The Interest Rate Story

Hot At The Top

Here’s a post from Alain Pinel, Sr. Vice President / Managing Officer at Intero Real Estate Services, Inc. We occassionally post information Alain provides about the Luxury Real Estate Market. Not everyone will be able to take action in this area but it’s interesting information.
Susan & Rick



The high end is going strong. Thank you. Nice to see that it is, again, the locomotive pulling the market and driving prices in the right direction. When I make such a statement, I realize that some readers in much of the country must be questioning my sanity. After all, in most areas, it is not the high end but affordability and a shrinking portion of the distressed sales relative to the entire market which are the key factors of the business momentum we have been observing all year.

So let me define “high end.” The expression, in my vocabulary, does not mean the top 10 or 20% of the price pyramid in any market area. It means only the top luxury tier of ONLY those towns or districts all over the US which are commonly recognized and referred to as “high end markets”. I.O.W., the location defines the high end, not just the price point. To be sure, those upscale locations are not many on the map.

The luxury market has been very slow to come alive this year. Today, it is vibrant. Hopefully nobody in Washington is going to make waves and mess up with this long awaited momentum.
A friend of mine, Jurgen Weller, was reminding me that the low cost of mortgage money has a lot to do with the high end resurgence; at least as much as its beneficial impact in all price segments. True, although at the top end of the market, cash is king. Traditional financing is seldom used. Too bad in a way, since it is always smart to leverage other people’s money rather than dig into our own cash register.

Jurgen’s point is as follows: the cost of financing a million dollar over 30 years has dropped $571,000 since 2008, only four years ago! Enough, as he puts it, to send two kids to Harvard Business School for 4 years and keep some change to feed them when they come home. Of course, by then, the parents would be long gone since I have yet to see a human being who would live in a house long enough to fully amortize the loan!

In any case, sales in the multimillion dollar range are going up, up and up. In the most exclusive areas, the incremental improvement at the top far exceeds the price and unit sales improvement registered over the first 9 months in a lower price range. In fact, the higher you go on the price ladder, the higher the jump relative to the same period of last year.

Take a look at pricey San Mateo County in the hot Silicon Valley:

• From 1 to 3M, sales are up 12.5% and the average sale price is up 1.8%

• From 3 to 5M, sales are up 14% and the Avg SP is up 2.8%

• Over $5M, sales are up…29% and the Avg SP is up…25.6%! And those stats only pertain to what is actually reported through the MLS; it could be even more dramatic since, as we know, easily a third of the luxury listings escape the MLS and are listed, known, shown and sold by the local market top guns.

I like what I am seeing in the high end. When it’s good at that level, it’s good or getting better underneath. Please join me in keeping our fingers crossed and insure that the wind will be with us next year and beyond.

By Alain Pinel
Sr. Vice President / Managing Officer
Intero Real Estate Services, Inc.

A Tale of Two Banks and House Flippers

We regularly share information from our President & CEO at Intero Real Estate Services, Inc. We hope you find the information informative and useful. This week Gino has an several items to bring you up to date about.

Susan & Rick

 

In housing rebound news this past week we saw a handful of positive indicators pop up: the nation’s largest housing lender reported a strong gain in earnings, another big bank phones in record mortgage production revenue, and flipping appears to be back in vogue.

Wells Fargo’s earnings release this month beat expectations, giving new data to the housing rebound. So far, most of the data showing a positive uptick has been in home sales, home values and a slowdown in foreclosures.

Wells Fargo reported third-quarter earnings of $4.94 billion, or 88 cents a share, beating estimates of 87 cents. Revenue was $21.2 billion. Mortgage lending added $11.9 billion in core loans during the quarter, the bank reported. However, Wells Fargo also noted that new pressure on interest rate-based earnings, and analysts will continue to watch the balance between increasing core loans and decreasing earnings from interest.

Meanwhile, JPMorgan Chase, also reported a successful quarter with record third-quarter net income of $5.7 billion, and record mortgage production revenue (excluding repurchase losses) rose to a record $1.8 billion, up 36% from the previous year.

JPMorgan said mortgage loan originations were $47.3 billion, up 29% from the prior year and 8% from the previous quarter. Mortgage loan application volume was $73.2 billion, up 26% from last year and 9% from the previous quarter. About 75% of the production volume was from refinances, and the rest from purchases.

Finally, flipping appears to be back in vogue. The act of buying houses, fixing them up and selling at a profit was big and profitable to most investors during the housing boom. But we haven’t heard much of it since the peak and recession.

That seems to be changing, according to RealtyTrac data recently reported in the Washington Post. The number of flips rose 25% during the first half of 2012 compared to the same period last year, and the gross profit on each property averaged $29,342. Of course, average profits for flipping really vary by market and depend heavily on the trend in local house prices.

The hottest markets for flipping are Phoenix, Las Vegas, Miami and Atlanta – coincidentally the same markets that suffered immensely during the recession and housing downturn. Since prices have fallen substantially from their high point in these markets and now seem to be trending up again, investors are once again attracted to the potential for profit.

Now’s a good time to look outside home sales and values for market indicators as we try to gauge which markets are healthy, which are hot and which are still slipping to their bottom. Mortgage lenders have insight here as we see with Wells Fargo and JPMorgan. Tightened lending conditions were a sticky issue in the first few years of the recession, but it seems to have improved substantially.
Get ready for an exciting 2013!

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

Home Staging Advice

Here's what my Facebook Friend Lori Thomas has to say about home staging. We think it's good advice and agree with almost all 21 reasons today's sellers should stage their home.

We think Number 6 may not be the case, but we're willing to discuss it.

There's  a small note to Number 15, and that is we don't usually have every room staged if the home is vacant. We do several key rooms. In an occupied home, it really is all rooms.

Now you'll have to read the article and let us know what you think.

Mortgage Fraud is on the rise

California Housing Recovery Update

The housing recovery in California is expected to continue through to 2013, but the market won't be fully "corrected" until as far off as 2017, according to the California Housing Market Forecast released by the CAR. As most of you know the Bay Area, including South Santa Clara County, is a very special place. While the rest of the country has been recovering we think it is more accurate to say the area’s housing market has exploded over the last 18 to 24 month. Most listings are selling with multiple offers and over the list price. In some markets we have seen prices increase by as much as 20 to 30 percent in just the last 18 months…many areas just a little north of Gilroy and Morgan Hill are seeing prices at ALL TIME HIGHS. Remember however, the housing market in the Bay Area is like the weather and varies widely depending on where you are. If you want to know what is going on in your specific neighborhood feel free to comment here, send me an email, send me a text or give me a call.

 

A few more statewide details:

 

• Homes sales and prices are expected to keep rising, but lower-than-normal inventory levels and underwater mortgages are key hindrances to a faster recovery, according to Leslie Appleton-Young, chief economist with the CALIFORNIA ASSOCIATION OF REALTORS®.
• Home sales are forecasted to rise 1.3 percent to 530,000 units next year, based on the projected tally of 523,300 units this year. That's a slower growth than that of 2011 to 2012, which is roughly 5 percent.
• The momentum in prices also is expected to carry through to 2013, a result of pent-up demand for a limited housing supply. The median price could rise 5.7 percent to $335,000 in 2013. That's lower than the projected price growth from 2011 to 2012, an estimated 11 percent. The state has a 3.2 months' worth of housing inventory, significantly lower than the 16 months'-plus supply of saw roughly four years ago.
• “Pent-up demand from first-time buyers will compete with investors and all-cash offers on lower-priced properties, while multiple offers and aggressive bidding will continue to be the norm in mid- to upper-price range homes,” said Appleton-Young in the report.
• Appleton-Young says what underwater borrowers throughout the state -- be it selling or holding -- will have a big effect on next year's housing recovery.
• Other things to watch next year that will have a bearing on the housing market include: policies related to the state, local and federal governments; and housing and monetary policies, Appleton-Young said.

Read the full story

 

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Why the Mortgage Interest Deduction is So Important Right Now

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.
The mortgage interest deduction always seems to become a hot-button issue around election time. Politicians say it's the perfect program to cut, as it would free up a much-needed $100 billion or so. Homeowners and housing lobbyists – namely the National Association of Realtors – strongly disagree, saying it's a benefit of homeownership that's baked into the decision to buy a home.

The mortgage interest deduction is an important piece of the tax code – especially now as we're in a fragile state of recovery both in housing and the overall economy. Why would anyone cut a tax program that benefits mostly middle-class Americans? It would seem like a swift kick while we're already down.

The mortgage interest deduction allows homeowners to reduce their taxable income by the amount of interest they pay on their mortgage. It's a big deal for many homeowners as it's one of the perks of owning a home and helps reduce the cost of ownership.

The latest threat to cut the mortgage interest deduction came out of the Republican convention in Tampa last month. Presidential nominee Mitt Romney and his advisors once again talked about "limiting" the deduction.

NAR president-elect Gary Thomas responded with a very emphatic "don't do it!" The theory is that reducing or eliminating the mortgage interest deduction would lower home values once again, and drive more Americans underwater.

NAR's position has always been strongly in favor of keeping the mortgage interest deduction in place. This time, there is a solid point in the general argument to leave the deduction alone: Take away this benefit to owning and any homeowner who's already underwater is much more likely to walk away.

Who wouldn't walk away at that point? You're underwater on your mortgage and now one of the benefits to owning that's actually lending you a small financial boost is gone or severely cut. In addition, it seems logical to conclude that removing this benefit would also dampen demand from buyers in the market.

I'm sure buyers aren't buying just because they get a tax break over renting. But it is something that's always factored into the financial decision. And it certainly can help with ball-parking the right price range, since it factors heavily into a family's monthly and yearly budget.

So we beg you politicians: Leave the mortgage interest deduction alone!

Appraisal Problems are Everywhere

We've been involvedin/the victim of some bad appraisal practices since the new laws went into effect. Barbara expresses some of our frustrations.