Real Estate

Americans Have Never Felt This Good About Real Estate

Fannie Mae’s Home Purchase Sentiment Index surged to a new high as consumers became more upbeat about buying and selling, mortgage rates, and their jobs. Five of the six components measured by the index rose month over month.

“Consumer job confidence and favorable mortgage rate expectations lifted the HPSI to a new survey high in July, despite ongoing housing supply and affordability challenges,” says Doug Duncan, Fannie Mae’s senior vice president and chief economist. “Consumers appear to have shaken off a winter slump in sentiment amid strong income gains. Therefore, sentiment is positioned to take advantage of any supply that comes to market, particularly in the affordable category. However, recent financial market events following when the survey data were collected could weigh on consumer views looking ahead.”

Overall, the HPSI, based on a survey of 1,000 Americans, rose 7.2 points compared to a year ago to a record-high reading of 93.7 in July. Here are some highlights from the index’s latest readings:

  • Buying: The net share of Americans who said now is a good time to buy a home rose 3 percentage points from June to 26%, up 2 percentage points from a year ago.

  • Selling: The net share of consumers who say it’s a good time to sell rose 1 percentage point to 44%, up 3 percentage points from a year ago.

  • Home prices: The share of Americans who say home prices will go up over the next 12 months fell 1 percentage point to 37%, down 2 percentage points from a year ago.

  • Mortgage rates: The share of consumers who believe mortgage rates will drop over the next year rose 1 percentage point and is up 24 percentage points from a year ago.

  • Job stability: Americans are more confident about their job situation, with the share who say they’re not concerned about losing their job over the next year rising 8 percentage points to 81%. This is up 16 percentage points from a year ago.

  • Household incomes: The share of Americans who say their household income is significantly higher than 12 months ago rose by 1 percentage point to 21%, essentially unchanged from a year ago.

Source: “Home Purchase Sentiment Index,” Fannie Mae (Aug. 7, 2019)

Bottom Line

Consumers are feeling good about the real estate market. Since Americans are not worried about their jobs, see mortgage rates near an all-time low, and believe it is a good time to buy, the housing market will remain strong for the rest of the year.

New FHA Rule Will Ease Condo Approval Process

The long-waited Federal Housing Administration (FHA) rule regulating condominium lending was finalized Wednesday afternoon.  The Department of Housing and Urban Development (HUD), the parent agency of FHA, published the final regulation and the policy implementation guidance establishing a new condominium approval process.

As a way of background, under existing rules, to obtain an FHA mortgage a borrower must not only satisfy the lender and the FHA that he or she is a qualified buyer but must purchase a unit that is itself qualified for financing. 

According to the National Association of Realtors®, FHA has put its stamp of approval on many complexes, but given the universe, not nearly enough. Of the more than 150,000 condominium projects in the U.S., only 6.5 percent are approved to participate in FHA's mortgage insurance programs.   

To be approved under existing rules, condo communities must submit a pile of paperwork, be vetted by the administration, make any improvements specified by FHA, and then submit to a reexamination. Specified requirements cover the percentage of owner-occupied units, budgetary reserves, insurance coverage, and HOA dues collections. There are also location requirements related to transportation access.  FHA said its requirements were intended to "make sure that the property remains in good standing and will be desirable."

These requirements often left buyers selecting a condo only to find they could not obtain an FHA mortgage for which they were otherwise qualified. This has had implications for homeownership, especially for low-income borrowers, those with less than perfect credit scores, or with downpayments below the minimum level to obtain other financing.  This has become increasingly problematic as prices for single-family homes have escalated, making condo purchases more important as an option for entry-level buyers.

The new rule, which becomes effective on October 15, will allow a homebuyer to obtain an FHA mortgage for an individual condo unit in an unapproved condominium project if that project is completed and meets the following criteria:

  • In a development with fewer than 10 units, no more than two can be insured by FHA.

  • In a development that exceeds 10 units, a maximum of 10 percent can be insured by the FHA.

  • A minimum of 50 percent of project units must be owner-occupied.

The rule change also extends the certification period from two to three years and expands the eligibility criteria for mixed-use units.

HUD estimates the new rules will make an additional 20,000 to 60,000 condo units eligible for FHA insured loans each year.

HUD Acting Deputy Secretary and FHA Commissioner Brian Montgomery said, "Today we are making certain FHA responds to what the market is telling us. This new rule allows FHA to meet its core mission to support eligible borrowers who are ready for homeownership and are most likely to enter the market with the purchase of a condominium."

BY: JANN SWANSON

Rising Affordability in Purchasing Real Estate

BY: JANN SWANSON

Black Knight has good news for potential homebuyers, especially those in the market for their first home. The new edition of the company's Mortgage Monitor says the recent decline in mortgage interest rates has made home affordability the best it has been in 18 months.

With the 30-year fixed-rate mortgage hovering around 3.75 percent, it now takes 21.3 percent of the nation's median monthly income to make a mortgage payment on the median priced home. This is down from 23.3 percent in November of last year and more affordable than the long-term ratio of around 25 percent that was in-play during a time when the market was generally considered to be "normal," 1995 to 2003. It is also much lower than the 34.5 percent ratio at the height of the housing boom.

The rising payment-to-income ratio, as it hit its recent peak last November, appeared to trigger a strong reaction in both sales and home prices.  Given its relatively modest historical position, Black Knight suggests there may be heightened sensitivity to affordability concerns in today's market. Both existing and new home sales have been ragged since then and, although home prices continued to rise, that rate at which they did so slowed considerably.

The average home price has gone up by more than $12 thousand since interest rates peaked last November, but the monthly payment has declined by $108 for an average home purchased with a 20 percent down payment.  Black Knight says this is the equivalent of a 15 percent increase in buying power and means a homebuyer could pay $45,000 more for a home without seeing an increase in the monthly payment.

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Of course, with lower rates and higher affordability, demand is growing again.  The company notes that, the 15-month pattern of price deceleration it had been tracking seems to have leveled off. The annual home price appreciation rate held steady in June at 3.78 percent.

Black Knight cautions that it takes time for impacts for interest rate changes to show up in housing market numbers; even after homebuyers react, there is a time lag due to contract, offer, closing, and recording times.  Therefore, the flat appreciation rate from May to June could be just the beginning and the 3.75 interest rate that hit at the end of June may not show up in home sale and price changes until August or September.

There is a large spread of payment to income ratios across the states, but affordability is improving.  Where nine states were less affordable than their long-term norms back in November, only California and Hawaii remained so as of July.

payment to income ratio by state.jpeg

Housing is least affordable along the western U.S. and parts of the northeast, while the Midwest and parts of the South are home to some of the lowest payment-to-income ratios.  Not only is housing in the Midwest the most affordable, but it is also the furthest below its own long-term average, as income growth there has been more in line with home price growth than in other areas.

july 2019 vs long term.jpeg

Even in California, however, affordability has improved.  The state went from having one of the top five home price growth rates of any state (8.6 percent) one year ago to second-to-last as of June 2019, with home price growth slowing to just 1.3 percent year-over-year.  The payment ratio in the state is now 34 percent, down 4 percentage point from November. That is, however, 2.5 points above its long-term ratio.  Growth declines in several of the West Coast's largest markets has been significant up; prices in the last 12 months have increased by 1.1 percent or less in Los Angeles, San Francisco, San Diego and Seattle. 

Price growth among condominiums have been experiencing greater slowing over the last 12 months than have prices of single-family homes. Up until then the two sets of prices had been rising in lockstep, but now condos are appreciating at 2.2 percent compared to single-family homes at 3.9 percent.  That is a 40 percent differential.  The company points out that condo prices are historically more volatile, they had a faster appreciation rate in the late 1990s and early 2000s, experienced a sharper downturn during the financial crisis and then recovered faster in 2012 to 2014.  Now the tide may be turning again.  The company said this could be due to a number of factors and it worth keeping an eye on.

Black Knight also provided an update on the prepayment rate which had been seeing some dramatic increases as rates declined. That, however, ended in June as activity fell by 7.5 percent.  It was the first monthly decline since January and the company calls it surprising "given that refinance incentive continues to rise, and home sale driven prepayments typically increase from May to June."


prepayment rate by investor.jpeg

 The declines were evident across servicing portfolios, investor classes, interest type and vintages but the strongest reductions were among portfolio held loans, high credit score mortgages and loans originated last year.  Those were the cohorts that had seen the largest increase in prepayments previous to June.  Black Knight says the pullback may be due to sluggish refi-driven prepayments in June rather than (or potentially in combination with) lackluster home sale driven prepays

Millionaire to Millennials: The Costly Mistake of Not Buying Now

On his personal website, self-made millionaire David Bach makes a striking statement:

 “Not prioritizing homeownership is the single biggest mistake millennials are making.” 

He further stated, “Buying a home is an escalator to wealth.”

Bach explains:

“Young adults in particular aren’t hopping on this escalator, and it’s a costly mistake…If millennials don’t buy a home, their chances of actually having any wealth in this country are little to none.”

He then elaborates on the game of homeownership:

“Start by crunching the numbers…actually do the math...This way, you’re really clear on your goals and you won’t just say to yourself, ‘I’ll never afford this!'

A good rule of thumb is to make sure your total monthly housing payment doesn’t consume more than 30 percent of your take-home pay.”

Bach concludes by saying,

“Oftentimes, buying your first home means you’re not buying your dream home…You’re just getting into the market.”

Bottom Line

Whenever a well-respected millionaire gives investment advice, listeners usually clamor to hear it. This millionaire shares some simple and straightforward insights: “The fact is, you aren’t really in the game of building wealth until you own some real estate.”

Who is David Bach?

Bach is a self-made millionaire who has written nine consecutive New York Times bestsellers. His book, “The Automatic Millionaire,” spent 31 weeks on the New York Times bestseller list. He is one of the only business authors in history to have four books simultaneously on the New York Times, Wall Street Journal, BusinessWeek, and USA Today bestseller lists.

He has been a contributor to NBC’s Today Show, appearing more than 100 times, as well as a regular on ABC, CBS, Fox, CNBC, CNN, Yahoo, The View, and PBS. He has also been profiled in many major publications, including the New York Times, BusinessWeek, USA Today, People, Reader’s Digest, Time, Financial Times, Washington Post, Wall Street Journal, Working Woman, Glamour, Family Circle, Redbook, Huffington Post, Business Insider, Investors’ Business Daily, and Forbes.

Housing Affordability in California: The Breakdown

Ability to purchase a median-priced home: According to the State Legislature in Q1 of 2019 only 28% of the population in Napa County can afford to purchase a median-priced home compared to Lassen county with 63% (the highest affordable county). A couple of others: San Francisco and Santa Cruz - 20%, Santa Clara - 23%, San Diego - 26% and LA and Mendocino - 27%. For any other counties of interest please contact me.

1 out of 4 homeless people live in California. The states with the largest increases from 2016-2017 are:

California - 16,136 (13.7%)

New York - 3,151 (3.6%)

Oregon - 715 (5.4%)

Nevada - 435 (5.9%)

Texas - 426 (1.8%)

The Minimum Annual Income Required During Affordability Peak (Q4 2012) vs. Current.

Region 2012 Q1 2019 Q1 %CHG

CA Single Family Housing $ 56,320 $ 114,860 103.9%

CA Condo/Townhomes $ 44,440 $ 94,690 113.1%

Los Angeles Metro Area $ 53,780 $ 107,110 99.2%

Inland Empire $ 35,170 $ 76,810 118.4%

S.F. Bay Area $ 90,370 $ 186,230 106.1%

US $ 32,000 $ 53,620 67.6%




















Existing Home Sales Point Toward a Good Time to Sell

Existing Home Sales.png

Some Highlights:

  • Existing Home Sales dropped 1.7% from May to a seasonally adjusted annual rate of 5.27 million in June.

  • Low inventory levels are still a factor in the market. The current supply of homes for sale is at 4.4 months, which is less than the optimal 6-month supply.

  • Median home prices were up 4.3% from June 2018, hitting $285,700. This marked the 88th consecutive month with year-over-year price gains.

How to Increase Your Equity Over the Next 5 Years

Many of the questions currently surrounding the real estate industry focus on home prices and where they are heading. The most recent Home Price Expectation Survey (HPES) helps target these projected answers.

Here are the results from the Q2 2019 Survey:

  • Home values will appreciate by 4.1% in 2019

  • The average annual appreciation will be 3.2% over the next 5 years

  • The cumulative appreciation will be 16.8% by 2023

  • Even experts representing the most “bearish” quartile of the survey project a cumulative appreciation of over 6.7% by 2023

What does this mean for you?

A substantial portion of family wealth comes from home equity. As the value of a family’s home (an asset) increases, so does their equity.

Using the projections from the HPES, here is a look at the potential equity a family could earn over the next five years if they purchased a $250,000 home in January of 2019:

20190730-MEM.png

Based on gains in home equity, their family wealth could increase by $42,000 over that five-year period.

Bottom Line

If you don’t yet own a home, now may be the time to purchase. Owning or moving up to your dream home could allow you to ride the increase in equity of a growing asset.

Now's the Time To Move-Up and Upgrade Your Current Home

Homes priced at the top 25% of the price range for a particular area of the country are considered "premium homes." In today’s real estate market, there are deals to be had at the higher end! This is great news for homeowners wanting to upgrade from their current house.

Much of the demand for housing over the past couple of years has come from first-time buyers looking for their starter home. Many of the more expensive homes listed for sale have not seen as much interest.

According to ILHM’s Luxury Reportthis mismatch in demand and inventory of luxury and premium homes has created a Buyer’s Market. For the purpose of the report, a luxury home was defined as one that costs $1 million or more.

“A Buyer’s Market indicates that buyers have greater control over the price point. This market type is demonstrated by a substantial number of homes on the market and few sales, suggesting demand for residential properties is slow for that market and/or price point.”

The authors of the report were quick to point out that current conditions at the higher end of the market are no cause for concern.

“While luxury homes may take longer to sell than in previous years, the slower pace, increased inventory levels and larger differences between list and sold prices, represent a normalization of the market, not a downturn.”

Luxury can mean different things to different people. To one person, luxury is a secluded home with plenty of property and privacy. To another, it could be a penthouse at the center of a bustling city. Knowing what characteristics mean luxury to you will help your agent find you the home of your dreams.

Bottom Line

If you are debating upgrading your current house to a premium or luxury home, now is the time!

New Apartments in Napa

Rents at emerging 282-unit complex start at $2,384. These apartments are just north of another housing project, 49-unit Stoddard West apartments for low-income families sponsored by the Gasser Foundation. Read the full article here or below:

The leasing center for The Braydon, Napa’s new, amenity-rich apartment complex, opened just more than a week ago, and the first residents have already signed leases, moved in and are calling the complex west of Soscol Avenue’s Auto Row home.

Residents can choose from one-, two- or three-bedroom units from 752 to 1,311 square feet. Lease rates for one bedroom, one bath unit start at $2,384 per month, two bedroom leases start at $2,810, and the three bedroom leases start at $3,253.

According to Zumper, a rental website, the average market-rate rent for a two-bedroom apartment in Napa during May was $2,240.

About 20 of the 282 planned units are done, said Easther Liu, national vice president of marketing for Fairfield Residential.

Fairfield Residential is developing the 7.37-acre housing site, which uses a new mailing address of 791 Vista Tulocay Lane. It is located on the west side of Soscol Avenue, just north of Tulocay Creek, with views of the Napa River.

A website for The Braydon shows photos of the sample apartments and the complex, which will also include a co-working space, gated dog park, pool, courtyard with outdoor dining space and cabanas, fitness center and “social lounge with full kitchen and multiple seating nooks.”

Once completed, a total of nine buildings will contain the almost 300 apartment homes at The Braydon. A leasing center, located next to a roundabout at the middle of the complex, is now open and staffed.

Inside the complex, the size and scope of the project — one of Napa’s largest apartment developments — is apparent. Chain link fencing wraps around the extensive construction project, which stretches both north and south of the leasing center and the first completed apartment building. The square footage of the apartment housing totals 278,256 square feet.

Napa’s Gasser Foundation originally launched the development, which was formerly known as Vista Tulocay Apartments.

The Gasser Foundation agreed to sell the then-Vista Tulocay site to BLT Enterprises for $9 million in 2002, but the sale did not close until 2013 because of flood control and entitlement delays.

Fairfield Residential bought the project from BLT Enterprises in February 2017 for an estimated $34.25 million.

The apartments are just north of another housing project, the 49-unit Stoddard West apartments for low-income families sponsored by the Gasser Foundation.

Stoddard West previously announced rents will be in the $475-to-$1,300 per month range, depending on the tenants and the number of rooms in the apartment.

Stoddard West, a partnership between Gasser and Burbank Housing of Sonoma County, closed its application list after receiving more than 500 applicants.

Liu declined to provide the number of applications Fairfield has received for the Braydon units.

The "Fastest Growing Trend" in the Housing Industry

Speaking of Rentals…Don’t forget about the rental on the Silverado Trail between Pratt Ave and Deer Park Rd. A private residence with 2 bedrooms with en-suite full bathrooms, open concept 1,728 sq ft home, 200 sq ft private deck with sweeping views of the valley and vineyards, less than 5 min from downtown St. Helena, walking distance to Meadowood. Message me if you know of anyone interested. Click here for more information.

An article from CBS indicates that builders are now investing in homes to then update them and rent them out as rentals seem to be on the rise. Take a look further at the atricle here or below.

KEY POINTS

  • Demand for single-family rental homes is surging, and homebuilders are now stepping in, redesigning and re-imagining the sector — and becoming landlords themselves.

  • “We basically took an apartment and went horizontal instead of vertical,” says Mark Wolf, founder and CEO of AHV Communities.

  • “Our business is booming right now with build-to-rent feasibility work,” says consultant John Burns.

Demand for single-family rental homes is surging, and homebuilders are now stepping in, redesigning and reimagining the sector — and becoming landlords themselves.

While builders have always sold some of their new homes to investors as rentals, the strong demand has some moving into the space exclusively.

AHV Communities, partnering with Bristol Group, is putting up 250 new detached homes in fast-growing San Antonio. Pradera is a gated community with three- and four-bedroom homes, renting from about $1,800 to $2,300 per month. The community includes luxury amenities, like a pool, fitness center, community kitchen and party space, as well as a dog park and dog-washing station.

“We basically took an apartment and went horizontal instead of vertical,” AHV founder and CEO Mark Wolf said. “About 93% of the apartment stock consists of studios, one and two bedrooms, very few three bedrooms. We saw a growing need coming out of the downturn, to provide three- and four-bedroom homes to the renter society.”

Wolf, who has experience in the multifamily apartment market, saw a need for more single-family homes after the housing crash, and he says that demand has not fallen off. While the homeownership rate has risen from its historic low in 2016, it is now starting to slip again.

“We think there’s a major shift in the demographics. Empty nesters are done taking care of their homes. They want to downsize, they want portability, mobility in the lease. The millennial household formation, they’re not really dialed into taking care of a home, they want to go out and do the same thing that the boomers are doing, which is enjoy life, not work hard for their house,” said Wolf.

Last year, about 43,000 single-family homes were built for rent, the largest number in nearly 40 years according to National Association of Home Builders analysis of U.S. Census data. The built-for-rent share of housing starts is also rising, nearly double its recent historical average (from 1992-2012).

Millennials Taylor Walters and Paree Dilkes want to get out of their rental apartment and into a larger single-family home.

“So we’ve been looking online for months now, whether to buy or whether to rent, and this is definitely up our alley,” Walters said as the two toured the amenities at Pradera. They are not married and have no children, but they do have a big dog.

“That’s really the biggest thing. It’s very inconvenient to have to take him out every time he needs to go. Having a yard would be awesome, just let him out, and also a little bit more space. We have a pretty good-sized apartment right now, but just kind of the feeling of being in a house,” said Dilkes.

Renting used to come with a social stigma, since homeownership was touted as the American Dream. The average annual household income of tenants in Pradera, however, is over $100,000, meaning many of them can afford to buy a home but simply choose not to.

Walters and Dilkes considered buying, but didn’t like the way the math worked out.

“I’ve done research, read different articles on millennials buying houses, and I think the biggest thing is the hidden costs that we might incur,” said Walters.

Stephanie Dixon and her husband recently sold their San Antonio home and moved into the rental community. Their children are in college or graduated, and they wanted an easier lifestyle.

“If the water heater breaks, you know, I don’t have to replace it. I just call them. I mean, even the air filters, they came and changed my air filters yesterday. I don’t have to worry about all that, that’s extra expense,” said Dixon.

Builders are struggling right now to put up the entry-level homes that are most in demand. The high costs of land, labor, materials and regulation make low-priced homes more difficult to profit from. That partly explains the shift toward rental properties and communities.

“Our business is booming right now with build-to-rent feasibility work,” said John Burns, founder and CEO of John Burns Real Estate Consulting. “We are discussing new projects with clients almost daily. The market has become so hot that we are already having conversations about when we will conclude the market is overbuilt.”

Burns says equity money is flowing in fast, and learning quickly that they need to partner with an experienced builder. That is why homebuilders Lennar and Toll Brothers have recently started building homes specifically to sell to investors as rentals.

“Most publicly traded builders are talking about building it for others rather than taking the risk themselves, while private builders are looking at taking more risk,” Burns said.

Wolf sees the build-for-rent market as less risky, especially in the short term.

“We believe in the long-term cash flow game. So if you hold these properties for 10-plus years, or even seven-plus years, the residual cash flow is worth more than the sale one time,” said Wolf.

AHV is building another rent-only community, in New Braunfels, Texas, in partnership with American Homes 4 Rent, a single-family rental REIT. The single-family REIT space grew out of the foreclosure crisis and has now consolidated to a few big players. They own several thousand homes, but they are spread out across communities, so management is more complicated and more expensive.

“They see the, I think, the benefit and the beauty of this model to complement what they already have,” said Wolf.

Home Prices Up 5.05% Across the Country

Some Highlights:

  • The Federal Housing Finance Agency (FHFA) recently released their latest Quarterly Home Price Index report.

  • In the report, home prices are compared both regionally and by state.

  • Based on the latest numbers, if you plan on relocating to another state, waiting to move may end up costing you more!

Home Prices Up.jpg


Mid-Year Housing Market Update: Three Things to Know Today

Shifting trends and industry-leading research are pointing toward some valuable projections about the status of the housing market for the rest of the year.

If you’re thinking of buying or selling, or if you just want to know what experts are saying is on the horizon, here are the top three things to put on your radar as we head into the coming months:

  1. Home prices are appreciating at a more normal rate: Home prices have been appreciating for about ten years now. Experts at the Home Price Expectation Survey, Mortgage Bankers Association, Freddie Mac, and Fannie Mae are forecasting continued growth throughout the next year, although it should be leveling-off to normal appreciation (3.6%), as we move into 2020.

  2. Interest rates are low: Over the past 30 years, the average mortgage rate in the United States has been 8.27%, and rates even peaked as high as 18% in the 1980s. Today, at 3.81%, the rate is considerably lower than the historical 30-year average. Although experts predict it may climb into the low 4% range in the near future, that’s still remarkably lower than our running average, suggesting a great time to get more for your money over the life of your loan.

  3. An impending recession does not mean there will be a housing crash: Although expert research studies such as those found in the Duke Survey of American CFOs and the National Association of Business Economics, are pointing toward a recession beginning within the next 18 months, a potential recession isn’t expected to be driven by the housing industry. That means we likely won’t experience a devastating housing crash like the country felt in 2008. Expert financial analyst Morgan Housel tweeted:

“An interesting thing is the widespread assumption that the next recession will be as bad as 2008. Natural to think that way, but, statistically, highly unlikely. Could be over before you realized it began.”

In fact, during 3 of the 5 last U.S. recessions, housing prices actually appreciated:

Home-Price-Change.jpg

Bottom Line

With prices appreciating and low interest rates available, it’s a perfect time to buy or sell a home. Reach out to a local real estate professional to see how you can take the next step in the exciting journey of homeownership.

Article from Keeping Current Matters

8 Real Estate Investing Mistakes to Avoid

With the stock market volatility real estate investing is becoming more popular. Here are 8 mistakes to avoid in order to make your real estate portfolio successful.

Buying Without Researching: Rushing into real estate without understanding what you’re getting can lead to bad results, says Kyle Whipple, a financial advisor and registered investment at advisor at C. Curtis Financial Group in Plymouth, Michigan. “Just because real estate is doing well doesn’t mean it will turn out to be a good investment for you.” Stock investors are often told to “buy low, sell high” and that same rule can be put to use for property investments. “You want to make sure that you’re getting a good deal and not purchasing an overpriced piece of real estate which will lower your long-term returns,” Whipple says.

Developing a Tunnel Vision: Real estate adds a new dimension to a portfolio, in terms of balancing against the risk and volatility associated with stocks. Kaufman says a common mistake is being too narrow about property focus. “Many individuals fail to diversify their real estate holdings,” he says, investing only in one local geographic area or property type. “This all-eggs-in-one-basket approach drastically increases downside risk, but investors do this because they are more comfortable investing in markets they’re familiar with.” Casting the net wider to incorporate crowdfunded investments or real estate investment trusts, known as REITs, can offer exposure to a broader group of properties and increase diversification.

Going It Alone: Owning a commercial or residential rental property can be both time- and capital-intensive. Trying to handle it all solo can require a level of focus and commitment that may not be realistic for every investor. A simple way to avoid that mistake is building a team from day one, says Kevin Ortner, president and CEO of Renters Warehouse in Minneapolis. That may involve investing with a partner or working with a broader group of individuals that includes an experienced real estate agent, an attorney who’s well-versed in property law, professional contractors and a property management company. Having support can make investing in real estate a smoother experience, with less room for error.

Relying on Bad Advice: When seeking out help in making decisions regarding property investments it’s important to go to the right sources. “Making an investment in real estate, especially for first-time investors, can be daunting and nerve-wracking,” says Rowena Dasgupta, an agent at Warburg Realty in New York. “Often, people ask friends and family for their opinion more for reassurance than for legitimate guidance.” What they should be doing instead, Dasgupta says, is seeking counsel from real estate professionals or an investor with a lengthy track record of buying and selling properties. These individuals have the knowledge and experience to provide more reliable advice.

Assuming It’s Easy: Just like stocks, mutual funds, bonds or other investments, real estate requires a certain amount of know-how to navigate. Terrell Gates, founder and CEO of Virtus Real Estate Capital, says both large and small real estate investors can make the mistake of thinking that investing in property is easier than it is. This can be exacerbated in bull markets when real estate is going strong because people tend to forget about previous downturns. “Unfortunately, to be consistently successful in real estate over the long haul requires more skill than luck,” Gates says.

Chasing Bargains: Ortner says another common pitfall among real estate investors is only looking for a deal when buying a property. “If you’re going to make long-term real estate investments, you don’t need to buy at a major discount,” Ortner says. “You just need to do deals that make sense, because, over time, you’re going to be building equity.” He says many investors limit the properties they can buy because they’re hoping to land a major discount with value, which isn’t a realistic target in the current market environment. By maintaining a long-term outlook, investors can avoid the bargain hunter mentality and focus instead on growing their property portfolio.

Not Having an Exit Strategy: Real estate can be a good buy-and-hold option but failing to develop an exit strategy can be damaging. Whipple has seen this scenario play out firsthand, with investors selling a highly appreciated piece of property without a plan in place for what to do with the funds. “They feel they are done with the real estate game and want out,” he says. “Unfortunately, they end up getting hit with a lot of taxes.” Having an end-play for real estate investments from day one can help avoid costly situations when it’s time to sell.

Overlooking the Bigger Picture: The worst mistake with real estate investing may simply be not considering how to utilize it within a broader portfolio. “Many investors make mistakes when they don’t understand how real estate fits into their overall strategy that includes diversification, long-term appreciation, liquidity needs and cash flow,” says Brent Weiss, co-founder and chief evangelist of Facet Wealth. Having a financial plan that incorporates real estate begins with understanding investment goals, risk tolerance and time horizon. These are things a financial advisor can help with. “Once investors understand what strategy will support their plan, they can determine the right mix of asset classes to create success,” Weiss says.

Article from USNews

The Cost of Waiting: Interest Rates Edition

Some Highlights:

  • Interest rates are projected to increase steadily heading into 2020.

  • The higher your interest rate, the more money you will end up paying for your home and the higher your monthly payment will be.

  • Rates are still low right now – don’t wait until they hit 5% to start searching for your dream home!

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Our Town St. Helena nears construction start on affordable housing project

DAVID STONEBERG editor@sthelenastar.com

Eight Upvalley families started a journey of home construction Saturday that will end in 18-20 months when all of the townhomes on Brenkle Court in St. Helena are finished.

The Brenkle Court subdivision at 684 McCorkle Ave. is sponsored by Our Town St. Helena, a local nonprofit affordable housing advocacy group.

The families spent Saturday clearing weeds, cutting down shrubs and getting the land ready for a concrete subcontractor to form and pour the two slabs needed for the single-family common-wall townhomes. Each of the homes will be two-story with three bedrooms and 1 1/2 baths. On Monday, there was a large pile of brush behind the chain-link fence, on which hung several colorful and whimsical paintings.

The hard work begins in six weeks, as each family has pledged to build 65 percent of all of the homes, spending 35 hours a week on construction. That’s in addition to their regular jobs, which means working nights and weekends for the next 18 to 20 months.

Site supervisor Adam DeLeon will be on the job five days a week, directing the families. Retired contractor Larry Vermeulen is OTSH construction supervisor. “We thought we were going to start in December or January,” Vermeulen said, noting that the site development work, including curbs, gutters, street, grading and underground utilities were all done in October or November.

Longer than expected

Vermeulen said it took longer than expected to work with the USDA Rural Development, which is providing a technical grant to OTSH and low-income mortgages to each of the families. Three years ago, OTSH started out with 43 families who were interested in building and owning one of the townhomes. That list got narrowed down to 12 or 15 families who could qualify.

OTSH board member John Sales said qualifications are difficult, since families have to make the payments, estimated at $1,800 a month, although they can’t make too much or they won’t qualify for the USDA mortgages, which are 35 or 38 years. “We ended up with eight families and when we got to the point of signing purchase agreements, two of the families dropped out, so we had to go back, pull some more applications and go through the qualification process again,” Sales said.

Six of the families are qualified as low income, which is $66,375 for a family of four and two are very low income, which is 50%, or $44,250, of the HUD median income. “They can’t make more than that, but they have to make enough to manage these mortgage payments,” Vermeulen said.

The units are protected to be affordable housing for 55 years. “It’s affordable housing in this county by any definition,” he added, since a median home sales price last year was $1 million and the lowest sold was $600,000 and that was a condominium. The value of each of the eight townhomes will be $412,000 when finished.

It has taken a tremendous amount of work to get to this point. After the City of St. Helena bought the property and sold it to OTSH for $1, with the express purpose of building affordable housing, OTSH hired consultant Howard Siegel, who had been with Napa County for a number of years. The Gasser Foundation help pay for Siegel.

“We have to give Howard a lot of credit, because he walked us through some of the deepest ditches we could have walked through, subdividing the property, coming up with subdivision maps and satisfying the state,” Sales said. The process of going back and forth with the state for eight or nine months was “horrible,” Sales said.

The families

An additional challenge was that OTSH had to get all the families’ mortgages done at the same time, since the eight units are common-wall townhouses, that is single-family homes with common walls and a courtyard.

The families are cellar workers, vineyard workers, and hotel and restaurant employees. “They are the service people who keep our little town going, that keep our wine industry going,” Vermeulen said. “Some of them have been at the wineries for many years, they are the assistant cellar masters, for example, but they don’t earn enough money to buy a home in St. Helena.”

Erica Roetman Sklar, who serves on OTSH’s advisory council, added, “I think this is an important point, these families will have the benefit of home ownership in St. Helena,” and when the homes are finished, they will be moving out of their subsidized rental housing, whether it’s at Hunt’s Grove or Stonebridge. “That opens up a new opportunity for another family,” she said.

Building a team

In the past few months, Vermeulen worked with the families, training them on basic construction: how to measure, mark, cut and assemble, how to read a tape measure, for example. Also there have been videos, lectures and tool safety talks, especially with power tools. “To practice our skills we built sawhorses in the parking lot at Grace Episcopal Church in December,” Vermeulen said.

“We got all the families together, so I’ve got 20 odd sawhorses waiting to get over to the job site. It’s been about team building, too, it isn’t just about the skills, it’s about working together,” he added.

Families will have to put in 35 hours a week, which is difficult for a family of two on just the weekends, “so we’ve impressed on them that they need to twist the arms of their relatives and friends,” Vermeulen said. “They can bring volunteers that count against that 35 hours. We’ll keep track of it, to keep it equitable.”

After the group starts building and learns to work together, Vermeulen said he will be looking for volunteers from the community at large. “We haven’t pushed that very hard, because we’re not ready for it. I want to see how the families work first, I need to get them working as a unit, then we’ll add another 50 people. If we start day one with 100 people, it will be chaos.”

The construction is expected to take between 18 and 20 months. OTSH will hire subcontractors for concrete, electrical, plumbing, roofing and drywall, although that could change. “We may end up doing more labor to meet our budget,” he said, since the budget was established before the wildfires of 2018 hit, driving up the cost of materials.

In the end, they may need to do the roofing and the drywall. “It’s a lot more efficient to have a professional crew come in and bust out the drywall. We’ll know in a year, whether we have to do it and we’ll get a better picture in a few months,” Vermeulen said.

Additional financial support was received from the City of St. Helena, who donated the land and waived development fees and the county of Napa. Rural Community Assistance Corporation is providing technical support and financing.

What a Difference a Year Makes for Sellers

Over the last few years, many sellers have been hesitant to put their houses on the market because they feared not being able to find another home to buy.

We’ve reported on inventory shortages in the past, and it’s been a constant concern for potential buyers throughout recent years. New research shows the inventory concern is starting to decrease among potential buyers.

According to First American, the two leading obstacles to homeownership that buyers feel today are Affordability and Limited Inventory. This means the feeling that homes are less affordable has risen, while the fear of limited inventory has decreased, delivering a wealth of good news for sellers.

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At the same time, over the past 12 months, we’ve seen a steady month-over-month increase in the number of homes coming to market for purchase. In the past, the lack of listings and available inventory slowed down the real estate market. This recent increase in current inventory has many buyers and sellers now thinking it is time to make their move – and rightfully so! For the last two months, we’ve seen over 4 months of inventory become available for sale, a promising number that’s been slowly increasing this year and creating more buying opportunities.

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To further support the idea of an improving real estate market, Sam Khater, the Chief Economist at Freddie Mac says,

“…In the near-term, we expect the housing market to continue to improve from both a sales and price perspective.” 

Many experts, like Sam, believe the second half of 2019 will drive a stronger market than we saw at the beginning of the year. This is great news for homeowners who have put off getting their houses on the market and are now ready to make a move.

Bottom Line

What a difference we’ve seen over the course of this year! If you’re thinking of selling, now is the time as inventory is on the rise.

Should I Refinance My Home?

With the recent lower interest rates, many homeowners are wondering if they should refinance.

To decide if refinancing is the best option for your family, start by asking yourself these questions:

Why do you want to refinance?

There are many reasons to refinance, but here are three of the most common ones:

  1. Lower your interest rate and payment – This is the most popular reason. If you have a 5% interest rate or higher, it might be worth seeing if you can take advantage of the current lower interest rates, hovering below 4%, to reduce your monthly payment and overall cost of the loan.

  2. Shorten the term of your loan – If you have a 30-year loan, it may be advantageous to change it to a 15 or 20-year loan to pay off your mortgage sooner.

  3. Cash-out refinance – With home prices increasing, you might have enough equity to cash out and invest in something else, like your children’s education, a vacation home, or a new business.

Once you know why you might want to refinance, ask yourself the next question:

How much is it going to cost?

There are fees and closing costs involved in refinancing, and Lenders Network explains:

“If you were to refinance that loan into a new loan, total closing costs will run between 2%-4% of the loan amount.”

They also explain that there are options for no-cost refinance loans, but be on the lookout:

“A no-cost refinance loan is when the lender pays the closing costs for the borrower. However, you should be aware that the lender makes up this money from other aspects of the mortgage. Usually pay charging a slightly higher interest rate so they can make the money back.”

If you’re comfortable with the costs of refinancing, then ask yourself one more question:

Is it worth it?

To answer this one, we’ll use an example. Let’s assume you have a $200,000 home loan. A 4% refinance cost will be $10,000. If you want to lower your interest rate from 6% to 4%,  then refinancing is going to save you $244 per month. To break even ($10,000/$244), you need to continue owning your home for over 40 months.

Now that you know how the math shakes out, think about how much longer you’d like to own your current home. If you plan to stay for more than 3 years, then maybe it is advantageous for you to refinance.

If, however, your current home does not fulfill your present needs, you might want to consider using your potential refinance costs for a down payment on a new move-up home. You will still get a lower interest rate than the one you have on your current house, and with the equity you’ve already built, you can finally purchase the home of your dreams.

Bottom Line

There are many opportunities for growth in the current real estate market. To find out what’s right for your family, contact me and I’d be happy to help.

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Compass Concierge! Easily increase your property's market value with home improvement services!

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Compass will cover all upfront costs, collecting payment for the services rendered at the time of the property's closing. By investing in your home's potential, we aim to provide a swifter, more profitable sale.

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Staging

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Cosmetic renovations

Decluttering

Landscaping

Painting

Pest control

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And More

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Contact me to discuss how Compass Concierge could help you.

Highest Mortgage Rates in More Than 3 Weeks

Mortgage rates moved decisively higher this week as the underlying bond market finally began shifting gears.  After the Fed meeting in June, rates moved to the lowest levels in more than 2 years and had been holding in a narrow range since then.  The risks of a breakout were set to increase as the market digested several key events.  One of the most important of those events was this week's congressional testimony by Fed Chair Powell.  

Interestingly enough, Powell's testimony actually helped rates at first.  In the 2nd part of the testimony yesterday, there wasn't much of a market reaction.  Instead, it was stronger economic data and poorly received Treasury auction that pummeled the bond market.  As bonds weaken, rates rise. 

Not all lenders fully adjusted their rate sheets to reflect yesterday's market movement.  That means many lenders offered even higher rates on Friday despite the fact that the underlying bond market actually improved somewhat.  That leaves today's rates at the highest levels since before the Fed meeting on June 19th.


Loan Originator Perspective

Bond markets recovered a good portion of yesterday's pronounced losses, but we're far from out of the danger zone here.  Market sentiment has gone from bond-friendly to (at least) bond-neutral.  It's going to take a LOT to spur rates lower, and not much motivation for them to rise.  I'm locking loans closing within 45 days. -Ted Rood, Senior Originator


Today's Most Prevalent Rates

  • 30YR FIXED - 4.00%

  • FHA/VA - 3.625%

  • 15 YEAR FIXED - 3.5-3.625%

  • 5 YEAR ARMS - 3.375-3.75% depending on the lender

    Ongoing Lock/Float Considerations 

  • Early 2019 saw a rapid reevaluation of big-picture trends in rates and in markets in general

  • The Federal Reserve has been a key player, and while they aren't the ones pulling the global economic strings, their response (and even their EXPECTED response) to the economy has helped rates fall more quickly than they otherwise might.

  • Based on the Fed's laundry list of concerns, the bond market (which determines rates) will be watching economic data closely, both at home and abroad, as well as trade-related concerns. The stronger the data and trade relations, the more rates could rise, while weaker data and trade wars will lead to new long-term lows.

  • Rates discussed refer to the most frequently-quoted, conforming, conventional 30yr fixed rate for top tier borrowers among average to well-priced lenders. The rates generally assume little-to-no origination or discount except as noted when applicable. Rates appearing on this page are "effective rates" that take day-to-day changes in upfront costs into consideration.

Mortgage News Daily