, as the interest on the new loan would most likely be tax deductible, whereas any home equity lines and credit card interest are generally not tax deductible.

Please do reach out to me right away and we can take a look at your current scenario to see if a refinance might be a good option for you, as it would be my privilege to help!

2018 Is Not 2007 All Over Again (and it’s not even close)

November 5, 2018 / Tom Bonetto

I hear a lot of sentiment from buyers and agents that the current housing market is the same as 2007.

In essence, are we on the verge of another financial crash?

Is 2018 just 2007 all over again? Are we looking at a new real estate bubble?

Well, I can’t tell you if we are going to have another housing correction, but I can tell you that if we do, it will not be because of the same market dynamics as 2007.

As a matter of fact, many believe now is a very good time to purchase residential real estate because of today’s economic environment.

The mortgage market and collateralization of homes is simply different today then it was back then.

I’d invite you to check out a few resources to find out more – Mike Nelson at Efficient Lending and The Motley Fool

A Real Estate Bubble?

A bubble is simply a sudden escalation in the price of an asset class, such as housing, due to increased demand or speculation.

Per The Motley Fool…“In real estate, bubbles take place in the housing market, commercial property, or, simply, land, and all have been a popular target for speculators over U.S. history since there’s a constant need for real estate and housing, banks are generally†willing to lend money for real estate and housing purchases, and its high value can allow for large profits.”

Though housing prices are on the rise today and are outpacing wage growth and inflation, it’s nothing like the housing bubble of the 2000’s as the economy is continuing to expand and stocks are growing at an even faster pace.

In reality, the last six years have not seen the kind of explosive rise in home prices that impacted cities like Las Vegas and Miami a decade ago.

In Las Vegas, for example, home prices jumped 130% from 2000 to 2006, surging a whopping 46% in 2004 alone. Meanwhile, in Miami, home prices skyrocketed 165% from 2000 to 2006, but especially heated up the last two years of that time frame rising 62%.

Even in the hottest real estate markets today like San Francisco and Seattle, prices have not accelerated like this. That’s a sign that the market is not falling victim to the type of euphoria and speculation that causes asset prices to skyrocket.

Mortgage Rates and Their Impact

There may be no more impact factor in influencing home prices than interest rates, as low interest rates encourage homebuying as the majority of homebuyers use a mortgage to a buy a new home. The lower the mortgage rate, the less the actual cost of their monthly payment would be, effectively making the home cheaper to buy for them.

According to most analysts, mortgage rates will likely cool off the housing market and slow the increase in housing prices down.

During the housing bubble of a decade ago, mortgage rates were lower than average, hovering around 6%, but still above today’s lows. In other words, low mortgage rates can encourage a bubble-like atmosphere, but it is just one of many factors that come into play.

Some experts believe that rising mortgage rates have encouraged home buying, as homebuyers want to lock in low rates while they still can. If that proves to be the case, higher mortgage rates will eventually cool off the housing market.

Therefore, real estate prices are more likely to go up when rates are low or falling, while rising rates are likely to tighten the market or cool off home purchasing, assuming all other things remain equal.

To Buy or Not To Buy

It’s almost impossible to say when the real estate market will peak, and homebuyers and investors are best off monitoring the local economic climate in their areas.

Some speculation is a normal part of the real estate market, but the rampant home-flipping we saw during the housing bubble of the 2000’s was a clear sign of something not right as was the expansion in subprime lending.

Home prices will pull back at some point just as the economy will eventually slow.

However, many of the factors that led to the last bubble such as lax lending standards, excess supply, and rampant home flipping, seem to be mostly absent from today’s real estate market.

Sources: Mike Nelson at Efficient Lending and The Motley Fool

FHA and Conventional Mortgage Options – Which is Better?

October 21, 2018 / Tom Bonetto

I’m often asked about the different types of loans available for those with a limited down payment. The main options are Fannie Mae and Freddie Mac conventional mortgages or FHA loans. But which one is best?

The FHA versus conventional analysis involves taking a look at your credit score, your available down payment, and your long-term financial goals.

Let’s take a look at all 3 issues:

1. Credit score – buyers with low-to-average credit scores may be better off with an FHA loan. FHA mortgage rates are generally slightly lower than conventional ones for applicants with lower credit, and FHA loans allow credit scores down to 580.

2. Down payment – borrowers can come in with a lower down payment with conventional products, at just 3% down. FHA requires 3.5% percent down.

3. Long-term goals – conventional mortgage insurance can be cancelled when the home achieves 20% equity. FHA mortgage insurance is payable for the life of the loan and can only be canceled with a refinance. Buyers who plan to stay in the home five to ten years may opt for conventional, as the FHA mortgage insurance can add up over time.

For a more, I’d invite you to visit the source at The Mortgage Reports and Dan Green’s post.

FHA Or Conventional – Which is Superior?

There are a multitude of low-down payment options for today’s home buyers but most will choose between the FHA 3.5% down payment program and conventional options such as HomeReady, Home Possible, and Conventional 97.

So, which loan is better? That will depend on your circumstance.

For example, in deciding between an FHA loan and a conventional option, the borrower’s individual credit score matters greatly. This is because the credit score determines whether the borrower is program-eligible; and, it affects the monthly mortgage payment, too.

FHA loans are available with credit scores of 580 or better. The conventional options, by contrast, require a minimum credit score of 620.

Therefore, if your credit score is between 580 and 620, the FHA loan is essentially the only available option.

As your credit score increases, though, the conventional options become more attractive. Your mortgage rate drops due to the lower score and your mortgage insurance costs do, too. This is different from how FHA loans work.

You can find out much more about mortgage insurance here….

With an FHA loan, your mortgage rate and MIP cost the same no matter what your FICO score.

Therefore, over the long-term, borrowers with above-average credit score will typically find conventional loans more economical relative to FHA ones.

In the short-term, though, FHA loans generally win out.

A Second Thought

One main consideration has to be the length of time you would expect to “keep” this mortgage.

Borrowers should take into consideration that FHA MIP is forever but conventional mortgage insurance goes away at 80% loan-to-value. This means that, over time, your conventional option can become a better value — especially for borrowers with high credit scores.

It’s hard to know for how long you’ll hold a loan, though. Sometimes, we expect to live in a home for the rest of our lives and then our circumstances change. Or, sometimes mortgage rates drop and we’ve given the opportunity to refinance.

As a general rule, though, in rising-value housing market, if you plan to stay in the same home with the same mortgage for longer than six years, the conventional 97 may be your better long-term fit.

One other thing to consider is upfront charges.

The FHA charges a separate mortgage insurance premium at the time of closing known as Upfront MIP. Upfront MIP costs 1.75% of your loan size, is generally added to your balance, and is non-recoverable except via the FHA Streamline Refinance.

Upfront MIP is a cost. The conventional versions do not charge a fee.

FHA vs Conventional Infographic

Image Courtesy of The Mortgage Reports

You can find out much, much more about low-down payment options, as well as the specifics of these loans here.

For today’s low down payment home buyers, there are scenarios in which the FHA loan is what’s best for financing and there are others in which the conventional option is the clear winner. Rates for both products should be reviewed and evaluated.

It would be my pleasure to help you find the version that’s most optimal for your situation, so please do contact me for more details!

Rising Interest Rates and Increasing Property Values – Updated Forecast 2018-2019

October 7, 2018 / Tom Bonetto

The question asked to me most often over the last few months is “is now a good time to buy?”

Many potential buyers are concerned about rising rates and property values. And yes – both are going up.

My answer to their question might surprise you – as I truly believe now is a great time to purchase real estate.

Purchasing Today – Why Now?

It was clearly more advantageous to purchase real estate last year, when looking through the rear view mirror. But I’m convinced that purchasing today will be MUCH better than this time next year.

Why? Well, for one, property values are increasing at over 5% per year, so that home you are looking at today will most likely be 4-5% more expensive next year.

Secondly, the Federal Reserve has signaled 3 to 4 more interest rate hikes over the next 15 months, the next most likely coming in December of this year.

So, let’s be clear about the fact that most experts agree that both prices and rates will most likely be higher next year versus today.

Why the shift? Read on for more….

First: The Good News – and There’s Lots of It

Unemployment is at it’s lowest level since 1969.

“This is the best job market in a generation or more,” said Andrew Chamberlain, chief economist at recruiting site Glassdoor.

Unemployment rates below 4% are extremely rare in 70 years of modern record-keeping. The two longest sustained periods came during the Korean and Vietnam Wars, when the combination of strong growth and the enlistment of young men from the civilian labor force helped to largely wring unemployment out of the economy.

Real wages were up nearly 3% in August of this year.

Per the Wall St. Journal, the Atlanta Fed’s “wage tracker” showed a 3.2% increase year-over-year for June. Most encouraging is the report of a bounce in labor productivity growth in the second quarter to 2.9%. That’s the best jump since the first quarter of 2015,

Home prices are rising steadily at over 5% year-over-year.

Home price gains are starting to decelerate (they are growing, but at a slower rate than last year)— but they’re still strong and are running well ahead of wage gains and inflation.

Inflation, the arch enemy of bonds and interest rates – is holding at the federal reserve target of 2%.

In a speech last week, Fed Chairman Jerome Powell suggested he sees little urgency to accelerate the central bank’s pace of interest-rate increases or to signal a more restrictive policy path ahead, in part because inflation is so low and stable.

Rates Today – and What We Can Expect

The stronger than expected economic data released over the last weeks and months are actually bad news for mortgage rates, and rates reached their highest levels in many years.

Last Wednesday’s bond rout sent the yield on the 10-year U.S. Treasury note, a closely watched barometer of investors’ sentiment toward growth and inflation, to its highest level since July 2011. Risky assets rallied, pushing the Dow Jones Industrial Average to a record and crude-oil prices to multiyear highs.

Together, the moves suggested investors are once again growing more and more about future growth, a shift from the more cautious outlook that many held for much of the year.

Interestingly, mortgage interest rates don’t necessarily move in step with the federal funds rate, as they are more closely tied to the 10-year Treasury Bond. So, borrowers today looking to get a mortgage aren’t directly affected by the latest Fed hike.

However, the federal funds rate does contribute to the longer-term trends of the 10-year Treasury, and long-term fixed mortgages as a result.

Here’s a little perspective on average mortgage rates since 2000:

Graph Courtesy MarketWatch

With the Fed likely lifting rates multiple times over the next year plus, the trend for long-term mortgage rates is up. It would not surprise me to see 6% interest rates in 2019.

Here’s a piece I wrote earlier this year that outlines more regarding rates and what we can expect in 2019…

The Bond Market and Interest Rates

The U.S. unemployment rate fell to 3.7%, its lowest level since 1969, the Labor Department reported Friday. Average hourly earnings, meanwhile, rose a seasonally adjusted 0.3% from August—the third straight month of solid, inflation-beating gains.

Fed officials raised their benchmark short-term rate last week and penciled in four more quarter-percentage-point increases through the end of 2019. That would lift the rate to a range between 3% and 3.25%. Until recently, many investors doubted the Fed would go that far.

The Fed is raising rates to keep the economy from overheating. If the economy becomes “too strong”, that could send inflation higher, and the Fed doesn’t want that to happen. They combat inflation by raising interest rates.

In essence, the bond market is starting to believe the Federal Reserve.

Finally, I’d invite you to read this article on how rising interest rates are not deterring buyers in today’s market…

What About Another Bubble?

Many clients are talking about a potential bubble, and they don’t want to be on the wrong side of it, if it were to burst.

However, most economists are not the slightest bit concerned about this.

Why? It’s about supply and demand. And the supply is tight. It isn’t forecasted to meet demand until sometime in 2021 or beyond.

Actually, it’s the lack of supply and the accompanying home prices quickly rising are the sources of market headaches. Remember your Economics 101 class on supply and demand? When supply is down and demand increases, prices move up.

In reality, the supply shortage is a much better problem to have, compared to a demand shortage. The current problem also portends no meaningful price decline nor an impending foreclosure crisis. Rather, there is a good possibility for solid home sales growth once the supply issue is steadily addressed.

As to new home building activity, housing starts did fall by a double-digit percentage in June, as mentioned above, but are up 7.8% year-to-date to June.

More will need to be built, as there is still a shortage. As more homes are built, an additional boost will be provided to the local economy along with more local job creations.

In Conclusion

So, it is safe to say that we will continue to see pressures in the bond market and mortgage interest rates overall. These increases do look to be gradual for the time being, but consistent and into 2019, for sure.

With that said, home prices are increasing nationally at over 5%, so the increase in interest rate will be more than offset by the increasing value of one’s home!

Secondly, home buying power is still extraordinarily high, despite rising home prices and rate hikes.

Find out more about that here.

In reality, now is a fantastic time to purchase. Contact me for more information, as it would by my privilege to help you.

References:

https://www.wsj.com/articles/bond-investors-catch-up-with-feds-plans-1538767826

https://www.forbes.com/sites/lawrenceyun/2018/08/02/no-housing-recession-over-horizon/#3d8212a5f79c

https://www.wsj.com/articles/real-wages-are-rising-1536359667