Why the Federal Reserve Matters

We spend a good deal of time talking about the Federal Reserve, and we do so for a good reason: The Federal Reserve is the most important economic planner in the country. The Fed is charged with promoting employment, stabilizing prices, and regulating the financial sector. Not surprisingly, it holds tremendous sway over both the housing and mortgage markets.

We frequently monitor the Fed to get an idea where lending rates are headed. Last week, we mentioned that we thought lending rates would hold today's lower levels. We've become more convinced that the Fed won't step back from quantitative easing or raise short-term rates soon. We say that because the Fed has targeted a 6.5% unemployment rate and a consumer-price inflation range of 2% to 2.5%.

On the former, the goal isn't close to being reached. Unemployment still runs well over 7%, and it's only that low because of a falling labor participation rate. As for consumer-price inflation, it still runs well below 2%. Much of the new money the Fed has pumped into the economy, instead of flowing into the consumer sector, is finding its way into asset. It's no coincidence that stocks are at an all-time high.

In short, the Fed has plenty of room and plenty of incentive to keep pumping money and to hold mortgage lending rates low. We don't see that changing in the near future.

Keeping you updated on the market! MARKET RECAP For the week of November 11, 2013

The U.S. Census Bureau reported that the homeownership rate hit an 18-year low of 65.1% in the third-quarter of 2013. The rate had climbed steeply in the 10-year period from 1994 through 2003 – topping 69%. From there, it has been downhill ever since.

At the same time, residential rents continue to rise. The Census Bureau also reports that the median residential rental rate rose to $736/month in the third quarter to hit an all-time high.

Home prices also continue to rise, which is mostly positive. The negative is that the strong rise in home prices over the past two years has made it more expensive to buy a home. Home-price increases have helped drive the National Association of Realtor's affordability index down to a five-year low.

Rising rents and rising home prices are pressuring household formation – where a person moves into his or her own housing unit. For decades, new household formation averaged roughly 1 million per year. In the third quarter of 2013, the rate dropped to 380,000 on an annualized basis.

New households are, not surprisingly, associated with first-time buyers – both categories are overwhelming young in age. The percentage of first-time buyers in the market has fallen this year. These buyers historically account for 40% of home sales. But the latest NAR data show these buyers accounted for only 28% of homes bought in September. 

The news appears bad for the housing market, but it really isn't. It's important to emphasize that all markets are forward looking. Where we're going is more important than where we've been. Quite frankly, we like where we are going.

Current household formation at lows and rents at highs point to growth in homeownership rates. Surveys from Fannie Mae still show 75% of us prefer to own a home. Yes, homes are more expensive than they were a few years ago, but the good news is there is pent up demand for a home, particularly when the cost of owning that home is juxtaposed to the cost of renting.

Rising home prices, though lowering affordability, are also positively impacting the mortgage market. Excessively tight lending standards has been a recurring criticism, but there are signs of change.

Rising home prices are putting more homeowners into positive equity positions, which means more homeowners are motivated to service and maintain their mortgage. In fact, the delinquency rate for mortgage loans decreased to 6.4% of all loans outstanding at the end of the third quarter. This is the lowest level since the second quarter of 2009.

Rising home prices and lower delinquencies, in turn, are making lenders less risk averse. Today, we see more loans in the conventional market being originated with down payments as low as 5%. In other words, private lenders are competing with the FHA, and many are even offering better deals when all costs are factored in.

So don't be put off by today's cloudy negative news, because silver linings can be found. The future is what matters, and we see a positive future based on the likely reversal of several negative trends.

New Home Loan Program Summaries

CalPLUS with ZIP

CalPLUS is an FHA-insured, first mortgage loan featuring a fully amortized fixed

interest rate with a maximum 30-year term and is combined with the CalHFA

Zero Interest Program (ZIP). ZIP is a deferred, zero-interest second loan up to

3.5% of the CalPLUS first mortgage loan amount and can only be used in

combination with CalPLUS for down payment assistance. CHDAP or ECTP can

also be combined with CalPLUS.

 

Extra Credit Teacher Home Purchase Program (ECTP)

ECTP is a deferred payment, forgivable interest subordinate loan for eligible

teachers, administrators, classified employees and staff members working in high

priority schools (API ranks 1-5), county schools or continuation schools

throughout California. ECTP can only be used for down payment assistance with

an eligible CalHFA first mortgage loan. See attached summary sheet for more

information.

 

Program Highlights for All Programs

・ Maximum Combined Loan-to-Value (CLTV) up to 103%

・ Borrower Minimum Required Investment based on credit score

・ Credit Score 640-679 $1,500

・ Credit Score > 680 $1,000

・ Required two-year home warranty protection policy

・ Required homebuyer education from CalHFA-designated provider

・ Ability to layer multiple programs

 

Let me know if you have any questions.

 

 

OC & LA Real Estate Monthly Indicator PWR report May 2013

photo by : Amir Zee

According to Pacific West Association of Realtors " PWR" Monthly Indicator report which all data comes from CRMLS, so it’s real, current and relevant information which buyer or seller  want to know " The Median Sales Price was up 23.4 percent to $506,000 for detached homes and 33.9 percent to $329,400 for attached properties. Months Supply of Inventory decreased 62.8 percent for single-family units and 64.1 percent for townhouse-condo units.

Please look at this  Monthly Indicator PWR report which cover Orange county and Los Angeles county at Southern California.

Low property inventory and risk of higher mortgage interest rate pushing the asking price for properties higher.  The Federal Reserve Bank is considering decreasing its $85 billion a month bond asset purchases, which have been holding interest rates at or near historic lows. This is mostly the result of an improving jobs market, which is a good thing for real estate.

Long Beach Local Market Update for March 2013

Spanish style homes at Belmont Heights Long Beach 

Real estate market improving through the country.  Long Beach, California face low inventory and strong buyer demand. As the result, prices are inching higher.
See Long Beach Local Market Update for March 2013 which is done by Pacific West Association of Realtor. This report reveal very interesting numbers as compare March 2012 with March 2013 sale of Single Family homes and Condominiums.

Home values are on the rise & Property Flippers are Coming Back

Villa Rivera Long Beach CA by Amir Zee

Facts are as follows:

1. Home values are on the rise, with a year-over-year price increase of 11.6 percent, according to the National Association of Realtors. Inventory has cratered to levels not seen since 2005.

2. Today's flippers have learned some hard lessons. This time, homebuyers are being more selective - putting more money down and making calculated bets on smart renovations.

3.   The one-year average price increase their stands at 13.4 percent, according to the S&P/Case-Shiller Home Price Indices, 2 percent above the national average. 

4. The best places to flip in 2012 included Orlando, Florida; Richmond, Virginia; Tucson, Arizona; and Charlotte, North Carolina, according to RealtyTrac.


5. Cash is king, Bank have tight restrictions, and that means real estate investors coming in with all-cash deals have the upper hand. 


6.  Renovations matter, but stick to a budget. In today's market, you will likely only get a bargain if the house is in truly rough condition. 


7. Be prepared to hold Back, in 2003 the Federal Housing Administration (FHA) instituted anti-flipping regulations, prohibiting insuring a mortgage on a property owned by the seller for less than 90 days.


8. Do not expect to flip the property within days and realize lightning-quick profits. You may want to rent it out for a while as the housing market continues to recover, says Heller, in order to cover some costs and eventually secure an even higher resale price.

90803 Local Market Update for March 2013

Inventory of residential homes running low in Long Beach, CA  90803. Price of residential homes ticking upward. Interest is low. Over all Real Estate market at Belmont Height is improving. Please look at 90803 Local Market Update for March 2013 done by Pacific West Realtors Association.