Posts tagged albemarle real estate

Where are Interest Rates Going? (October 31 edition)

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

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C’Mon, Apple. Real Estate Agents Need Property Boundaries

How will I show land without parcel boundaries on my phone?!

There’s been a lot of discussion about the new Apple maps, which will be replacing Google maps on the next iPhone.

apple maps

This isn’t enough to switch back to an Android device from my iPhone 4S, but it’s significant. In the nearly-three-years since Google integrated Albemarle County’s property boundaries as one of its layers, I’ve become quite dependent on this extremely useful feature.

Gizmodo did a nice side-by-side comparison of Google Maps vs Apple Maps, but they left out one thing that I use in my real estate practice multiple times a week – real estate parcels.

I saw some discussion about it last week in my Twitter stream, and asked for some help on Google+

Anyone with access to iOS 6 – can you tell me if the new apple maps have parcel boundaries as the google maps do? I need and use those to show property – in subdivisions and when showing raw land.

And thankfully got an answer pretty quickly from a friend.

Note the difference between these two photos? iOS5 has property parcel boundaries, while iOS6 doesn’t.

Google maps with parcels on iPhone 4s

Apple maps without parcels on iOS6

While I wouldn’t advise my client to accept these boundaries in lieu of a survey, they are usually accurate enough when walking land or lots, particularly when walking county/country properties where “natural” boundaries such as power or telephone poles aren’t visible.

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Charlottesville Real Estate Market Conversation – 29 January 2012

Matt Hodges and I had a good time on WNRN radio yesterday discussing what’s happening in the Charlottesville real estate market, mortgages, buyer activity, real estate assessments, government interference, gas prices’ impact on real estate decisions, and a whole lot more.

I’m going to listen to the show (thanks to Charlottesville Podcast) and put up some show notes, but in the meantime, feel free to what I think was a pretty interesting hour of real estate.

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A New Theory on Buyers in Today’s Real Estate Market

Put simply – buyers want to buy. And a lot of them are tired of waiting.

Categorizing the Charlottesville real estate market:

– 20% distressed
– 20-30% is overpriced
– 20-25% is stuff that no one wants to buy
– 20% is in great condition, priced really well and is selling in under 60 days. *

Right now* there are 2122 homes on the market. 410 are currently under contract; 177 (43%!) have continuous days on market of under 30 days and 219 (53%) have CDOM of under 60 days.

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Knowing This, Would you Trust Zillow?

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).


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Charlottesville Real Estate Market Update: Transaction Volume for 2000 – 2011

Part Two of … See Part One – Charlottesville MSA – Single Family & Attached Homes Placed Under Contract – First Five Months

Looking at the Charlottesville MSA for transactional volume history … what we need is stability and consistency. Once we can reach a relatively stable number of transactions, I think we’l be able to start to see normalcy, whatever that is … maybe ~ 1000 transactions per year?

For the first five months of the year, what we’re looking at here is everything – single family detached homes, attached homes, new construction, resale, condos …

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Willoughby Neighborhood is Growing

The following was sent in by a reader (and I’m grateful): “Don’t know if you’re repping any homes in Willoughby or any of your buyers are looking there, but there are some plans in the city and county that they may wish to consider. … All 100 units will enter and exit on Harris Road in Willoughby, as the property is constrained by Moore’s Creek and I doubt the County would give permission to build an automobile crossing into the Avon Center development, should it ever be built. … * Part I of the city plan looks to be about half the units and beds — 25 units/100 beds or so. — From Albemarle’s “County View” : (bolding mine) ZMA 201100003, Willoughby Apartments Planner: Claudette Grant PROPOSAL: Rezone 5.671 acres from Planned Unit Development (PUD) zoning district which allows residential (3 – 34 units per acre), mixed with commercial and industrial uses to PUD zoning district to add residential density to plan.

…I contacted an attorney who graciously bent his ear for 20+ minutes about the very possible encroachment or developing on Willoughby Common Property in the City without legal right of way and he said to hire a surveyor and have him/her survey the area, mark it and record it, then we will have an expert determine if this is true.

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