The Impact of Interest Rate Increases


Posted on May 8, 2018 at 12:36 pm
Kara Brem | Posted in Uncategorized |

San Diego County To Study Affordable Housing Solutions

San Diego County To Study Affordable Housing Solutions

SAN DIEGO COUNTY, CA – The Board of Supervisors voted Wednesday to direct staff to investigate ways to promote the construction of homes for low- and middle-income families in unincorporated San Diego County.

They’ll focus on six areas where the county could make changes: streamlining the permitting process, correcting problematic laws and codes, rolling out incentives, updating community plans and modernizing land development codes.

The chief administrative officer will report back to the supervisors within six months on actions county government can take in those areas.

The move was met positively by representatives from the building industry, who said the process of planning, permitting and building new homes can be arduous and stymies the supply of affordable houses.

“Everybody’s been talking about the housing crisis for months, if not years,” said Matthew Adams of the Building Industry Association of San Diego. “We all know the root causes, we all know the consequences … now it’s time to solve it.”

Nearly half of people in San Diego County are what’s known as “housing-cost burdened,” which means they spend more than 30 percent of their income on rent or other housing costs.

The median price of a home in San Diego County is $550,000. In unincorporated areas, where county government has direct control, that number rises to $585,000, according to county staff.

A family earning the area’s median family income of $81,800 would need to set aside 30 percent of their income for five years in order to save for a $110,000 down payment while also paying rent at their current residence, which on average ranges between $1,800 and $2,200, according to county planner Tara Lieberman.

The cost of housing in San Diego County and lack of affordable options has prompted many people to move to Riverside County, where the median home costs $354,600. One in five San Diego region workers live outside the county. While they save money on housing, they’re left with long commutes that contribute to road congestion and pollution, county staff said.

Among the solutions county staff plan to explore are shortening the time it takes to build a house due to regulatory hurdles, increasing density bonus programs, updating some 15 community plans by 2030 and overhauling the land development codes, which were written in 1975.

Unincorporated areas are home to 492,500 of the region’s 3.3 million people and account for the vast majority of land in San Diego County.

By City News Service / Image via Shutterstock

 


Posted on April 19, 2018 at 9:06 am
Kara Brem | Posted in Uncategorized |

What Interest Rate Did Your Parents Purchase At?

Be Thankful You Don’t Have to Pay Your Parents’ Interest Rate!

Be Thankful You Don’t Have to Pay Your Parents’ Interest Rate! | MyKCM

Interest rates hovered around 4% for the majority of 2017, which gave many buyers relief from rising home prices and helped with affordability. In the first quarter of 2018, rates have increased from 3.95% up to 4.45% and experts predict that rates will increase even more by the end of the year.

The rate you secure greatly impacts your monthly mortgage payment and the amount you will ultimately pay for your home. Don’t let the prediction that rates will increase stop you from purchasing your dream home this year.

Let’s take a look at a historical view of interest rates over the last 45 years.

 

Be Thankful You Don’t Have to Pay Your Parents’ Interest Rate! | MyKCM

Bottom Line

Be thankful that you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago.

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

Posted on March 28, 2018 at 10:44 am
Kara Brem | Posted in Uncategorized |

Should I Wait or Should I Buy Now?

Are you stuck in the San Diego renter’s trap?  Is it time for you to consider buying?  Let’s explore that question and talk about points to consider along with steps to take that will ensure longterm comfort.

 

By Kara Brem

March 7, 2018


Here’s the scenario…you are living and leasing in San Diego County and you’re frustrated with rising rents as well as lack of longterm housing stability.   The idea of what you may be paying for rent five years from now is a daunting thought.  You’ve considered purchasing a home for one or more of the following reasons:

  1. To secure a consistent monthly housing payment for the next 30 years, unlike renting 
  2. For the peace of mind that you have a roof, YOUR roof, over your head.  Your landlord can’t increase your rent or sell the place your living in and leave you searching for another home
  3.  If you wait you could be priced out and may never be able to own a home of your own in San Diego
  4. Your buying power will decrease over time with rising interests rates
  5. As an investment…to build real equity overtime that can someday be handed off to your children 

All of these are valid reasons to consider.  In fact, these are the thoughts that have been going through my mind for the last year or two.   So this blog piece is quite personal.  Tackling the question “to buy or not to buy” has become a research obsession of mine.   You’re not alone.  So let’s dive in together and figure this out.

Let’s Talk About Buying Power

At the forefront of these concerns are interest rates.  Although rising, we are still seeing historically low rates.  Rates are expected to rise over the next 2-3 years and are forecasted by Windermere’s Chief Economist, Matthew Gardner, to increase 2.9% by 2020 (this number is very in sync with most economists and housing market specialists).  

 

 

For every 1% increase in interest rates, your buying power goes down 10%.  That means if today you can afford a home that is 600k, in two to three years just the increase in interest rates will decrease your buying power by $60,000… in addition to your monthly payment increasing.

To Buy or Not to Buy?  That is the Question.

But, Kara, what if I buy now and it ends up being at the peak of the market?  Maybe I should wait until the market crashes and I can buy at the bottom.  These are valid questions and concerns.  I don’t have a crystal ball…sure wish I did for all of us…myself included.  I am constantly researching and listening to all economists out there and looking at key predictors. 

Here’s what I’ve heard and seen:

  • Home values in SD will continue to rise at a more sustainable rate…very unlike the double digit increases we have seen in some areas over the last couple of years
  • 99% of Real Estate analysts predict homes will continue to appreciate, especially in markets like San Diego County
  • Interest rates will go up (2% in the next few years as discussed above)
  • The rental market will become more competitive and expensive (it will, if not already, absorb 40% of your income)
  • And yes, we will have a recession.  It is inevitable.  Every 10 or so years it happens.  However, it will NOT be what it was in 2007 for many reasons, including, stricter lending policies.  It will look more like the 1990 recession…very shallow and skinny

This Gets Personal

In this market it’s all about your personal situation and intent.  Below are a few points to consider. 

If your intention is to hang onto the home you purchase indefinitely, or let’s say at least seven years, buy now.  If you are financing most of the purchase with a mo

rtgage, this will allow you to take advantage of lower interest rates before they rise, thus keeping your longterm monthly payments low and your buying power high.  When considering renting longterm vs. buying to hold longterm, future home price changes are less important than your fixed monthly mortgage payment.  Imagine what you might be paying in rent 10 years from now!  

Home prices may decline at some point, but they may not. Either way, you will have locked in a reasonable monthly payment for the long haul, and this is likely more important than changes in the market price of a house you have no intent to sell any time soon.  

However, if you are not sure how long you will live in this area and may have to sell in the next couple of years, that’s another story.  This may result in low potential gains as you may be selling at a loss IF home prices do decline.  The benefits of low monthly payments in the short term do not outweigh the risk of the potential loss.  Potential shorter-term buyers should proceed with caution. 

Why Not Explore Your Options?

So, all that being said, your plan is to buy and hold or at least look into what it would look like financially to do so.  What’s the first step?  Connect with a loan officer. I have two preferred lenders I can connect you with that are no pressure, with accurate and detailed information. 

Find out what it would take to buy in the next 3- 6 months, explore what you would be qualified for and what that monthly mortgage payment would look like.   If you don’t think you’re ready to buy that soon, still chat with them and myself.  There are things we can do to get your ducks in a row…from reviewing your credit to setting you up on my MLS linked website so you can become educated on the market in neighborhoods you are interested in.

Hurdles and Roadblocks

Don’t think you have enough down payment?  Long are the days that it takes 20% down to purchase a home.  There are loans available for as little as 3% down and if you’re a veteran it’s even lower.  Credit not so good?  FHA loans allow those interested in purchasing to do just that with a mortgage that’s insured by the Federal Housing Administration (FHA).  There are options out there and it doesn’t take long to get answers from Dan.

Or perhaps you chat with Dan and he brings to your attention that you have some credit issues (oh my!) to deal with.  You may already be aware and are hoping those negative marks would just miraculously disappear?  Really, truly you are not alone. 

But by all means, don’t wait!  Get right on it and work with someone that can quickly (and affordably) remedy these credit thorns in your side.  Bad credit can cost you when financing a home so first step is to get it as clean and clear as possible.  My clients use Nicole Soares with bSquared Credit and are thrilled with the results.  She and her team offer a free consultation… so there you have it…no more excuses.  

Seek Comfort and Longterm Stability 

Now here’s a point that I always drive home with my clients…make sure you are comfortable with the total monthly payment.  Often times we get excited to be approved at say, 700k, but perhaps the monthly payment is really NOT that realistic for you financially.  I don’t ever want my clients to be house poor and stressed.

Work with your lender and calculate the monthly payment once you know what you are qualified for (taking everything into consideration…taxes, HOA fees, private mortgage insurance if you are not putting 20% down or if you have an FHA loan).  Or even better, if you know what the max monthly payment is that you are comfortable with, start there with a lender.  Work backwards.   Let the monthly payment drive your maximum purchase price. 

Here is a great monthly mortgage payment website with calculators that result in a REAL number.  (Reach out to me or your lender if you have questions.)  My goal is to get my clients into a home at a price that they are comfortable, content and happy with over many, many years.  Not the one that is the most expensive that results in the highest commission.

The Search is ON

Once you identify a maximum purchase price and a monthly mortgage you are comfortable with,  I can then take the qualifying numbers and start sending you properties that fit your parameters and maximum purchase amount.  It is time to check out properties and find your new home.  This is the fun part!  It can take awhile to find the right place.  I am patient and there for you every step of the way.  I will do everything in my power to make purchasing a home as enjoyable and stress-free as possible.

Let’s work together to find out if now is the right time for you to buy and if so, what does that realistically look like for you.  Every situation is different and I am here to help.

**To get more information and start your home search today, visit my buyers site here.**

Kara Brem

Your Realtor® with competence, integrity, PATIENCE, and heart

Windermere Home & Estates

www.karabrem.com

831-818-3050

kara@bremproperties.com

BRE# 01939667

 

Other articles you may be interested in:

https://www.windermere.com/blogs/windermere/authors/matthew-gardner-chief-economist-windermere-real-estate/posts/southern-california-real-estate-market-update–8

https://www.pcasd.com/content/thoughts-san-diego-housing-market

https://www.multihousingnews.com/post/socal-remains-a-landlords-market/?platform=hootsuite


Posted on March 9, 2018 at 6:56 am
Kara Brem | Posted in Real estate, Uncategorized | Tagged , , , , , , , ,

Thoughts on the San Diego Housing Market

by Pacific Capital Associates

 

The median price of a San Diego home recently surpassed its all-time peak, as noted by the San Diego Union-Tribune .We thought this made for a good opportunity to share some thoughts on the local housing market, addressing common questions such as…

How expensive is San Diego housing?
How do low interest rates impact home prices?
Are we in another housing bubble?
Does it make sense to buy a home right now?
We’ll give some quick thoughts on each of these below.

 

How Expensive is San Diego Housing?
Short answer: it is unusually expensive, but not nearly as bad as during the bubble.

The best way to determine home expensiveness is to compare home prices with local rents and incomes, which between them encompass most of the factors that should be expected to drive home prices long term. Measuring home prices against their economic fundamentals tells us the valuation of homes, which is a lot more meaningful than home prices on their own.

Here’s a history of San Diego home valuation, measured by dividing the San Diego home prices by a combination of incomes and rents:

Several things jump out about this graph:

  • San Diego housing valuations have had some wild swings over the years.
  • But, whenever they’ve gotten out of whack in the past, they’ve eventually come back to normal (as loosely measured here by the median historical valuation).
  • The housing bubble was nuts – at the peak, valuations reached 73% above their historical median.
  • The new nominal high in home prices has caused some worry about a bubble, but current home valuations are substantially lower than they were at the bubble peak.
  • That said, valuations are the highest they’ve ever been outside the bubble period!

Will valuations eventually return to “normal” as they have in the past? That’s usually a good bet, but in a small and supply-constrained market like the local housing market we have to acknowledge the possibility that values could stay higher indefinitely (especially given low interest rates; see next section). And declining valuations don’t necessarily assure declining prices: valuations could return to normal if prices just flattened out for several years while incomes caught up.

Still, homes aren’t just expensive – they are unusually expensive, even for San Diego. And up until now, high valuations have always made their way back to normal eventually. There’s a pretty good chance that this pattern will repeat yet again, and if it does, that could lead to years of home price stagnation or outright declines. It’s definitely a risk worth considering.

 

 

How Do Low Interest Rates Impact Home Prices?
You may be thinking that low mortgage rates are keeping monthly payments reasonable, even despite high purchase prices. If so, you are right. This can be seen in the chart below, which measures the ratio of San Diego home monthly payments to rents and incomes:

It’s very intuitive to believe that low rates should lead to higher prices – and given the confluence of high prices and low rates, it appears that this could be happening now. But, it’s worth noting that this is not how it’s typically worked in the past. There’s actually been very little relationship between rates and home valuations over the past 30 years, as shown in this graph:

There are several reasons this might be, including the influence of other economic factors (many of which push home prices in the opposite direction as rates), the impact of inflation expectations, and the fact that rates can be expected to change a lot over time.

Low rates are definitely helping to ease the burden of high home prices for now, and it’s possible that if rates stay this low, they will help homes stay expensive. But rates may not stay this low. And even if they do, as the second graph shows, it’s not a sure thing that they will keep home prices as high as they are now.

 

 

Are We in Another Housing Bubble?
Short answer: no, we don’t think so.

A bubble is more than just a market that’s gotten expensive: it’s one that’s reached extremes in both pricing and investor sentiment. While San Diego home valuations are quite high, they aren’t high enough to reach the (arbitrary, but historically pretty effective) “2 standard deviation” threshold that we use to define bubble-level valuations:

San Diego is also missing the blistering pace of price increases that usually happen during bubbles:

Investor sentiment is unfortunately harder to graph, but anecdotally, it’s clearly quite different than in the mid-2000s. There is optimism, but very little of the euphoria and blatant risk-taking that was on display during the bubble.

In short, while it’s expensive, San Diego doesn’t seem to exhibit either the valuation or psychological characteristics of a true bubble. This is important because bubbles almost always end very badly, whereas “merely expensive” markets have a much better shot at a soft landing.

 

 

Does It Make Sense to Buy a Home?
Given that home valuations are quite high, but monthly payments are low, this is a nuanced question. The answer comes down to which of those factors you care more about.

If you are buying a house that you intend to hang onto indefinitely (or at least for a good long time), and you are financing most of the purchase with a mortgage, you should probably be more concerned about monthly payments than future home price changes. Given reasonable monthly payments right now, for someone in this situation it may make good sense to buy.

Home prices may decline at some point, but they may not. Either way, you will have locked in a reasonable monthly payment for the long haul, and this is likely more important than changes in the market price of a house you have no intent to sell any time soon.

On the other hand, if you have a shorter time horizon – for example, if you are in the area only temporarily, or you hope to buy a place and move up in several years – buying looks a whole lot less compelling. Valuations at these high levels suggest unusually low potential gains, and an unusually high chance of price declines. Selling at a loss could more than offset the benefits of low monthly payments in these situations. Potential shorter-term buyers should proceed with caution.

The silver lining to this squishy answer is that in most cases, it’s reasonable to take either course. San Diego housing seems unlikely either to run away without you, or to crash horribly. So the decision can be more based on your own personal situation, preferences, and whether you find a house you really like. That’s actually a good thing.


Posted on March 7, 2018 at 8:05 am
Kara Brem | Posted in Uncategorized |

The Mortgage Process: What You Need to Know

 

The Mortgage Process: What You Need to Know [INFOGRAPHIC] | MyKCM

Some Highlights:

  • Many buyers are purchasing a home with a down payment as little as 3%.
  • You may already qualify for a loan, even if you don’t have perfect credit.
  • Take advantage of the knowledge of your local professionals who are there to help you determine how much you can afford.
Kara Brem
North County San Diego Realtor®
CalBRE# 01939667
Windermere Homes & Estates
m: 831-818-3050
w: www.karabrem.come: kara@bremproperties.com
See what my past clients have to say at https://www.zillow.com/profile/karabrem/#reviews

Posted on February 27, 2018 at 9:49 am
Kara Brem | Posted in Uncategorized |

Should I Wait Until Next Year to Buy? Or Buy Now? 

Should I Wait Until Next Year to Buy? Or Buy Now?

Should I Wait until next Year to Buy? Or Buy Now? [INFOGRAPHIC] | MyKCM

Some Highlights:

  • The Cost of Waiting to Buy is defined as the additional funds it would take to buy a home if prices & interest rates were to increase over a period of time.
  • Freddie Mac predicts interest rates to rise to 5.1% by 2019.
  • CoreLogic predicts home prices to appreciate by 4.3% over the next 12 months.
  • If you are ready and willing to buy your dream home, find out if you are able to!

Posted on February 20, 2018 at 12:35 pm
Kara Brem | Posted in Uncategorized |

Where Are Mortgage Interest Rates Headed in 2018?

Where Are Mortgage Interest Rates Headed in 2018? | MyKCM

The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate the greater the payment will be. That is why it is important to know where rates are headed when deciding to start your home search.

Below is a chart created using Freddie Mac’s U.S. Economic & Housing Marketing Outlook. As you can see, interest rates are projected to increase steadily over the course of the next 12 months.

Where Are Interest Rates Headed? | MyKCM

How Will This Impact Your Mortgage Payment?

Depending on the amount of the loan that you secure, a half of a percent (.5%) increase in interest rate can increase your monthly mortgage payment significantly.

According to CoreLogic’s latest Home Price Index, national home prices have appreciated 7.0% from this time last year and are predicted to be 4.2% higher next year.

If both the predictions of home price and interest rate increases become reality, families would wind up paying considerably more for their next home.

Bottom Line 

Even a small increase in interest rate can impact your family’s wealth. Let’s get together to evaluate your ability to purchase your dream home.

The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

Posted on February 13, 2018 at 8:42 am
Kara Brem | Posted in Uncategorized |

2 Major Myths Holding Back Home Buyers

2 Major Myths Holding Back Home Buyers | MyKCM

Urban Institute recently released a report entitled, “Barriers to Accessing Homeownership,” which revealed that eighty percent of consumers either are unaware of how much lenders require for a down payment or believe all lenders require a down payment above 5 percent.”

Myth #1: “I Need a 20% Down Payment”

Buyers often overestimate the down payment funds needed to qualify for a home loan. According to the same report:

Consumers are often unaware of the option to take out low-down-payment mortgages. Only 19% of consumers believe lenders would make loans with a down payment of 5% or less… While 15% believe lenders require a 20% down payment, and 30% believe lenders expect a 20% down payment.”

These numbers do not differ much between non-owners and homeowners; 39% of non-owners believe they need more than 20% for a down payment and 30% of homeowners believe they need more than 20% for a down payment.

While many believe that they need at least 20% down to buy their dream home, they do not realize that programs are available that allow them to put down as little as 3%. Many renters may actually be able to enter the housing market sooner than they ever imagined with programs that have emerged allowing less cash out of pocket.

Myth #2: “I Need a 780 FICO® Score or Higher to Buy”

Similar to the down payment, many either don’t know or are misinformed about what FICO® score is necessary to qualify.

Many Americans believe a ‘good’ credit score is 780 or higher.

To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.

2 Major Myths Holding Back Home Buyers | MyKCM

As you can see in the chart above, 53.5% of approved mortgages had a credit score of 600-749.

Bottom Line

Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.


Posted on February 6, 2018 at 8:35 am
Kara Brem | Posted in Uncategorized |

U.S. Housing Inventory Crunch Continues

U.S. Housing Inventory Crunch Continues… List Your House Today! | MyKCM

Every winter, families across the country decide if this will be the year that they sell their current houses and move into their dream homes.

Mortgage rates hovered around 4% for all of 2017 which forced many buyers off the fence and into the market, resulting in incredibly strong demand RIGHT NOW!

At the same time, however, inventory levels of homes for sale have dropped dramatically as compared to this time last year.

Trulia reported that “in Q4 2017, U.S. home inventory decreased by 10.5%. That is the biggest drop we’ve seen since Q2 2013.”

Here is a chart showing the decrease in inventory levels by category:

U.S. Housing Inventory Crunch Continues… List Your House Today! | MyKCM

The largest drop in inventory was in the starter home category which saw a 19% dip in listings.

Bottom Line

Demand for your home is very strong right now while your competition (other homes for sale) is at a historically low level. If you are thinking of selling in 2018, now may be the perfect time.


Posted on January 29, 2018 at 11:27 am
Kara Brem | Posted in Uncategorized |