Tag Archives: charlottesville real estate
A client asked me the other day, "what do you think rates are going to do"? The underlying question is, "should we rush to list, sell and buy now, or can we be more deliberate (and sane), and wait until Spring? What will interest rates be next week, next month, in the Spring? The markets - real estate, mortgage, stock - change. Frequently. I'm good at what I do, and part of what I do is to know what I'm good at (real estate), who's good at what they do, and help my clients assemble the right team. So my answer to the question was to ask an expert - local lender Matt Hodges. There's more to the answer than "up, down, sideways ..." Thanks, Matt for the background, the answers and the history.
Where are Interest Rates Going?
As a loan officer, I get that question often. It’s not that I don’t want to answer it – I do, usually with a comment like “If I knew, I’d be a rich man trading bonds.” But, I can’t answer the question in the manner that it was asked. “Where are rates going, Matt?” Before I give you my prediction for short term rate movements, after all it is an educated guess, let’s describe the underlying basis for mortgages, look at recent and not so recent history and let’s see what experts think will happen.
Fixed rate mortgages is really what we care about when discussing the future. Adjustable Rate Mortgages (ARMs) will nearly always be lower than fixed and follow an index called LIBOR – London Interbank Offered Rate, which is currently in the .5% range. That’s why current ARMs are adjusting downwards from their start rate to around 2.75%-3%. Forget ARMs – they are the exception not the rule for the mortgage world.
Fixed rate mortgages and specifically those sold to Fannie Mae, Freddie Mac or Ginnie Mae investors get pooled with other like loans – 30 year fixed, 80% loan to value, 750 or better FICO score for example – and sold to investors. Investors treat this investment much like you would consider an investment in the stock market.
Will prices go up and yields on the bonds go down over time and therefore my investment today will be worth more tomorrow to another investor? Or will the interest paid on the mortgage each month be a better investment than something else in the investor’s pool of opportunities? Since repayment of mortgages is front loaded – interest averaging about 69% of the principal and interest in the first year – does that make a better rate of return? Investors are not shy about buying mortgage backed security bonds. They believe in the inherent stability of our housing stock.
The history of fixed rate mortgages has been historically affected by external economic forces. Economic forces include whether more Americans claim jobless benefits in any given week, whether the unemployment rate goes up or down, and who is participating in that labor pool, how many new government and private sector jobs have been created in any given month, consumer confidence, manufacturing, inventories and a myriad of other reports that bombard us nearly daily. More recently, we are also affected by non-United States economic forces like where the German Bund (their bonds) is moving. Recently, German 2 year Bunds have traded in negative territory.
What? You can’t have a negative rate of return, can you? Investors in German bunds are willing to lose principal right now, compared to riskier investments. That affects us because if German investors don’t think there’s good economic prospects – say to purchase corporate bonds for a German manufacturing company, then US investors have less confidence in the US economy – Germans buy less of our exports – and hence they purchase more bonds, pushing the price up and the yields down. That affects your mortgage rate, pushing it down.
Mortgages have also been affected by intentional actions of governments. In the United States, the most recent and visible is Quantative Easing (QE). To simplify it to the most recent experience of QE III, in September, 2012, the Federal Reserve authorized the purchase of $45 billion of treasury bonds and $40 billion of mortgage backed securities EVERY month, indefinitely. The current Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday released a statement at the conclusion of their regularly scheduled two day meeting that the last of the QE buying has now ended. What happened in this interval with rates? For that answer, you actually have to look back a year or so. Anticipation of QE by investors is almost more powerful than the actual announcement. Rates merely improved slightly post announcement, but had been falling for the previous year by almost 1% in rate. The reason QE is powerful is that the government creates an artificial marketplace for bonds. That is, the Fed has decided that yields are too high to stimulate growth and therefore all investors will be forced to buy bonds at higher prices and accept lower yields, because the Fed is the 800 pound gorilla in the room. Their hope is that investors look to corporate issuances of debt – lets build more factories, employing more Americans, etc. More recently, Europe’s flirtation with QE has affected us as well. But, because they are many countries in the European Union (EU) and they lack a strong leader in Mario Draghi, often their announcements are met with indifference.
One of the voices in my head is Adam Quinones, Head of Mortgages and ABS at Thomson Reuters. He postulated on Tuesday in his daily email to bond traders and others in the industry, “Janet (Yellen, Fed Chair) would have to officially downgrade her global growth outlook (in order for rates to keep moving lower)” and “…dealers become the buyer of last resort again.” As discussed, as dealers are replacing the Fed, the artificial market is removed. Will dealers still enjoy low yields? Or, perhaps better stated, will dealers see an opportunity to swap bonds up and down the curve – from 26 week bills to 30 year bonds to make profit short or long term?
One of the smartest guys I know in the business is Matthew Graham, Chief Operating Officer for Mortgage News Daily and MBS Live and featured on CNBC from time to time. Today he made a seemingly odd movement in bonds rallying, while GDP print came in stronger than estimates – both treasuries and MBS – understandable to the masses: “Quite simply, European bond markets are in the midst of a strong rally this morning. Over the longer term, a super strong European bond market has helped to generally drag US rates lower than they otherwise would be. “
Janet Yellen, Federal Reserve chair since February, in question and answer period of the press conference after release of Fed Announcement in September: "You are certainly right in saying that over a number of years now, there’s been a pattern of forecast errors in which either we’ve been on track with respect to unemployment or unemployment has come down in some cases faster than we anticipated, and yet growth has pretty persistently been surprising the Committee to the downside. And that is a statement about productivity growth, which has been pretty disappointing. So we have had downward revisions in the level of potential output and to some extent, at least for a time, in the projected pace of growth."
Okay, here are my thoughts. Virtually everyone I’ve read has predicted rates near or above 5% in the next 12 months. I don’t see it. I think volatility will be a constant – gyrations of rate movements tied to stock market swoons or dips or automated trading models picking up key words, causing a sell or a buy. While rates are in the low 4% range for conventional and mid 3% range for government, I don’t think we’ll see 5%. For Conventional loans, in the next three months, my range is 3.75% - 4.25% or mostly lower in range than current market. In the next six months, bets are off. We could be anywhere in a more-than-full point range, say 3.5% - 4.75%.
Twelve months from now, no worse than 4.75%, but that would be only a small chance. I make these comments not because I’m filled with Hopium, but because I think there are underlying problems with proclaiming our 5.9% unemployment rate as improving, when participation rates are so low. When job seekers fall off the radar at 99 weeks of unemployment, they aren’t counted any more. I think that Europe will have continual structural and employment problems. I think that as Chair Yellen has stated, the Federal Reserve is often wrong with their optimism.
Matt Hodges Charlottesville Sales Manager Presidential Mortgage Group NMLS #295347
Part 1 of 2.
Whatâ€™s â€œnormal" in your market may not be (and probably isnâ€™t) normal in the Charlottesville real estate market.
So whatâ€™s â€œnormalâ€ in the Charlottesville real estate market? Itâ€™s a question thatâ€™s asked of me by buyers coming from other markets (agents, too) and sellers who havenâ€™t sold a house before (or for many years). Note: what you see on HGTV is not what is â€œusual and customaryâ€ in the Charlottesville market. (or any market on Planet Earth).
â€œUsual and customaryâ€ is always changing. Radon inspections werenâ€™t "usual and customary" a couple years ago; now they are. Heck, buyer agency wasnâ€™t usual and customary 15 years ago.
Tina, a colleague in the Nest Blacksburg office, asked a few questions and naturally I felt the answers would be well-served to be posted here, particularly for buyers moving to the Charlottesville area and for sellers who may be moving to other market and not have relevant experience selling a home in our market. Answers are mine.
Q: Do agents use a standard contract? If so, is it the VAR (Virginia Association of Realtors) contract, one provided by your Realtor Association, or a combination of both?
A: Most Realtors in the Charlottesville area use the VAR contract for almost all of our forms, including home inspection, radon etc. We tend to craft specific addenda as needed.
If you're feeling like the past month of real estate data releases hasn't satiated your need for real estate information and analysis, you're invited to listen to Matt Hodges and me this Sunday morning at 11am on WNRN radio. Whenever we do this, it's a lot of fun - talking for an hour about real estate, mortgages, the market and often times quite a bit more generally leads to a useful and informative conversation.
If you're local, tune in to 91.9. If you're not local (or don't have a radio) the interwebs have you covered.
We tend to prep for four hours' worth of radio, talk for about and hour, and get through 20% of what we have available. Live radio is always a bit nerve-wracking as the conversation is largely unscripted, but the resulting hour podcast is something that:
1) Usually generates inspiration for at least five stories
2) I tend to refer to frequently as I typically learn something from all of the prepping and resulting conversation.
So â€¦ in prepping for the show, we're tentatively planning on talking about:
- The Charlottesville real estate market (naturally) - how it's doing, how it might do in 2013
- When buyers and sellers should start their respective processes. (now)
- Real estate assessments (they're coming out very soon) and their impact on actual market value
- The Consumer Financial Protection Bureau's recent rules (800 pages of them) and their potential impact on the market.
- Qualified Residential Mortgages (see above)
- New construction in Charlottesville
- Shadow inventory
- Redfields' buying open space
- More quality inventory
Suggestions welcome.After some more thought, I 'm thinking we might talk about the coming Wegmans and Fresh Markets, energy efficiency in homes, realtor productivity â€¦ one of the best parts of these shows are the recap posts I write that afternoon or next morning, replete with links, research, supporting information and more.
18 homes closed in CharlAlbemarle last week; Days on Market ranged from 0 to 863. $/sq ft from $89 to $227.As always, questions welcomed.
One big notation: I'm no longer comparing today's real estate market; what happened in 2005 - 2007 and before is interesting, curious, anomalous and ultimately irrelevant to today's real estate market. EVERYTHING is different now - interest rates, economic outlook, international economic events, gas prices, employment trends - making comparisons between this market and that market is a distraction.
The City of Charlottesville's real estate market is unique - its mix of homes - single family, condo, townhouse, the fact that is has a relatively smaller percentage of newer construction and its more dense and urban location make it quite distinctive from the surrounding markets.
First, the bullet points:
- Active Listings - Fewer than last year, but still too high.
- New Listings - Fewer than the past two years and trending down; this is a very good thing. As fewer houses come on the market, more houses will sell and we'l be able to find our way through the current spate of houses on the market. *
- All Pendings (Under Contracts) - Higher than the last two years; this is a very good thing. People are buying real estate.
- New Pendings (Better reflecting current market activity) -
- Sold Listings - Slightly higher than last year.
I'd love to include the numbers and charts for Days on Market and the List Price to Sales Price ratio, but I have found that the only, only, only way to run these numbers with any degree of accuracy is to do it manually. For specific properties and neighborhoods.
Note also that these numbers and charts are for everything - single family, attached and condos - your market will vary.
* I'm not totally convinced that the houses that are coming on the market in the Charlottesville and Albemarle real estate market are the ones that buyers want to buy - whether size or energy efficiencies, I think that the inventory we've seen over the past 18 months has not quite matched to what buyers want, and this is a reason that we've seen the new construction market in the Charlottesville area do so well.
Now, the charts and graphs ...
â€œThe homes are built right by the sidewalk and you can talk to the neighbors when they walk by,â€ said Perpetua, who is retired and moved here from Pittsburgh. â€œItâ€™s just a different kind of community.â€ â€¦ Another part of this urban vision is a â€œcivic core,â€ modeled as a public square, which will include a community meeting space, a Montessori school and facilities for the Soccer Organization of Charlottesville-Albemarle. SOCA plans to locate its new headquarters in Belvedere and also has three separate parcels in the works for the neighborhood â€” a covered indoor field and training facility, a lit all-weather artificial turf field and four natural grass fields. Bill Mueller, executive director of SOCA, said that final approval for the offices and indoor field in the first parcel was â€œimminentâ€ and that SOCA would soon start a $4 million fundraising campaign for the facility.Last night I had an extended conversation via the handy-dandy "Live Support" widget you see to the right with someone about the Belvedere neighborhood. We talked about a lot and I referenced a lot of stories. I thought recapturing those links would be helpful, both for me as a resource, and you as a reader (and prospective buyers)
They've interviewed me, Michael Guthrie with Roy Wheeler and Greg Slater and have asked some outstanding questions, the answers to which I'm looking forward to (I'll post mine here in a couple days).
This is Part One of their series, and these are the questions they asked.
It's been a while since I've taken an in-depth look at Zillow; generally I tell my clients that it's good for content but not actual good, conclusive, base-any-real-decisions-on-what-it-says.
If you've been using Zillow's zestimates and trends to understand the market, not only are you finding that you were misinformed, but now you really don't know how misinformed you were (or are).