Silicon Valley Real Estate Update -- Jeff McLaughlin, Real Estate Blogger

A Simple Explanation Of The Federal Reserve Statement (August 12, 2009 Edition)

Wed, 12 Aug 2009 14:39:51 -0700

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.

It also reiterated plans to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the U.S. economy is "leveling off" and that financial markets continue to improve.

The change in verbiage is the rosiest from the Fed since the start of the recession and it may signal that the downturn's end is near.

That said, the Fed highlighted lingering economic soft spots that could still impact a recovery through the end of 2009 and into 2010.

Ongoing job losses
Reduced "housing wealth"
Tight credit conditions

Furthermore, rising energy costs remain a threat to inflation.

Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market.

Market reaction to the Fed's press release is muted. With no real change in message and a basic confirmation of what most investors already knew, Wall Street sees no reason to panic. Mortgage rates are unchanged.

The FOMC's next scheduled meeting is September 22-23, 2009.

Closing On Or Near Labor Day? Plan Ahead.

Wed, 12 Aug 2009 08:02:17 -0700

As the unofficial end of summer, Labor Day weekend is popular vacation time for American families.

And this year, with home sales on the rise and mortgage rates relatively low, early-September figures to be a popular closing date, too.

These points may appear unrelated, but there is an important connection between them.

Like workers in every other industry, employees of the mortgage, title, and real estate industries are just as likely to be taking time off on and around Labor Day.

For buyers with pending contracts, therefore, the closer that early-September closing date gets, the fewer industry folks that will be working to help close on your new house.

The same goes for households in the middle of a refinance.

With less than 4 weeks until Labor Day, you can take steps today to prepare for other people's time off. Here's a few of them:

Notify your lender of any planned vacation time between now and your scheduled closing.
Purchase a homeowners insurance policy and prepay the first year, effective your closing date. Send proof of payment to your lender.
Have Power of Attorney forms lender-approved and signed by all parties, if applicable.
Deposit gift monies and/or retirement fund withdrawals into an acceptable bank account, if applicable.
Schedule your final walk-through far enough in advance to resolve any issues that may arise
Have your funds ready for closing at least 1 day early.

And, perhaps most important, fulfill your mortgage lender's requests for additional supporting documentation within 24 hours of notice. This includes requests for updated paystubs, bank statements, and tax returns.

The best reason to handle these tasks in advance is that, by the time Labor Day is around the corner, basic mortgage approval tasks will already take longer to complete -- from clearing conditions to sending a wire. Reduced staff means slower response times.

Stay ahead of the curve and help save yourself from potential headaches down the road. And, if possible, avoid closing on the Friday before Labor Day and the Tuesday after.

On these days, staffs are the most lean of all.

A Reason To Lock Your Mortgage Rate Within The Next 29 Hours

Tue, 11 Aug 2009 08:00:00 -0700

The Federal Open Market Committee kicks off a two-day meeting this morning.

It's one of 8 scheduled meetings the FOMC holds annually.

The FOMC purpose is to discuss the nation's economic health and, as appropriate, makes new policy that either stimulates or retards economic growth.

The FOMC's most well-known tool for reaching this goal is the Fed Funds Rate, currently stationed in a highly-stimulative range of 0.000 to 0.250 percent.

Recent data suggests that the economy is recovering, but as of this morning, Wall Street expects the FOMC to leave the Fed Funds Rate as-is, in its current range.

However, it's not what the Fed does at its adjournment that should matter to today's rate shoppers and home buyers -- it's what the Fed says.

At 2:15 PM Wednesday, the Federal Reserve will issue a statement about the U.S. economy with the policy-making body's outlook for the rest of 2009 and 2010. If the FOMC's overall message is one of economic strengthening, expect stock markets to rally and mortgage markets to sink on the news.

This would push mortgage rates higher.

On the other hand, if the FOMC alludes to weakness in labor markets and capital investment, it should help buoy rates lower.

The Federal Reserve does not control mortgage rates, but it can definitely exert an influence. For this reason, floating a mortgage rate into Fed's official announcement is risky. Moreover, given the recent momentum in mortgage rates and in the markets, it seems more likely that rates could go up versus come down.

The Fed's press release hits the wires at 2:15 PM ET Wednesday. If you're the cautious type, consider locking your mortgage rate prior to its release.

DIY Projects : Invisible Shelves

Mon, 10 Aug 2009 08:00:00 -0700

If you're looking to add invisible shelves in your home or workplace, you can either buy them on Amazon.com for $14 a piece, or you can build them yourself with a just a few simple tools.

In this 3-minute video, life-help website VideoJug shows how to install invisible shelves in an easy-to-understand, anyone-can-do-it fashion. The acting is a little goofy, but the instruction is right on.

Invisible shelves can be used to store and display books, clocks, knick-knacks and photos. They're called "invisible" because objects appear to float on the walls on which they're shelved.

July Jobs Data Is Weak, But Strong Enough To Sock Mortgage Rates

Fri, 07 Aug 2009 09:04:55 -0700

This morning's jobs report is doing a number on mortgage rates, putting another dent in home affordability nationwide.

Despite the slightly flat Unemployment Rate, the government's July Non-Farm Payrolls report reinforced the notion that the recession may be ending soon, if it hasn't already.

Just 247,000 jobs were lost last month -- much fewer than analysts had expected.

Now, if it seems strange to be talking economic recovery while Americans are still losing jobs -- 5.7 million in the last 12 months, in fact -- remember that we have to take the data in context.

Job loss doesn't lead to economic growth, per se, but analysts tend to treat employment data as a lagging indicator. Business is often slow to hire and slow to fire, so the jobs report rarely reflects the "right now".

A terrific real-world example of jobs data as a lagging indicator is that the peak of recent job loss -- January 2009 -- occurred 4 months after the peak of the financial crisis in September 2008.

The same pattern was present during the Recession of 2001.

Government data shows that job loss peaked during the recession in October 2001, 1 month before the recession's official end. Meanwhile, job losses continued nationwide for the next year and didn't turn net positive until October 2002 -- nearly 12 months into the recession's subsequent recovery.

This is what we mean by lagging indicator and it's why investors are cheering today's jobs data. Strength in today's report may be signaling the end of the recession.

Unfortunately for today's rate shoppers, it pushing mortgage rates higher. As stock markets soar, bond markets sink.

Why Now's A Good Time To Consider An Adjustable Rate Mortgage

Thu, 06 Aug 2009 08:00:00 -0700

At least one thing is back to normal in the mortgage markets -- it's no longer cheaper to go with a fixed rate mortgage than an ARM.

As reported by Freddie Mac, a conforming 5-year ARM is priced a half-percent lower than a comparable 30-year fixed.

Earlier this year, the pricing was reversed.

It's uncommon for fixed rate mortgages to be cheaper than comparable ARMs because, with fixed rate mortgages, lenders commit to a particular interest rate over long period of time. There is a lot of risk that comes with doing that.

By contrast, an adjustable rate mortgage is designed so that after a certain number of years, the mortgage rate changes to reflect the current market conditions.

In theory, ARMs are less risky for lenders than are fixed rate mortgages and, therefore, we would expect them to have lower mortgage rates. That wasn't the case for the 6 months ending in early-May, however. When fixed rate mortgages were scraping the 4.500 percent marker in January, 5-year ARMs weren't struggling to stay sub-5.

The same goes for late-April's mortgage rate dip.

Historically, there's been a trade-off between ARMs and fixed rate mortgages.

ARMs give lower mortgage rates with less predictability
FRMs give higher mortgage rates with more predictability

Earlier this year, market conditions rendered fixed rate loans the best of both worlds -- lower rates and predictability. Today, we're back to "normal".

No matter how long you plan to live in your home, talk to your loan officer about your adjustable rate options, if only to know your options. Given today's interest rate disparity and how it can affect your monthly mortgage obligation, you may find the unpredictable nature of an ARM to be acceptable risk.

5 Months In A Row : Pending Home Sales Rise Again

Wed, 05 Aug 2009 08:00:00 -0700

The number of homes under contract to sell rose in June for the fifth straight month.

It's the Pending Home Sales Index's longest winning streak since 2003 and another piece of evidence that the housing market may be rebounding.

The supply of new homes is falling
The supply of existing homes is falling
The Case-Shiller Index showed home value increases in many of its markets

Separately, the data is interesting. All together, it paints the portrait of a recovery.

That said, we can't forget that the Pending Home Sales Index is somewhat unique versus other real estate reports. Whereas data on existing and new home sales measures closed transactions, the Pending Home Sales Index only measures intent to buy.

Just because a home goes under contract, in other words, doesn't mean that it actually will sell.

Purchase transactions can fall apart for a multitude of reasons including, but not limited to, buyer-seller disputes, failed home inspections, and an inability to secure mortgage financing. The Pending Home Sales Index doesn't account for these types of issues.

In general, though, as the number of homes under contract increases, Existing Home Sales increase, too -- usually on a 2-month lag. Home sale data should remain strong through early-Fall, at least.

For active home buyers, be conscious of the fact that that more home sales plus falling home supplies leads to higher home values. If you're looking for a bargain, the longer you wait, the less likely you may be to find it.

Where Does The Money Go?

Tue, 04 Aug 2009 08:00:00 -0700

Where does the money go?

If you're like most U.S. consumers, more than half of it goes to housing and transportation costs.

According to the government's most recent Consumer Expenditure Survey, spending patterns are little changed from years prior.

More money is spent on entertainment and less money is spent on dining out. Beyond that, the figures are somewhat static.

Meanwhile, using on the survey's industry-by-industry breakdown, we can see how monthly housing payments and daily commuting costs impact a household's budget.

For the budget-conscious, going out less often and bargain-shopping can help pad the bottom line, but not as much as living in a less expensive home or moving closer to work.

Even a refinance into lower rates can make a difference.

Use Rain Monitors In Your Yard To Prevent Water Waste And Save Money

Mon, 03 Aug 2009 08:00:00 -0700

There are 32 million acres of "lawn" nationwide -- enough to blanket New York in its entirety. It's no wonder that lawns have become the most irrigated crop in the country.

It's estimated that one-third of residential water use is directed to front and back yards, illustrating how watering a lawn can be expensive to both homeowners and to the environment.

Reducing these costs can be simple, however. All it takes is a working a rain-monitoring device. Rain monitors are basic hardware that typically install between a lawn's sprinkler heads and its water source.

Using a built-in reservoir, the devices collect and measure natural rainfall, using the levels to determine whether the sprinkler system should be engaged on a given day. With one particular, low-tech model, if the reservoir is holding a half-inch of water or more, the monitor "locks" the sprinkler heads from firing.

If you've ever watched your lawn get watered through a rainstorm, you can understand the value of a device like this.

Rain-monitoring devices range in cost from $12 to several hundred dollars with the low-tech model referenced above closer to $12. Wireless transmitting devices are at the upper-end of the range.

Many lawn care experts recommend 1 inch of water per week.

VIDEO : Who Should -- And Should Not -- Be Paying Down Their Mortgage

Fri, 31 Jul 2009 08:00:00 -0700

Financial advice is rarely one-size-fits-all, but this interview with Suze Orman is worth a watch.

In 5 minutes with NBC's The Today Show, Ms. Orman covers a ton of relevant ground for homeowners and the public-at-large:

Who should -- and shouldn't -- be paying down their mortgage
What backlash to expect from the Dow's 40% run-up since March
Why July 2009 is so different of an environment from July 2008

Then, as a bonus, Orman explains the relationship between bond prices to bond yields. It's the heart of why mortgage rates rise when inflation is present.

A lot of what Orman talks about is spot-on, but that doesn't necessarily make it appropriate for your individual situation. Before acting on Orman's opinions, talk to your financial professional first.

The Little-Known Reason Why Mortgage Rates Are Rising This Week (And Why They May Go Higher Still)

Thu, 30 Jul 2009 08:00:00 -0700

After starting the week with a run lower toward 5 percent, mortgage rates have reversed course.

It started mid-day Tuesday and the culprit is Basic Economics. Here's why.

Mortgage rates are based on the price of mortgage-backed bonds and -- like most things -- mortgage-backed bonds prices are based on Supply and Demand.

When bond supplies grow faster than the corresponding demand for them, bond prices tend to fall and when bond prices are down, bond yields are up.

Meanwhile, this week, the U.S. Treasury is making its largest weekly auction in history. $115 billion in new debt, to be exact. This means that before the week is through, $115 billion in new bond supply will have been introduced into the market and -- so far -- demand hasn't kept pace with the new supply.

Prices are plunging.

For home buyers and rate shoppers, this is especially bad news because mortgage-backed debt is less desirable to investors than is treasury debt. As a result, when treasury debt loses values, mortgage-backed debt tends to lose value, too. Not always, but most of the time.

So, beginning with Tuesday afternoon's auction, debt supplies have been growing faster than buyer demand.

Bond markets are suffering from an abundance of debt supply and it's been a big reason why mortgage rates are rising. The week's not over yet, either. $28 billion is due for auction Thursday.

If demand at the auction is similarly low, watch for mortgage rates to spike again.

Using The Case-Shiller Index To Predict The End Of The Recession

Wed, 29 Jul 2009 08:00:00 -0700

For May, the Case-Shiller Index showed home values up in 15 of its 20 tracked U.S. markets. It's the first time in nearly 3 years that the index showed such strength and a signal that home prices may be turning higher for good.

According to a Case-Shiller Index spokesperson, "this could be a signal that home price declines are finally stabilizing."

However, just because the Case-Shiller Index indicates home values are stabilizing, doesn't necessarily make it true. Real estate is a local phenomenon and the Case-Shiller Index tracks just 20 U.S. cities.

Residents of every other town are unaccounted for.

Additionally, even within the 20 tracked cities, there are distinct neighborhoods and pockets that are under-performing the general market -- just as there are those that are over-performing. The Case-Shiller Index can't get that granular.

Despite its imperfections, the Case-Shiller Index remains a helpful, broader measurement of U.S. real estate. Economists believe that housing led the U.S. into the recession and they believe housing will lead us out, too.

If that's true, May's figures are the next step in the right direction.

More Housing Strength : New Home Sales Surge In June

Tue, 28 Jul 2009 08:00:00 -0700

Once again, the housing market is showing that its worst days may be over.

According to the Census Bureau, the number of new homes sold in June leapt by 11 percent from the month prior. It stands as the biggest one-month jump in 8 years.

A "new home sale" is when a home in any stage of construction -- not yet started, under construction, or already completed -- goes under contract, often with a builder. It's the opposite of an "existing home sale".

In addition to surging sales, the monthly supply of new homes fell to its lowest level in 11 years.

Because home values are based on the relative supply and demand for a particular home in a particular area, anytime that demand for homes grows faster than supply, we would expect prices to rise.

Indeed, that's what we've been seeing. The combination of low interest rates, seller-paid incentives and a first-time home buyer tax credit is bringing buyers into the market faster than new supply can come online. It's one reason why home prices have stopped falling across many parts of the country.

It's also why home buyers may find it tougher to get "a good deal" in real estate later this year and into 2010. If demand stays high and supplies fall further, sellers should regain the upper-hand in contract negotiations.

How Burglars Can Get Into Your Home In Less Than A Second

Mon, 27 Jul 2009 08:00:00 -0700

The above video may be among the most disquieting 4 minutes of your day.

Home burglaries are on the rise and many burglars are using a lock-picking technique called "Lock Bumping" to enter into homes. Using a special key and a hammer-like tool, pin-tumbler locks can be "broken" in less than a second, according to NBC's The Today Show, 95 percent of U.S. homes are "protected" by such locks.

In the video, you can see how it's done first-hand. After the video, you'll probably want to start looking for new locks for doors.

Now, replacing locks can be a do-it-yourself project, but you may want to leave it to a professional. Rather than searching the Yellow Pages for a locksmith, however, consider using Angie's List instead -- the site features an unbiased "customer review" section that you can't get from the phone book.

If you've never used Angie's List, note that it does require a membership fee, but annual and multi-year memberships come with a 110% Money-Back Guarantee. If the service isn't everything you hoped, there's very little risk.

Home Supply Falls To An 8-Month Low

Fri, 24 Jul 2009 08:00:00 -0700

The national home supply is falling, down to its lowest levels since December 2008.

In June, there was 9.4 months of supply, down from a year-ago level of 11.0 months. It's one more sign that the housing market may be mending itself.

Housing supply is an important metric because home values across every U.S. market are rooted in Supply and Demand. When the supply of available homes outpaces buyer demand, home values tend to fall. And, by contrast, when homes are relatively scarce, values tend to rise.

We're still a long way from historical averages, but dwindling home inventory may be one reason why the national median sale price rose by $7,000 last month.

A reduction in inventory may also explain why two other popular home value metrics -- the government's Home Price Index and the private-sector's Case-Shiller Index -- are each showing signs of a rebound, too.

However, before we get too excited, it's important to remember that home sales of late have been spurred by low mortgage rates and by the First-Time Home Buyer Tax Credit. A real estate trade group says first-timers represent 29 percent of the market, for example.

But so long as rates remain low and buyer stimulus is in place, we can expect that the recent trends in real estate will continue. Inventory should continue to drop and prices should start to rise.

Therefore, if you're planning to buy a home in the next 12 months, buying sooner rather than later may be a smart way to save on your next home.

The Home Price Index Shows That Home Values Increased In May

Thu, 23 Jul 2009 08:00:00 -0700

Home values around the country appear to be leveling.

The Federal Housing Finance Agency's latest Home Price Index report shows values up by nearly 1 percent in May versus the month prior.

Since peaking in April 2007, values remain off by 11 percent nationwide.

The FHFA Home Price Index is an interesting metric. Different from the Case-Shiller Index which collects data from just 20 U.S. markets, the Home Price Index reflects every U.S. home that backs a mortgage sold to Fannie Mae and Freddie Mac.

In this sense, the FHFA Home Price Index is more "national" than the Case-Shiller Index but the HPI has its flaws, too.

The House Price Index specifically excludes from its measurements the sales price on any home purchase with any of following traits:

Is new home construction
Is a multi-unit property
Is financed by an entity other than Fannie Mae or Freddie Mac

Because of these exclusions, some analysts say the report is incomplete. The same could be said of every method of home valuation, however.

Therefore, what's most important to today's home buyers and sellers is that each of the "popular" home valuation reports shows similar patterns. Home prices appear to have stopped falling and may be even starting to recover.

It won't be for a few years that we'll be able to look back and point to the exact month that real estate bottomed. Nevertheless, considering how the data has presented as of late, it's reasonable to think that we've already hit it. Certainly, that's what the Home Price Index suggests.

For a region-by-region breakdown of the Home Price Index, visit the FHFA website.

Mortgage Rates Drop On Ben Bernanke's "Exit Strategy"

Wed, 22 Jul 2009 08:00:00 -0700

Mortgage markets rallied Tuesday while Fed Chairman Ben Bernanke gave his semi-annual testimony to Congress.

By the time the day was over, some conforming mortgage rates were down by as much as 0.250 percent.

One of the leading causes for the market rally was Chairman Bernanke revealing an "exit strategy" from its massive market stimulus.

Until Tuesday, the Fed hadn't gone into much depth about means and methods by which it would unwind its interventions. In addition to penning a widely-read Op-Ed piece in the Wall Street Journal Tuesday, Bernanke testified to Congress that the Federal Reserve has a viable "exit strategy".

Wall Street was pleased to hear it.

The specter of long-term inflation has spooked the mortgage markets off-and-on since the start of the year. It's one of the reasons why mortgage rates have been so jumpy, and why they crossed 6 percent last month. Inflation is terrible for mortgage markets.

So, with the fear of inflation subsiding -- at least temporarily -- mortgage rates sunk Tuesday.

With any bit of luck, momentum will carry rates lower today and through the rest of the week. But, don't get greedy. Mortgage markets are notoriously fickle and one "bad" statement from the Fed Chairman could cause rates to rise right back up.

Bernanke's complete Tuesday testimony can read online at the Federal Reserve website.

Housing Starts Make Its Largest Leap Since 2004

Tue, 21 Jul 2009 08:00:00 -0700

Housing Starts soared in June, thumping analyst expectations for the second straight month.

A "housing start" is a new home on which construction has started. Last month's jump in single-family starts is the largest one-month jump since 2004.

To Wall Street, June's figures are the latest signal that the country's housing markets may be on the mend.

For home sellers, however, the news may not be so rosy. With more homes expected to come on the market, price competition among sellers could intensify and -- all things equal -- that would push sales prices lower.

So far in 2009, that hasn't happened.

As home supply has grown, it's been met by off-setting buyer demand. Spurred by low mortgage rates and an $8,000 first-time homebuyer tax credit, Americans appear to find today's home buying conditions somewhat ideal.

As a result, purchase activity has been strong and first-time home buyers now account for close to 30 percent of existing home sales.

Rising Housing Starts can be a double-edged sword. It shows strength that builders are more optimistic about the economy, but too much optimism can lead to a glut of unsold homes and that could reverse the recovery's momentum.

Reduce Hot Water Waste With The Right Showerhead

Mon, 20 Jul 2009 09:00:00 -0700

In the past few years, the home appliance "green" movement has gone mainstream.

Thanks to new products carrying affordable price tags, today's eco-conscious homeowners are finding it easier to protect both the environment and their household budgets at the same time.

One such earth-friendly product is the Roadrunner low-flow showerhead from Evolve.

The Roadrunner is an interesting product because it's designed for how most people shower.

Because the water always starts cold, most of us will turn a shower on and then do other things while the water heats up. Maybe we'll brush our teeth or make the bed or something else to kill time. All the while, heated shower water spills down the drain at the rate of two-and-a-half gallons per minute.

The Roadrunner halts the waste.

Once it senses the shower water has reached a comfortable 95 degrees, the Roadrunner showerhead slows the shower's water flow to a trickle. Just pull the attached cord, and the full flow returns.

Unlike its competitors, the Evolve Roadrunner saves water costs and energy costs -- an estimated $250 in savings annually. It can be bought on Amazon.com for about $40, or at Evolve's website.

The First-Time Home Buyer Tax Credit : Use It By December 1, 2009 Or Lose It

Fri, 17 Jul 2009 08:00:00 -0700

The government's First-Time Home Buyer Tax Credit expires December 1, 2009.

If you expect to use the program in conjunction with a home purchase, therefore, you may want to consider yourself officially "on the clock".

Assuming a 60-day window between contract and closing, there are now 77 days left to find a home and go under contract for it.

The First-Time Home Buyer Tax Credit refunds up to $8,000 at Tax Time for qualified home buyers. A few of the program's qualification criteria include:

Home buyer must not have owned a primary residence in the past 36 months
The home may not be purchased from a family member
The household adjusted gross income must be below $95,000 for single tax filers and $170,000 for joint tax filers

The tax credit itself is limited to $8,000 or 10% of the purchase price, whichever is less.

Remember, though: The refund is a true tax credit -- not a deduction. This means that a taxpayer owing $8,000 to the IRS and claiming the $8,000 First-Time Home Buyer Tax Credit would owe the IRS nothing on April 15, 2010.

The complete list of qualifying criteria is posted on the IRS website.