Saturday, July 1, 2017

Mortgage Interest Rates Defy Expectations – Five Reasons Rates Remain at Historic Lows


 

Can you count on mortgage interest rates to remain low for the next year?

With the country experiencing “Full employment,” Fed rates up 2X in 2017 with more expected increases to come, the stock market flying ever upward, we see mortgage interest rates drop.
At the beginning of 2017 and through the first quarter, pretty much every pundit has predicted increases in mortgage rates.

So which way will they go in the rest of 2017 and into 2018? Is this a good time to buy a house, given the high prices and low interest rates?

Here are the five key things effecting interest rates. You might also be able to use an understanding of the trends related to these five factors to help predict the future:



1.     Bonds are the key:  As is obvious by this chart, both 15 and 30 year mortgage interest rates move almost exactly with treasuries. And since treasuries are basically risk free, the premium for a mortgage is based on higher risk with 30 year being more risky than z 15 year. As treasuries move, mortgage rates move. 

2.     Inflation matters: Treasuries and other bonds track very closely with inflation. When investors risk capital, they want a “real” return. That is, they want to be compensated for lending their money at a rate something above inflation. To get $1.02 next year for $1.00 invested this year isn’t smart if the cost of living makes that $1.02 only worth last year’s $1.00. As you can see on the chart, inflation tracks with treasuries and all long term bonds.
3.     Investment options: This is a more difficult item to measure. But consider this. 50 years ago, an investor was probably deciding between real estate, commodities, stocks, and bonds. Today, that same investor has dozens of countries around the world offering bonds, and thousands of companies worldwide offering stocks and bonds. In addition, you are more likely to buy a property in a foreign land.  With all those options, the buyer should be in control, forcing yields up. But, the demand has also increased with pension funds, sovereign nations, and others vying for the same investments, driving prices down. Right now the demand is keeping yields low
4.     Demand for mortgages: Like any other products, mortgage companies are subject to the market place supply/demand curve. Mortgage companies and the mortgage departments at major banks don’t make money sitting on mortgages, they make money originating or selling mortgages. Therefore, if consumers aren’t lining up for the product, the price is going to drop. Right now, demand is very low, as home turnover is light, and refinancing is extremely low. Thus mortgage companies must drop the price to get the business.
5.     The Fed: The Federal Reserve can tighten or loosen money (and thereby affect interest rates) by changing the Fed Funds Rate, buying or selling Federal Reserve Assets. These two efforts by the Fed sometimes have immediate affects on other interest rates, but it is the least important in how it affects mortgages.

These five factors make clear why mortgage interest rates have remained low, and have even fallen in the last few weeks. What about the future? Let’s take a quick look at each of the above five factors.

1.     Bond movement seems unlikely. The economy is still moving up, but in an anemic way. If business picked up to 2.5 or 3% annual growth, bonds would likely increase yields.
2.     Inflation is non-existent. Even with “full employment,” there is no pressure on hourly wages. This may be because many in the labor force are underemployed in hours, skills, or both. There is no evidence of commodity inflation and oil/energy seems headed lower.
3.     Wealth appears to be growing and the options for great yields continue to be a chimera. The aging of most populations in the world and especially in the US would account for much of this wealth growth. It is also clear that home value increases and the stock market records are producing huge amounts of wealth that need reinvestment.
4.     Mortgage demand is unlikely to rebound. There are few existing homes for sale in most US markets and very little new construction. Most who would refinance to get lower rates have already done this. Refinancing for cash, consolidation, etc., seems to be at a very low ebb. That could create more demand in the future if homeowners decide to use some of the equity they’ve amassed.
5.     The Fed is promising to continue to tighten, and over time this has to have an effect on all interest rates. The Fed would like to see inflation at around 2% which would also likely impact current low interest rates. So far, however, the economy has been very resistant to the Fed’s efforts.

If you are planning to buy a home or investment property, and mortgage interest rates are a consideration, you probably have some time to get the super low rates of the past several years. As this is written, rates have dropped to 3.625% for 30 year and 3.250% for 15 year. Those rates are for a jumbo loan and an A+ borrower who is purchasing for occupancy.  If not a purchase, the rate may be 0.125% higher. 

Bill Rayman is more than a traditional mortgage broker. Bill is a financial consultant with regard to mortgages. He will help you get the very best mortgage for your specific needs. He is also extremely resourceful if you have issues that might typically get in the way of a mortgage. Call Bill today to discuss options. As a mortgage broker, Bill is only paid if you get your mortgage, so he’s going to work very hard to insure a positive result.

Bill Rayman Home Mortgages
12121 Wilshire Boulevard, Suite 350
Los Angeles, CA 90025
Phone: (424) 354-5325
https://www.guaranteedrate.com/loan-expert/billrayman

Monday, April 10, 2017

Should You Buy a Home in Los Angeles or Rent? 2017 Update


 

With Los Angeles Mortgage Rates Still at 4.15%, and Home Prices Still Increasing, Buying Is Still Better


2013
In 2013, we started following a typical Westside home worth $650,000. We now have data through 2017 and while every situation is not the same, the results are pretty clear in this analysis. Buying is better!
 According to Zillow.com the rental value of that home was $3150 a month in 2013.  The estimated mortgage was $2441 based on 20% down and 3.75% 30 year fixed mortgage.  Property taxes and insurance would add another $730.  Maintenance might be $500.  So total out of pocket was around $3700 in 2013.
The tax advantage in the 25% tax bracket would come in at around $800 month, so the net advantage to buying was around $250 a month that year. If the house was purchased in 2013, there would have been at least $6000 in closing costs. We’ll spread those over 3 years. That would result in another $166 per month.
Rent vs buy in 2013.  About even.
2014
Zillow says the house is now worth $795,000, for a gain of $145,000. Last year the interest was 3.75%.  Today interest would be 4.5%. Total monthly mortgage would be estimated at $3129 now vs $2441 a year ago. All of these estimates are from Zillow.com, and we can't totally rely on their numbers.  In fact, the rent number seems suspect, as it has dropped from $3150 to $3125.  Government statistics for cost of living specifically associated with rental of a primary residence showed a 2.7% increase in the LA area.  Even so, that would only boost the rent by $90.  My gut tells me that rents are up and that the 2.7% number might be more in line with reality.   If this was a new purchase, there would be a slight bias to the renter of around $300 a month. However, if the home was purchased in 2013, the owner just made $145,000. The renter could have put the 20% down payment in an investment and made 6% on the $130,000 or $7,800.
Rent vs buy in 2014. Cash flow benefit to the renter.  Wealth increase huge win for the buyer
2015
Zillow now says the house is worth $840,000. And increase of $190,000 over the last two years. The rent is up from $3150 to $4000 per month. Markets don’t always act like this, but the tenant would likely be subject to these increases and would now be paying $4000 for rent vs the $2700 they would still be paying for mortgage, property tax, insurance, and repairs if they had purchased in 2013. They would also have a $190,000 capital gain on their $130,000 down payment. The purchase in 2013 would have been a huge success. Of course this capital gain would be offset by costs of purchase and costs of sale if the increase was to be realized rather than just on paper. If we used 10% or $83,000 for that number, we are still $50,000 ahead by the end of year two. In other years this could have gone the other way.
The current mortgage based on a 20% down payment and 4% interest rate would be $3208 with another $900 for property taxes and insurance. Add in $500 for repairs and the total is approximately $4700. Tax savings would be $1000 using the same criteria as above. So the net cash cost per month is $3700 vs rent of $4000.
Of course, every house in every neighborhood will have different results, but Zillow has done an analysis by neighborhood that predicts how long it will take to break even on a purchase vs a rental. Their system is not very sophisticated and does not take into consideration appreciation.
2017
We skipped a year, but how is that same house doing in 2017. Zillow says that the house is now worth $970,000 and the rent is likely to be $4000.
For the owner who purchased in 2013, his out of pocket is now $2900. He has a capital gain of $320,000 which would be reduced by about $50,000 for real estate fees were he to sell. The gain would still be at least $270,000.
The renter who put his $130,000 into an investment returning 6% compounded would have made $34,122.
Owner out of pocket $2900 vs renter out of pocket $4000
Owner ROI $270,000 vs renter ROI $34,122
So, what about buying that home today? Is it still a good deal? With 20% of $194,000 down and a 4.15% mortgage, the monthly payment including taxes and insurance, would be $4700. Add in the $500 for maintenance and subtract the tax IRS advantage of $1200 per month and you have $4000 per month out of pocket, just about equal to the rental amount. The closing costs of $10,000 would result in a the buyer paying about $300 per month more than the renter in the first year. But by year three it is likely that the monthly rent would be up another few hundred dollars, and in year four the amortization of those closing costs would be over (based on our idea to amortize them over 3 years.)
After four years of running this experiment, and even with a supposedly overheated seller’s market in Los Angeles, it seems that buying just makes way more sense than renting. We can imagine scenarios where this would not be the case. The housing market is subject to downturns just like any market. It is possible to imagine this home dropping by $300,000 if there were a typical drop in market values like 1999 or 2008.
Even then, these markets correct, and over time the likelihood is that the home will continue its upward valuation curve. On the other hand the market may continue strong and deliver another $100,000 or so in appreciation over the next three years.
A major issue in the current market is whether you can even get a mortgage in Los Angeles.  We can help you with that.  A short complimentary conversation will allow us to give you plenty of direction on your eligibility and what you can afford.  Call Bill Rayman at 424-354-5325


New Contact Information for Bill Rayman
Bill Rayman Home Mortgage
12121 Wilshire Blvd
Suite 350
LA CA 90025

424-354-5325

bill@rate.com

Friday, March 31, 2017

The Federal Reserve and Your Mortgage Plans - Rates Still Low in 2017

 

Interest Rates Down After Fed Hikes in March 2017


Some might consider it bad form to start an article with the bottom line, but we'll take that chance. The bottom line is that mortgage interest rates have dropped during late March. No one guessed this would happen after the Fed raised rates on March 15, 2017. Almost no one expects these low rates to continue.

Here is the "why"

The Federal Reserve wants to increase interest rates on regular borrowing while the economy is improving and unemployment is reasonably low. They don't want the economy to overheat, and raising rates is one way to keep the economy from getting ahead of itself and potentially causing inflation above the Fed's goal of 2.5% per year.

However, housing continues to underperform. Housing starts are low for both single family and apartments. There is a severe shortage of residential units and this is driving the cost of housing to crazy levels in many cities. The Fed wants to encourage home ownership, so they have not liquidated their enormous holdings of mortgage-backed security bonds. By holding these bonds off the general market, they are artificially reducing the supply, thus driving up the cost. With bonds, as the cost increases the yield, or interest rate, decreases.

While we would expect mortgage interest rates to more or less parallel Fed rates as they increase, this stash of bonds is keeping the rates lower than would otherwise be the case. But that's not all.

"Why" part 2

All bonds, including the ones mentioned above, tend to be a safe place to store your money if you're worried about the economy. Therefore interest rates trend up if expectations for the economy are positive, and trend down if folks get worried. In other words people would rather have their money in a safe place, even if the return on investment is lower.

Mortgage rates are based on bond rates. (There are other factors, too, such as competition.)
The bond market was trending up, as were mortgage interest rates. The Trump effect has seen the market go up 30% since election day, one of the largest 5-month gains in history. The hope of investors was that he would fix Obamacare and create a more business friendly tax code. When the Congress took the "repeal and replace bill" off the table, the market swooned a bit. Some of the money that came out of the stock market made a dash for the bond market, driving down yields.

Now what?

As the Republicans regrouped at the end of March the market settled down, getting fresh optimism from expectations that the Republicans might fear a serious loss of confidence in their governing abilities if they don't get some promises filled soon. Over the next few weeks or months, the market is likely to move based on those two issues. Certainly there are dozens of other influences that could completely change the direction of the market at any moment, but the success or failure of the current administration to do something on those two issues will be huge.

If you are in the market for a home, an investment property, or need to refinance for any reason, this is very likely your last stab at rates around 4%. Call Bill Rayman immediately to get the paperwork going at (323) 682-0385.

An interesting extra tip

If you need to sell your Denver home very quickly, contact https://cedarcrestco.com/. They have investors waiting. 

Thursday, July 2, 2015

Who Was John Hancock and other Fourth of July Trivia Questions - Take the Test

 

How many of the following 4th of July trivia questions can you get right?

Answers are at the bottom of the page.

1.    Two of the first five Presidents of the United States died on the same day. Which presidents and what date?













2.    When did the 4th of July become a national holiday:
a.    1776
b.    1812
c.    1901
d.    1938



3.    Is there something written on the back of the Declaration of Independence?
a.    Yes. A treasure map
b.    No. Don't be silly. That was a movie.
c.    Yes. But it is invisible
d.    Yes. Some kind of seal.

4.    Who was John Hancock?

a.    A big time insurance broker in 1776
b.    The President of the Continental Congress
c.    The first signer of the Declaration
d.    All of the above
e.    None of the above
f.    Only b and c

5.    Who signed the Declaration on July 4, 1776?
a.    Nobody
b.    Only John Hancock
c.    All the members of the Continental Congress
d.    Your guess is as good as the historians

While you are visiting our blog, feel free to check out a treasure trove of information about Los Angeles Real Estate and Advice about how to optimize your mortgage experience. Give me a call if I can help in any way.





Here are the answers. Send this URL to friends to see how they do.

Jame Monroe
1.    John Adams, and Thomas Jefferson both died on July 4,1826, the 50th anniversary of the signing. James Monroe also died on the 4th of July, but in 1831.

2. (D) It wasn't until 1938 that the 4th of July became a national holiday.

3. (D) Written upside down at the bottom of the signed document is: "Original Declaration of Independence dated 4th July 1776." It's not known who wrote it or when. Since parchment was usually rolled up during the Revolutionary War years, it's thought this memo served as a label.

4. (F) John Hancock was both the President of the Continental Congress and the first to sign on July 4th.

5. (D)  There is a huge historical dispute about who signed and when. Some say Hancock and one other signed on the 4th, with all the others on August 2nd. Some others say 34 of the 57 signed on the 4th. Yet others say only John Hancock signed that historic day.

Wednesday, May 13, 2015

Five Reasons to Refinance Your Home Mortgage Loan Soon

 

Mortgage loan rates are creeping up in Los Angeles


The Mortgage Banking Association (MBA) has just released its April 2015 statistics, concluding that credit availability for home mortgages has inched upward again. This is a continuation of a trend that has been ticking ever higher since January of 2015.

On the other hand, mortgage interest rates have followed bonds (which the invariably do) with increase in early May. While this may also reflect mortgage demand which is usually stronger in the go-go home sales months of May - August, it may also be telling us something about the direction of interest rates due to the competition for low interest bonds worldwide. Too many bonds chasing not enough cash will drive up rates.

The question you might ask yourself is this: "Should I refinance my home mortgage now?" Here are five solid reasons to do so.

1.  Lock in historically low interest rates - Even if mortgage rates have moved up .3 over the last couple of weeks, current rates of 3.8 on 30 year fixed loans is not normal, and will likely never happen again soon, if ever, once the Fed decided to tighten credit and increase base rates.

2. To realize optimal cash out - This may be the optimum value on your home for now. While the supply demand curve for residential real estate appears to favor owners for the next few years, there is likely to be at least a short term dip in home prices if interest rates rise by a point or two, back to normal levels. Moreover, prices usually peak in mid summer and drop of in the fall. If you want to get cash out, now may be the best time.

3. To eliminate your mortgage insurance - Whether through FHA or through a private insurance company, you may be paying as much as 1% or more per year to cover premium mortgage insurance. Most private insurance can be eliminated if you reach 80% equity in the home. Some FHA plans don't have this option. But you may be able to refinance the loan to get rid of the FHA premium.

4. To get rid of higher priced debt like credit cards of finance companies - Why would you want to pay 8%, 12.5% or even 23% for borrowed money, when your local mortgage lender will be happy to provide you that money for $3.8%.  If you have even $10,000 in credit card debt at 14%, you are shelling out $1400 per year for that credit line.  Save $1000 a year with a refinance.

5.  Prepare for a time of less or no income - Are you getting ready to retire? You won't likely be able to borrow against your home after your income stops. While for many homeowners, it is wiser to sell the home for cash or downsize to take out cash, for many the best approach is to to refinance the existing home to reduce the interest rate and/or take out cash. With such low rates today, you can generally invest the money at a better return, maybe even much better.

If you are thinking about refinancing your home mortgage, you

The Future of Los Angeles Residential Real Estate - Part 1

 

Who knew housing would crash in 2007? What's next?


Applaud who you will for the exploding cost of housing from 2000 to 2007, and then blame the same folks for the disaster that followed said explosion. Unscrupulous bankers, brokers, government workers and agencies, and consumers all had a hand in the mess. But none of the excesses would have been possible but for the BIG MYTH of that time: home prices will continue up forever.

The truth about any market is that there is no permanent truth other than change. Whether gold, steal, copper, coffee, stocks, bonds, or real estate, you can count on the reality that at some point the amateurs and pros will both get blindsided. Over the next several weeks, this blog will make the case that Los Angeles, and to a great extent the rest of the US and World, is entering into a period where the most brilliant among us haven't a clue of what to expect. They might pound their chest with bravado about their scientific theories of what the future holds, but the ones who turn out to be right will have done so by blind, or at least almost blind, luck.

Here is a short list of why the future is so unknowable regarding economic trends of any kind.
  1. Population growth in Los Angeles is coming from an aging population. People are living a lot longer. This trend is very likely to increase, not decrease.
  2. Young adults are getting married much later in life, if at all.
  3. We are not replacing the population through childbirth.
  4. Homes built in last 50 years were designed for a family of 5, not 3.
  5. A possible future where a majority work at home.
  6. A shrinking middle class, and increasing upper middle class.
  7. Not enough jobs for two wage earners in many homes.
  8. Possible shrinking population with no low wage jobs for immigrants.
  9. Second industrial revolution completely changing manufacturing and the service sector
  10. Self driving cars making commuting more bearable.
  11. Likely large increase in mortgage rates from historic lows today.
  12. Student loans keeping many out of the housing market.
  13. AirBnB and other similar companies eating up prime residential real estate
  14. Cost of basic goods and services will continue to decrease, creating a rising % of income that will be available to compete for housing. 
  15. The largest wealth transfer in history as baby boomers leave the stage
  16. The middle class moving out of Los Angeles, or even California, in search of cheaper housing and lower taxes in places like Texas or the Carolinas. 
If you'd like to do your own analysis. Go back through the list and see how many of these changes are likely to push prices up, and how many will be pushing prices down. 

Add your voice. What other major factors are likely to shape real estate prices in the future?

Saturday, April 18, 2015

7 Surprising Reasons to Refinance Your Los Angeles Mortgage Now

 

There are obvious potential benefits to a mortgage refinance in 2015... and not so obvious reasons.


Let's quickly touch on the obvious reasons to refinance:
  • If you can save 1/2% point and plan to stay in the home 3 years, you'll save money
  • To take out cash for another investment, college funds, home improvement, etc.
  • To shorten the term of the loan
  • To reduce your payment
Now, here is the way less obvious list:
  1.  To get rid of mortgage insurance (FHA, PMI). If your home has increased in value since your purchased it, and you now have 20% equity, a refinance can save you the cost of mortgage insurance. In many cases this saves you over $100 a month.
  2. To increase the term of the loan so that you get low interest financing for longer. This will include either cash out and or lower payments, but your goal is to to "borrow" at these crazy rates for longer. 
  3. This may be your last chance to refinance while you have income. If you are close to retirement, you can use the refinance to set up your retirement plan, keeping in mind that you may not be able to refinance in future years regardless of your assets or the equity in the home. 
  4. Getting rid of a "bad" loan. Possibly your current loan is an adjustable with a balloon, or was the result of a loan modification where the benefits are going to run out soon. 
  5. Pre divorce planning. You are considering a divorce. Currently both names are on the loan. Refinance now with only the name of the spouse who will continue with the payments. Easier now than it will be after the divorce.
  6. An old reason that is back in style - Pay of higher interest debt including credit cards, home equity loans, and finance companies.
  7. A combination of the above. No one of these reasons may be enough to move you to action, but consider this list of benefits we found one family received in a single refinance.
  • Go from a 30yr (with 18yrs left) to a 15yr mortgage
  • Drop my interest rate over 2%
  • Lower my monthly payment by $20
  • Get cash back at closing
It costs nothing to discuss your options and potential benefits of a refinance with Bill Rayman. He can advise you as to whether your circumstances, including reasons to refinance, equity in the home, income, and credit score provide you with a potential advantage.  Call Bill at 424-354-5325

Bill Rayman Home Mortgage

12121 Wilshire Blvd
Suite 350
LA CA 90025
bill.rayman@guaranteedrate.com

https://GuaranteedRate.com/BillRayman