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San Diego Mortgage Rates Report: September 1, 2014

Mortgage bonds have steadily strengthened since their August, 2014 levels, causing September mortgage rates in San Diego to drop.

You can follow the national average mortgage rates at Bankrate.com.  San Diego mortgage rates tend to be .125% LOWER than the national average.  Average rates as of August 1, 2014:

30 Year fixed conventional average=  4.06%
15 Year fixed conventional average=   3.17%
30 year fixed VA/FHA average=              3.65%
30 year fixed VA/FHA jumbo avg.=       4.0%
5/1 adjustable rate conv. average=         3.52%

We told you last month that San Diego home prices up but the price increases are decelerating.  While I believe that the long-term trend will track the increases in inflation, prices may soften through 2015.  I talked about this on Active Rain today and cited this Redfin article:

The first is a slowdown in home price growth. For the first time in five months, price growth was essentially flat in July. The second is a shift in pricing power from sellers to a more balanced market. That shift has been nearly nine months in the making from when sales began to first decline last November

Deals are going to be made this Fall.  If you're buying a home, you have some price flexibility.  Making offers 15-20% below asking price is almost as nutty as pricing your property $100,000 over recent solds but, without a doubt, buyers will be driving fall sales in San Diego. 

We can lock rates up to 60 days so, if you have to be flexibile with a seller who is trying to close on another house, we can cover you.  Make sure you get a good price concession for your flexibility.

Who Will Rent to the Millennials? A Case for Owning An Apartment House in Your Investment Portfolio

Zillow Chief Economist Stan Humphries confirms what I"ve been saying for five years now; Millennials prefer renting to owning a home.  Millennials can be defined as the generation born from in the early 1980s to the early 2000s.  If you want to be more definitive, let's say 1981 through 2002 (or today's 12-33 year olds.) This is a HUGE demographic, some 80-90 million Americans.

They ain't buying homes.  Here's why: 

(1) older Millennials got burned in the real estate boom and bust last decade.  They were the "last in" on the Federal Reserve-induced boom and bought at the top of the market.  When the balloon popped, they got caught holding the bag.  So many of them short sold those properties or lost them in foreclosure because...

(2) ...they don't have the income.  1in 7 can't find work and over 4 out of 10 of the best educated millennials are underemployed.

(3) they have a giant debt-load, thanks to the student loan program.

(4) Millennials are mobile, uncommitted, and untethered by choice.  Laying down roots doesn't appeal to this financially-strapped generation.  As they struggle to find meaningful, well-paying work, they are postponing marriage and child-rearing--two key factors which encourage home ownership.

What's that mean for San Diego real estate?  As millennials postpone the home purchase decision, the median age of first-time home buyers will rise.   The linked article about the Zillow research suggest it could rise to as high as 33 years old (nationally) by the end of the decade--that number was around 28 years old last decade.  In San Diego, we typically add 3-4 years to the national average because of our high home prices.  Stated simply, we may not feel the full  effect of millenial homebuyers for another 15 years. 

How can an investor capitalize on this?  Give 'em what they want--rental housing.  As wage inflation kicks in, there will be an upwards pressure on rents.  As rents rise, the price of multi-family properties rises too.  Investors can purchase 3-4 unit properties today, with 25% down, and have positive cash-flow based on existing rents.  There are over two dozen properties for sale today in San Diego County, three of which are in Oceanside (my favorite investment location) which meet the positive cash-flow test.

I think you're going to see rents double in the next 10 years and I believe multi-family properties could increase as much as 50% in value during that time.  Investors have a chance to double or triple their money in the next ten years.  Contact me to analyze the numbers and risks associated with this advice.

San Diego Housing Approaches Rent Vs. Own Parity

Should you buy a home or rent one, in San Diego? 

As always, that depends.  If you're looking for a home in La Jolla, you may never find a one which is less expensive to own than rent, in today's dollars.  The physical beauty of the seaside burg is stunning and La Jolla has traditionally traded at a steep premium to rent v. own parity.

Nick Timiraos suggested that buying conditions are getting better for San Diego, in the Wall Street Journal:

Home ownership is also looking more affordable because after several years of declines, apartment rents will rise by around 4% this year, says Mr. Nadji. He says rents are poised "to pick up even more momentum across the country next year."

Rising rents are one reason a would-be home buyer should consider purchasing a La Jolla home rather than waiting for prices to reach parity there.  If inflation kicks in, and onc day it will, rents could increase a level far above what the mortgage payment, for a La Jolla home, would be today.

Even cities where it is still cheaper to rent than own have seen big boosts in affordability. In San Diego, the monthly cost of owning a home has averaged around 83% more than renting over the past two decades. During the third quarter, owning was 22% more expensive than renting, according to John Burns Real Estate Consulting

Take note of this figure.  In many San Diego sub-markets, (mostly the beach cities), housing prices will never reach parity with today's rents.  Like the La Jolla example, inlaftion may cure that in 2-3 years.  Still, some San Diego County markets have already reached parity meaning, it's cheaper to own rather than rent.  Even in some beach cities, like Oceanside or Imperial Beach.

I searched active Oceanside homes for sale and found one which is listed for $189,000.  With about $7,000 down payment,  and an FHA loan with a 4.88% APR, the monthly mortgage payment would be $1250, some $50-$100 below what it might fetch in rent.  That's one of many Oceanside properties which are at or below parity for the rent V own model.

I also found plenty of similar opportunities while searching for homes for sale in Chula Vista.  There were many more recently built homes, which command premium rents, listed under $250,000.

San Diego entrepreneur Bill Lyons intends to make these home searches easier when he releases his new website, Revestor.com.  Revestor organizes current listings, by capitalization rate or cash flow, to offer homeowners a chance to "rate" properties, by comparing the listed price to current rental data.

San Diego is still selling at a slight premium but this may be as good as it gets.  If mortgage rates continue to stay low, because of the Fed's printing press and quantitative easing, the bubble for low rates will soon pop, and inflation will kick in.  Locking in a price, and a low mortgage rate, might be the best way to insure you won a piece of our sunshiney paradise.

Jumbo Mortgage Rates Report- July 5, 2011

Why do La Jolla, CA home buyers keep watching the riots in Greece?

Once again Greece threatened default on its soveriegn deb.  This sent shockwaves through the world financial markets.  This time around, the European Union was offering less solidarity and more austerity to its little peninsular cousin.  Capital fled European markets and into American treasury bonds during the middle of June.  This drove bond yields down which caused jumbo mortgage rates to decline to their lowest levels since 2004.

Last Monday, we locked a $500,000 loan, at 4.75% (30 year fixed), with no fees or discount points.  We locked a $1.1 million loan at 5.125% (30 year fixed), with no fees or discount points.  Today, those same loans would be more expensive by a discount point (1% of the loan amount).  This means that the first buyer would have to bring an extra $5,000 to closing today, and the second buyer would have to bring $11,000 to closing today , just to get the same rates.

Why are jumbo mortgage loans so much more expensive today than they were last Monday?  Greece struck a deal with the European Union to get emergency loans.  That action reassured golbal financial markets that a Greece default would be stayed.  Money flowed into equities and out of the safe haven of US Government securities.  Mortgage bond investors demanded higher yields from mortgage originators which was passed onto the retial borrower.

In which direction will jumbo mortgage rates head this summer?  I believe rates will be stable through Labor Day with some erratic movements upwards.  The federal Reserve bank has halted its quantitative easing plan.  While this should pressure jumbo mortgage rates higher, Greece is but the first of many sovereign default crises bubbling beneath the surface of a calm Mediterranean Sea.  I expect those threats of crises will hold the upwards pressure in check. 

If you can, lock a jumbo mortgage rate under 5%.  If higher than 5% is offered, you might pause to read what's happening in Europe.  Anothe ron of these crises could afford you that rate under 5%.

Jumbo Mortgage Market Attracting Proven Key Players

My post about the return of jumbo mortgage capital was noticed by some newspaper columnists and I spent a bunch of time on the telephone with them last week.  Each and every columnist, from the local paper to THE national business daily wanted to know what would happen if the government unwound its involvement in mortgage lending.

My response?  Lenders lend.  That's how we make money.

Well,  that's how lenders USED to make money.  These past few years, lenders have been engaged in arbitrage rather than lending.  I wrote about how government was crowding out private enterprise and it would prolong the housing finance depression rather than cushion the blow.  Thankfully, agency loan guarantees will be lowered this fall and the opportunities are attracting majoy key players.

Is it any surprise that the Wall Street Journal reports that  Lew Ranieri is ready to jump on this opportunity?

Yet Mr. Ranieri believes now is the time for nontraditional lenders to enter the market. While the bank-lending standards that created the mortgage crisis were too loose during the housing boom, they are now too tight, Mr. Ranieri says, reducing the supply of mortgages to average borrowers and opening a door for lenders like Shellpoint Partners LLC, a mortgage-finance company he recently founded with two partners.

This doesn't surprise me.  I mentioned that I was speaking with hedge funds and investment managers, earlier this year, to measure their willingness to enter the non-agency lending market and the responses were the same; they all want to make these loans but the government arbitrage scheme makes it too profitable to do anything else.  I posited that lenders, outside of the new GSE's (Citibank, Chase, BofA, & Wells Fargo) would look to serve those markets soon enough.

Mr. Ranieri sees an opportunity in the alternative-income documentation niche, most notably the self-employed borrower:

The aim is to target borrowers whose credit profiles prevent them from obtaining conventional mortgages in the tight market but who are nevertheless good credit risks and can make a down payment of at least a 15%. The company said a typical borrower could include self-employed contractors and other professionals who have assets and a steady income stream. The self-employed have been the hardest-hit by bank credit-tightening trends.

Returns could be staggering.  While most agency loans charge 4.5-5.0% in interest, non-prime loans can charge as much as 9% in interest.  Certainly, that kind of margin will attract capital and the spread will narrow in the future but the early providers can expect to reap rewards for their prescience. 

We saw this in jumbo lending.  Last year, jumbo home loans were as much as 1.5%-2.0% higher than agency loans.  Two government-supported banks offered non-government loans and bigger players started stepping in.  Today, the margin between agency loans and jumbo loans is but .375%.  Jumbo mortgage rates today average just 5.0%.

Lew Ranieri isn't the be all and end all of mortgage lending but he is an accomplished player in this market.  With over 40 years in mortgage securitizations, his actions should be a leading indicator of where lending is headed.  His most recent activity is a positive sign.

 

 

 

Proposed Good Faith Estimate Should Be More Consumer Friendly

The Consumer Financial Protection Agency just released its proposed Good Faith Estimate (GFE) disclosure form.  The form will combine the best parts of the original GFE (which we still issue) along with the "new" GFE (which is confusing and we issue, per disclosure regulations).

This six-minute video will walk you through it:

Government-Sponsored, Sub Prime Mortgages Coming Soon

Just in case you missed how horrendous the results of centralized, government planned, sub-prime, mortgage industry were, the Kommisars have decided to....

  ...create a sub-prime mortgage industry?  From the Boston Herald:

But some of the other requirements that federal agencies and the Obama administration are proposing in the same plan have gotten much less attention yet could prove just as troublesome for consumers:

•Strict mandatory debt-to-income limits. Under the proposal, to get the best mortgage rates, you would need to spend no more than 28% of your gross monthly income on housing-related expenses, and you couldn't have total monthly household debt that exceeds 36% of your income.

There would be no flexibility to go beyond these ceilings, unlike in today's marketplace, in which Fannie Mae and Freddie Mac consider debt-to-income ratios along with other factors through their electronic underwriting systems. Freddie Mac, for example, has an overall debt-ratio limit of 45% of an applicant's stable monthly income.

•To refinance your existing mortgage and replace it with one carrying the best interest rate, you'd need no less than a 25% equity stake in your house to qualify. If you sought to take any additional cash out through a refi, you would need 30% equity. Today's typical requirements for a conventional refi are nowhere near as strict.

•Pristine credit standards. For example, if you were 60 days late on any credit account during the previous 24 months, you would be ineligible for a mortgage at the best terms.

These are all core features of what may be the most sweeping and controversial set of changes in decades for the housing and mortgage markets. The so-called "qualified residential mortgage," or QRM, proposals were released at the end of March by banking, securities and housing regulators, along with the Department of Housing and Urban Development. The agencies were required by the 2010 financial reform legislation to come up with new standards for low-risk conventional mortgages.

Of course, this isn't being sold as a creation of a new sub-prime mortgage industry but simply rewarding those who have the money, credit history, and income to qualify for the best mortgage terms.  Wait a minute!  Isn't that what banks are supposed to do?  Aren't bank underwriting departments supposed to analyze risk, assess a commensurate return required for that risk, and offer loan terms?

This is MORE centrailized planning and it won't work because it never does.  Scream if you want but there is nothing you can do about it.  This Administration rules with an iron fist and Wall Street, and the banking cartel are being guaranteed profits by eliminating any competitiion.  These proposed rules will stifle any form of innovation in residential real estate finance.  This is Rotarian Socialism at it's finest and, as Greg Swann says, "It's evil dressed up in a Brooks Brothers suit"

The only way to save the mortgage industry is to break up the big banks, deregulate completely, which means abolishing the FDIC depositor insurance, and letting the free market determine interest rates, risk analysis, and loan terms.  If you want a robust economic recovery, get rid of this adolescent President, his Soviet-style Adminsitration, and demand an abolishment or (at the very least) completely transparent central bank (the Fed).

Can you imagine if the Kommisars regulated green beans the way they regulate your money? 

Oh wait...never mind. 

Picture credit icanhascheeseburger.com

Broken Windows in California: Why The First-Time Home Buyer Credit Failed

This just in, about February sales, from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). 

The statewide median price of an existing, single-family detached home sold in California was $271,320, down 2.8 percent from a revised $279,140 in January and was down 2.5 percent from the $278,190 median price recorded for February 2010.  The February 2011 median price was the lowest since May 2009, when it was $263,440.

Why are prices declining? 

Perhaps the shadow inventory is being released.  It is widely believed that most buyers will be looking to move in the summer which means the best time to list a property would be April, May or June.  Expect more of this slow decline for the next 3-4 months.  After that, it's a crap shoot,  If the California unemployment rate stays north of 12%, this might be a tepid summer for real estate.  Until Jerry Brown's tax hike is defeated, expect the unemployment rate to remain over 12%.

Here are other highlights of C.A.R.’s resale housing report for February 2011:

• The Unsold Inventory Index for existing, single-family detached homes was 7.3 months in February, up from 6.7 months in January 2011.  The index was 6.0 months in February 2010.  The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate. 
  
  
• Thirty-year fixed-mortgage interest rates averaged 4.95 percent during February 2011, compared with 4.99 percent in February 2010, according to Freddie Mac. Adjustable-mortgage interest rates averaged 3.35 percent in February 2011, compared with 4.23 percent in February 2010.
  
  
• The median number of days it took to sell a single-family home was 64.4 days in February 2011, compared with 39.2 days for the same period a year ago.

So mortgage rates are similar to what they were a year ago but inventory is rising and staying on the market longer?  How can that be?  Perhaps the first-time home buyer tax credit was really just another failed stimulus plan, stalling a meaningful recovery.  The result is a bunch of wasted money; $600 stolen from nine neighbors so that one neighbor could sell his home at a higher price.

This is a perfect illustration of the broken window fallacy.  We still have a lot of broken windows in California.  My California real estate weather prediction?  Cloudy with a chance of rain.

Saving Money Through a Mortgage Refinance on Black Friday

Mortgage rates are the lowest they've been since Ike was President.  Today (Black Friday), Americans will wake up at 2AM, stand in line for hours, and purchase things they really don't want or need, because they are sold at such a steep discount. Why aren't those shoppers looking for a mortgage refinance rather than shopping in the malls?

Crazier still is the tilted, Black Friday opportunity costs scale; professionals spend ten hours in malls today, to save $200, when their time is worth at least twice that.  It would make more sense for those Americans to work a half-day today, and pay full retail price, rather than subject themselves to the frenzied crowds of Black Friday shopping.  At least they could "create" 4-5 extra hours of leisure.

I'm no enemy to bargain shopping.  I rarely pay full retail price for big ticket items.  Still, don't we shake our heads at our neighbor who drives 20 miles to save $.10/gallon on a fill-up? 

If you're sitting at home, contemplating the hundreds of dollars you can save in the malls today, consider this:

• mortgage rates are below 4.5%; the lowest they've been in over 50 years.
• if you can reduce the rate .5%, on a $500,000 mortgage, you'll save over $200...every month

Boast about that Black Friday savings to your friends.  You don't have to go to the mall either.  Simply apply for a refinance online or call me today at 858-777-9751.

 

Solana Beach Proposition L Won't Work

Solana Beach voters will vote on a business tax, Proposition L, on June 8, 2010.  The proposed tax is supported by the Mayor, every council member, and a few established business owners.  In opposition are various tax advocacy groups and many owners of smaller, growing businesses. 

The argument the City Council makes for the tax is that it has cut services to the bone, has had problems receiving its share of property tax revenues from the State, and can't make ends meet.  The established business owners, supporting this bill argue that business must pay "its fair share" for basic city services.

I oppose this tax for three reasons and so should you:

1- Taxes are not absorbed by business.  Businesses either (a) pass through taxes in the form of higher prices or (b) eliminate employment.  The unintended consequences of local business taxes are suffered by the poorest members of our community in the form of higher prices for staple goods or lost employment.  Additionally, the residential rental tax provision will be passed through to tenants, by landlords.  Residents choose to rent in more affordable communities resulting in higher vacancies.

2- The tax is anti-growth.  One argument supporters use is that Solana Beach is one of the few cities in the County that doesn't have a business tax.  This should be celebrated rather than disdained.  Real wealth comes from entrepreneurs rather than government.  Attracting upstart businesses to Solana Beach should be a priority because they grow into to big businesses.  Growing businesses hire more people, who purchase goods and services in our city, and potentially relocate here.  This practice expands our city's tax base.  

Moreover, the support from established businesses smacks of Rotarian Socialism.  Transferring the burden on new businesses reduces competition for the established ones.  It is a tacit barrier to entry designed to limit consumer choice and sustain higher consumer prices.  When businesses use the hand of government, to limit its competition, it is a a moral outrage.

3- It won't work.  Mayor Campbell admitted that the projected deficit will be substantially more than the current one.  The Council will be forced to raise business tax rates more to meet that deficit.  We will create a never-ending cycle of taxing business to the point of relocation, which reduces future tax receipts.  Investment property owners will face a larger vacancy rate and property prices will decline.

The solution is austerity.  If we learned anything from the collapse of Greece, and the impending collapse of the State of California, it' is that we have entered an age of a "new normal".  That "new normal" points to the unfortunate but obvious fact that we can't spend more money than we earn.  Citizens slash family budgets, businesses cut expenses , and now government must face this unpleasant but natural fact as well.

I'm not convinced the Council has truly implemented an austerity program.  In the past four years, the City of Solana Beach has:

• increased salaries and benefits some 8% in the General Government Department  ($100,000)
• increased salaries and benefits some  15% in the Public Safety Department ($500,000)
• increased salaries and benefits some 20% in the Public Works Department ($200,000)
• added a full-time position in the Community Development Department

City of Solana Beach employees average over $100,000, in salaries and benefits, while those in the private sector earn far less.  When the private sector exists to enrich the public sector, we regress to a system not unlike our country's colonial period.  

The Solana Beach Council, unlike its counterparts at the State of California, should be commended for its initial attempts at austerity.  We should encourage more of the same rather than to empower them with a vehicle that allows it to stifle the one hope we have at a prosperous city.  

Proposition L is  insufficient bandage on a gaping wound.  Let's cauterize that wound.

Solana Beach voters will vote on a business tax, Proposition L, on June 8, 2010.  The proposed tax is supported by the Mayor, every council member, and a few established business owners.  In opposition are various tax advocacy groups and many owners of smaller, growing businesses. 

The argument the City Council makes for the tax is that it has cut services to the bone, has had problems receiving its share of property tax revenues from the State, and can't make ends meet.  The established business owners, supporting this bill argue that business must pay "its fair share" for basic city services.

I oppose this tax for three reasons and so should you:

1- Taxes are not absorbed by business.  Businesses either (a) pass through taxes in the form of higher prices or (b) eliminate employment.  The unintended consequences of local business taxes are suffered by the poorest members of our community in the form of higher prices for staple goods or lost employment.  Additionally, the residential rental tax provision will be passed through to tenants, by landlords.  Residents choose to rent in more affordable communities resulting in higher vacancies.

2- The tax is anti-growth.  One argument supporters use is that Solana Beach is one of the few cities in the County that doesn't have a business tax.  This should be celebrated rather than disdained.  Real wealth comes from entrepreneurs rather than government.  Attracting upstart businesses to Solana Beach should be a priority because they grow into to big businesses.  Growing businesses hire more people, who purchase goods and services in our city, and potentially relocate here.  This practice expands our city's tax base.  

Moreover, the support from established businesses smacks of Rotarian Socialism.  Transferring the burden on new businesses reduces competition for the established ones.  It is a tacit barrier to entry designed to limit consumer choice and sustain higher consumer prices.  When businesses use the hand of government, to limit its competition, it is a a moral outrage.

3- It won't work.  Mayor Campbell admitted that the projected deficit will be substantially more than the current one.  The Council will be forced to raise business tax rates more to meet that deficit.  We will create a never-ending cycle of taxing business to the point of relocation, which reduces future tax receipts.  Investment property owners will face a larger vacancy rate and property prices will decline.

The solution is austerity.  If we learned anything from the collapse of Greece, and the impending collapse of the State of California, it' is that we have entered an age of a "new normal".  That "new normal" points to the unfortunate but obvious fact that we can't spend more money than we earn.  Citizens slash family budgets, businesses cut expenses , and now government must face this unpleasant but natural fact as well.

I'm not convinced the Council has truly implemented an austerity program.  In the past four years, the City of Solana Beach has:

• increased salaries and benefits some 8% in the General Government Department  ($100,000)
• increased salaries and benefits some  15% in the Public Safety Department ($500,000)
• increased salaries and benefits some 20% in the Public Works Department ($200,000)
• added a full-time position in the Community Development Department

City of Solana Beach employees average over $100,000, in salaries and benefits, while those in the private sector earn far less.  When the private sector exists to enrich the public sector, we regress to a system not unlike our country's colonial period.  

The Solana Beach Council, unlike its counterparts at the State of California, should be commended for its initial attempts at austerity.  We should encourage more of the same rather than to empower them with a vehicle that allows it to stifle the one hope we have at a prosperous city.  

Proposition L is  insufficient bandage on a gaping wound.  Let's cauterize that wound.