The Fed Won't Raise Rates Until Late 2014

The US Federal Reserve pledged to hold interest rates low until late in the year 2014. Believing that the economy is in a slow and steady recovery, the Fed seems to expect it to need significant help to remain on course. Mortgage rates are not directly tied to the Federal Reserve's action; however, they typically follow suit. This is great encouragement that the mortgage rates will likely remain low providing a boost to housing until the economy has fully recovered.

Why Low Interest Rates Are Still Vital to the Housing Economy, By Gino Blefari

Why Low Interest Rates Are Still Vital to the Housing Economy

By Gino Blefari | JANUARY 17TH, 2012

Interest rates. It’s a constant topic of conversation in real estate, and this year so far is no different than the last few: We’re kicking it off with some of the lowest interest rates on long-term mortgages that the market has ever seen. The average rate on a 30-year fixed-rate mortgage reached an all-time low of 3.89% this month, according to a survey tracked by Freddie Mac.

Two messages are important in this news for home buyers and sellers. They are:

1. Low interest rates are significant for home buyers, equating to big savings when locked in at the right time. This is a point that can actually motivate a lot of buyers to get off the fence.

For instance, let’s look at a .5% increase in a mortgage rate on a 30-year mortgage for $425,000. Say our buyers could get a 4.75% interest rate when they first start their real estate search. If they indeed buy a home and lock in a mortgage at this rate, they’ll end up paying $373,120.42 in total interest over the life of the loan.

But say these buyers get lost in their decision-making process and end up taking eight months to make a decision on a home. By the time they lock in their rate, they end up with a 5.25% interest rate on a 30-year mortgage for the same $425,000 loan. Now, they’ll end up paying $419,871.66 in interest over the life of the loan. That’s a $46,751.24 increase in the final interest bill – substantial to the average family buying a home.

Taking advantage of the lowest rates possible is a key message that will help to motivate a lot of buyers in 2012.

2. While no one can predict when interest rates will increase or by how much, we know they inevitably will increase, but can also feel comfortable that they’re not going to jump suddenly. Most analysts and industry observers expect rates to remain low as long as the economy is still in a slow recovery. That’s good news for buyers and sellers alike (more affordable borrowing means more buyers in the market, in most cases).

Low interest rates alone cannot save a housing slump, or single-handedly create a boom (remember that our last boom was also fueled by very loose loan underwriting standards that created a lot demand from market segments that would not be eligible for loans under today’s standards). But they’re still extremely important to the recovery story. They still have a vital role. Let’s not undermine that, or let that point get lost in the shuffle.

Will the City of San Jose Bail Out the Downtown Movie Theatre?

According to the Mercury News, the Camera 12 Cinema on Second Street in Downtown San Jose, needs assistance to keep its doors open. The redevelopment agency attempts to keep the arts downtown intact as the recession continues, though Gov. Jerry Brown would like to eliminate such agencies statewide as soon as next week. Read the Full Story

How much of the San Jose real estate market is short sales? - By CJ Brasiel

I have been tracking short sales and REOs (foreclosures) in the San Jose area since June 2007. I can tell you, consistently, short sales have represented about 30% of active listings and foreclosures have represented about 10-15% of the active listings. I show homes that are listed as short sales. I hear there are agents that won’t show short sales. Not sure how they do that. I started working on the numbers to find out how many short sales there are, how long they have been on the market, how many are pending, how long they have been pending, how many are vacant, and how those numbers are different between single family homes verses condos and town homes. Wow.

There is no doubt there are a lot of home owners in trouble. There is no doubt the banks have inventory that they have not sent back to the public consumer. There is no doubt you can complete a web search on shadow inventory and find a ton of articles about the reality of its existence and whether or not these homes will come to market. More importantly, when will they come to market? Who knows? Maybe some high paid executive of the in the asset manager kingdom knows. They aren’t telling. But in San Jose, foreclosures are the smaller part of the market. I am more interested in the 1/3 of the market called short sales. These are the challenges of real life sellers, buyers, and agents.

As of today, February 15, 2011, there are 777 active short sales in San Jose.

Of that 777 homes, 81 have been on and off the market for over 1 year (10%) and 17 have been on and off the market for over 2 years (2%). Of the total listings pending sale, 1635 are short sales. Of that 1635, 123 have been pending for over a year and 19 have been pending for over 2 years! 104 of these homes are vacant. Anyone think we have a problem moving short sales out of the hands of struggling borrowers and into the hands of new eager buyers? Why is this so difficult to do? Let me count the ways:

1.) Bank short sale process is non-standardized and the banks are overwhelmed by the process.This is improving and I applaud the efforts that I have witnessed with Bank of America – Equator system, and Wachovia/Wells Fargo Short Sale Fast Track. There is still a great deal of improvement needed. Automated systems are nice but standardization of short sale packets, approval process, assigned negotiators up front, contact information, and communication is critical.

2.) Many sellers are desperate, scared, and some are unwilling or unsure of what to do next. Most can’t afford their house because of hardship. Their credit is taking a monthly hit and in many cases they can not even find an apartment because of damaged credit. They try loan modifications and are stuck in a quagmire worse than the short sale approval process and are simply tired of the entire experience. Can you imagine having your house on the market with people coming in and out every day, 7 days a week for over a year? Ask any seller after the experience of selling a home and they will tell you how quickly they tired of keeping everything picked up and how stressful it is to constantly manipulate their home life around showings. No surprise that some short sales do not have access and even more make it nearly impossible to make an appointment.

3.) Short sale agents have less than 3 years experience. Even if an agent has been doing short sales full time, each one is different. Different circumstances, different lenders, different negotiators, and different levels of cooperation from all involved. Some agents hire “professional” negotiators to handle their files because they are tired of the daily phone calls and pleading with negotiators to make it happen. On top of the cost of the negotiator, the bank reduces commission on average by 1%. Can you imagine the motivation you would have to do your job for a year before you got paid and then your paycheck was cut 30-40%? Many short sale listing agents would be happy with a nickel for every time they answered an email or phone call that ask the questions: How many lenders? Any offers? Who are the lenders? Yet I believe if you are going to take a short sale listing, it is critical to provide the absolute best service possible. If the agent can’t, doesn’t want to, or gets tired of it, they should give the listing to another agent.

4.) Short sale buyers believe all short sales are going to be deals. But in fact, banks know the value of the home and expect a near market if not at market offer. Of the 87 short sale homes that sold the first 15 days of February, the average sales price to list ratio was 99.7%. More specifically, 16 sold for the same as list, 31 sold for higher than list, and 40 sold below list. If the home (mostly condos) were priced lower than $200,000 it was more likely to go under list price. I assume that is because they are more likely to be all cash deals.

The final information I want to share with you are the number of short sales for different price points. If you are a first time home buyer, excited that you can now afford a home in California, you will be competing with other buyers for homes that are mostly short sales. Make sure you understand the process of offering on a short sale and don’t assume because the days on the market are long, that they will take a discounted sales price or will not be snatched out from under you while you are trying to decide. It is a very competitive market. If you want to talk about your strategy to buy a home or in particular to buy a short sale or foreclosure, contact me.

San Jose Stats for Single Family Detached Homes

Click to enlarge.

Click to enlarge

All data is collected from the multiple listings service on February 15th, 2011 and presented graphically by CJ Brasiel. The information is deemed reliable but not guaranteed. The graphs and content of the blog are property of the author CJ Brasiel and should not be used, duplicated, or distributed without express

San Jose Redevelopment

The City of San Jose Redevelopment agency continues to liquidate property it owns in order to purchase the last two parcels needed for their proposed professional baseball stadium. Some find it interesting that Oakland A's owner Lew Wolff confirmed his interest in certain properties the RDA is selling, being that it is somewhat plausible that the RDA will use the funds to finish a ballpark that they're building for his franchise. Read the full Mercury news story.

In other downtown redevelopment news. The new San Pedro Square Market is still set to open in Spring of this year. Check out the logo design contest that recently ended, many great entries - though, I have not been able see who has been deemed the winner.

Foreclosure Stats

Below are foreclosure stats for the end of the year. Another month, quarter, year gone by while the information continues to be mixed, misleading and difficult to decipher. On the bright side, the rates continue to be low (trending downward again currently) making homes more affordable all across the State.

FORECLOSURE STATS DEC. 2010

Foreclosure and your Credit

Our clients often ask us how a foreclosure will impact their credit report. Sadly, there is no cookie-cutter answer for that question because every foreclosure and every personal credit profile is different. We've often heard from the experts in the field of credit reporting, including a report done by Christopher Rockey of Mortgage Resolutions (based on personal interviews with each of the three main credit bureaus), that foreclosure is the single most devastating thing that can be reported - possibly worse than even a bankruptcy. Some say that it can weigh down you credit scores by hundreds of points for many years. We can't purport that we have any special knowledge or way to verify the exact effect on your credit. What we can tell you is that if you have the ability to avoid a foreclosure via a short sale, you will be spared to a great degree. We've been told that over 100-200 points difference will be noted on credit reports initially, but we cannot verify that. More important than your score, is when you can buy a home again. Below you can see exactly what the major lending guidelines say about ones ability to buy a home again, and when.

The three main set of underwriting guidelines for mortgage applications are FHA, Fannie Mae and Freddie Mac.

	FHA	FANNIE	FREDDIE
FORECLOSURE	3-YEAR WAIT TO BUY AGAIN *IF RE-ESTABLISHED CREDIT, MAYBE CONSIDERED FOR REDUCED WAIT	7-YEAR WAIT TO BUY AGAIN *MAYBE REDUCED TO 3 YRS UNDER CERTAIN CIRCUMSTANCES. AT LENDERS DISCRETION	5-YEAR WAIT TO BUY AGAIN *MAYBE REDUCED TO 3 YRS UNDER CERTAIN CIRCUMSTANCES. AT LENDERS DISCRETION
SHORT SALE	NO WAIT IF NOT IN DEFAULT AT TIME OF SHORT SALE CLOSING 3-YEAR WAIT IF IN DEFAULT AT TIME OF CLSOING *REDUCED WAIT TIME AT LENDER DISCRETION	2-YEAR WAIT (20% DOWN PAYMENT MINIMUM) 4-YEAR WAIT WITH 10—19.99% DOWN PAYMENT 7-YEAR WAIT WITH <>	4-YEAR WAIT *POSSIBLY 2-YEAR AT LENDER DISCRETION

*if a borrower can show that the circumstances of their foreclosure or short sale were extraordinarily out of their control, they may be considered for reduced wait time to purchase a new home.

As you can see from the chart above, working the debt out with your lender by cooperating with a short sale is far better than allowing the foreclsoure take place with no intervention. This is of course only if buying a home in the near future is a goal of yours.