It’s 2018. Home automation has come a long way from uber expensive systems that took lots of wiring and money to harness. It’s easy to implement some of these tools for under $20. This video gives a brief overview of each.
How many of these could you use? If you want them, but don’t know where to start, call/text/email me and I’ll put you on the right path with where to buy & who can install. Enjoy your more convenient, efficient & secure home!!
When was the last time you asked “how are you” and didn’t hear a response involving the word “busy”??
We’re all wrapped up in the minutia of doing more with less, the endless imbalance of work/life & trying to achieve all of these things to feel good about ourselves. The end game is that we’re all overworked, over-tired, stressed & probably not having as much fun as we think we should. Believe it or not, these sentiments creep into our home. When real estate was BOOMING, this was reflected in our homes with opulence- luxurious finishes like marble, onyx, travertine, scrolling iron, rich, silky textiles & all that… stuff. Our homes were literally bursting at the seams with THINGS. We all know where that time went…
A few years back, a good girlfriend of mine & her husband built a home. She’s a wonderful person- and incredibly giving of herself and teaches their kids to do the same. They’re inclusive and very kind. As a result, they’re truly loved by all. Their family is incredibly fortunate were able to build the home of their dreams in a fabulous part of town with the help of very talented designers, architects and builder. As they went through the seemingly endless process of finding the right location, lot, planning the layout, flow & function, she was involved in each little detail. When she got to the interiors, one comment she made really stuck with me.
“I really want people to come over and feel like they’re at home- like they can relax and put their feet up. I want them to be comfortable” She nailed it.
Most homes especially at the price point of hers, didn’t achieve this in the past decade. Sure you can have “a room” or a space that’s comfortable enough for nights in and more formal entertaining. But that’s just it. Who does “formal entertaining” anymore? I for one have never served tea in my parlor… I don’t even have a parlor, nor do I want one. My idea of “afternoon tea” is to throw a pod in the Keurig, pull out a unique mug from someplace fun (Anthropologie anyone???) drop my shoes & put on my Ugg slippers. I will always serve real cream, but admit I haven’t used my formal china in far too long (I really need to stop that and use it!!!). The idea of going through all those extra steps, doesn’t appeal to me on the random chance that a friend is actually able to break away from her myriad of responsibilities with children, spouses/SOs, work, etc., etc.
However, not many homes reflect this lifestyle that we have, but they do. Over the last few years, I’ve watched the trends in home floor plans go from lots of formal spaces- formal living, formal dining, breakfast table, sitting room, blah, blah- to one cozy great room where everyone can congregate so that the cook won’t miss any of the fun! It’s not by accident that the Bohemian trend gained so much steam. The cozy cable knit throws, gorgeous Persian rugs, Encaustic (cement tile) & lots of green are popping up.
These styles are: tough, forgiving, well-worn, broken in, whimsical, and dare I say, fun, quirky & “tongue in cheek”? They won’t be RUINED if you have a bad day and are clumsy, “under the weather”, off, or simply “don’t give a f&*” (excuse the French). You can be… you. Unapologetically. This also resonates with buyers.
Have you heard of FLOR? They’re carpet tiles with a rubber backing that can be attached together, form a pretty water tight seal and can be removed washed or easily replaced if say your kid/dog/husband comes in and has an OOPS! moment on a few. I have them in my house and LOVE, LOVE, LOVE THEM!!! These are actually commercial flooring that was adapted for residential application.
My favorite part has been the COLOR!!!So many, too many homes are lightening up from the heavy browns, golds & tans of Tuscan or Old World designs to whites and grays or greige. Dark monochromatic brown is a bore, but who wants to keep beige or white pristine?! I sure don’t. Blues, reds, blacks & bright citrus colors are creeping in. My friend, me & most people I know are installing finishes like matte and/or reclaimed hardwood floors, worn brick, concrete & elements that will withstand hundred-pound dogs or kids who don’t take off their shoes…
Walking through Paradise Valley & North Scottsdale, I see home after home of this formal living that buyers refer to as “dated” or “needs work”. They simply just won’t go see these homes unless all the boxes are checked. That and they’re too big! Over the summer on a broker tour, I walked through a home on the golf course at Gainey Ranch that was about 6,500SF. The owners had clearly invested hundreds of thousands into custom features like tartan carpeting, color coordinated living room furniture, artwork and more. The listing agent looked at me and another agent and said, “Do you have any buyers for this home?” The other agent on tour grinned at me and said, “I’ve got no one…” It was all over the top, too much and too specific.
The same sentiment has popped up in agent feedback on my listings for the last few years. I’ve spent hours showing anxious sellers what buyers really are drawn to. They “get it”, but don’t want to do anything about it. I understand that, but this is all part of the experience for buyers. They want to come into something that they can enjoy *RIGHT NOW*. It’s easier to finance it too.
Life is too short not to wear fuzzy slippers, use the “good china” or have to put out a 3-course dinner so friends show up. That ought to be reflected in the way we live. After all, at the end of a long day, where would you feel more comfortable spending your precious time with your favorite people?
We’re in a legit seller’s market & have been through 2017 to this point. This summer, typically our S.L.O.W. season, was so busy that I haven’t had a vacation yet… The last 2 homes I’ve put in escrow sold with multiple offers after being on the market for a little while. It’s enough to make sellers crazy! That said, there are a few things you MUST keep in mind and a few things agents do that separate the rookies from the pros, who’re worth every penny you pay them.
Here’s what you need to know…
- Get bent out of shape! PLEASE. STAY. CALM. !!! I can show you scientific proof that your chances of making good decisions (i.e. wise choices- financial, far-reaching, irreversible, etc.) go out the window when your heart rate exceeds so many beats per minute (BPM). If you’re not careful, you could lose the sale & blow your chances with other buyers too. I once had 20 offers on an REO listing I had in Laveen years ago. I had to make it through the top 6 or 7 before I found one that stick. Losing your momentum is the worst thing to happen to a listing that’s hot out of the gate!! The next place to stay calm? After you receive the Buyer’s Inspection Notice (AKA “the BINSR”).
- Be too demanding. There’s a lot of emotion in selling a home, especially when 2 buyers want YOUR palace. It’s easy to get a little opportunistic and start expecting the sun, moon & stars. Buyers are flaky- they are very emotional too. An emotional buyer & seller is a recipe for disaster! This town isn’t that big (I grew up outside NYC) and people (read: agents & buyers) talk. In close-knit communities, like Arcadia & PV, sometimes I know exactly where buyers who walk away from my listings are headed.
- Stop showing your house or keeping it show-ready. Just like take off & landing are the most likely times for an airplane to crash, the inspection period (typically the first 10-15 days) & the closing are the most volatile times during a home sale. It ain’t over till the fat lady sings- the fat lady is the escrow officer or me telling you the escrow officer sang. I can spot things going sideways from a mile away. Sometimes I may just sound cynical, but I’ve seen a lot. And what I haven’t seen personally, my colleagues have warned me all about already. Please stay on the straight and narrow if you want to cross the finish line with minimal drama.
- Share details of the sale price or terms with- neighbors, friends, your agent friends… There’s a reason the Realtor® Code of Ethics forbids us to share the details of a sale with anyone, without the seller’s written permission! I had multiple offers on a listing I just put in escrow. I’d had 4 offers before finally reducing the price one more time and getting multiple offers. The 1st buyer to the table had a number that was substantially above a previous buyer who was sniffing around again. The next buyer knew of the first one on the table and came in with a VERY strong offer & terms. The next buyer was someone I showed the house to myself. He wasn’t aware of the other 2 and verbally planned to come in MUCH lower. When it finally sunk in he wasn’t alone, he wanted me to share “the number” with him. I refused. He said, “I’ll match the offer you have.” I said, “I can’t tell you the number or terms. Please tell me what it’s worth to you and I’ll write it up”. I wouldn’t give in, but can say within an hour he was willing to go $25K ABOVE my initial list price! Funny thing though, this cash buyer was never was able to get me: his proof of funds, the details I needed to write up his offer, etc. Good thing I didn’t give in, get my seller all wound up on an unrealistic number that never materialized anyway…
- Have a plan for a fast exit– rent, buy something else, move away. Nothing is worse than having no plan at all. In spring 2015, 2 clients’ home sold in days (at the same time). Though one seller was in 85254 & the others were in McCormick Ranch and they were on different paths, they had to get out fast! The solution for both were fully furnished seasonal rentals. The couple stayed at theirs for about 6 weeks before relocating out of state and the other stayed for a month, and then another month and then scrambled to find something long term before the rent jumped up at high season! I’ve done that charade myself and it can be a bit scary, especially if you’ve got your whole house in storage and kids/pets trailing behind you. Whether it’s Hotel Mom & Dad or a 6-month rental with a flexible termination, figure it out right away.
- Make a list of what you need & want from the sale, then choose wisely from your offers! If you’re a low-stress, low drama seller, a buyer who is a pain in the A$$ from the start, will probably be a pain in the EVERYWHERE in your body by the end. Trust me on this one. Pain in the a$$ agents are the same. If I had a nickel for every time a seller said “it wasn’t worth the extra $X to deal with…” Actually, they never say it, but the sentiment seeps out of every pore of their body every time we speak…
- Look at the ENTIRE OFFER & TERMS before you make a selection or counter. “Highest and best” offer isn’t always the *best* offer for the seller!!! Even if you get an extra $10K, incurring an extra $5K in moving expenses for “rush” move & the hassle of figuring out how to locate a house that hasn’t existed for 9 mos (IT HAPPENED TO ME!!!) may not be worth it. I can’t emphasize how much the “little things” make a difference. Being able to lease back, buying all the furniture, cash sales with no appraisal, a fully pre-approved buyer with money already at escrow.
- Pick a good agent who knows most of this ahead of time… like ME. Duh!. 😉 All kidding aside, agents who’ve experienced the ups and downs of the market have good memory (or should). Making the same mistake over and over is crazy-making stuff. There’s a movie about it… “Groundhog Day”, coincidentally my birthday. Trust when I say, “don’t do X”, there’s a reason for it. I won’t say “I told you so”, but knew it would blow up & really can’t help with:
- Buyers freaking out because the seller choose not to repair an item(s) the buyer’s agent specifically said was a “big deal”
- Expecting a fast sale on a dated home in Paradise Valley, DC Ranch, North Scottsdale priced over $2M (under-performing market), even though the rest of the market is “UP”
- Not understanding why the house didn’t appraise for the sales price, even though I told/showed/promised you I had nothing to support that value
- Being surprised when some repair I brought to your attention before we listed, is suddenly a big deal *now* (i.e. a bad roof)
Trust me. NO ONE hates for a deal to fall apart more than me. In 12 years, I’ve been around the block though. Even when times are good, it pays to have a healthy dose of reality in your back pocket. When it’s all over, we’ll laugh about it over lunch/cocktails/coffee/whatever you want. I just need to get you get to the finish line… With that, I’m off to argue why ~$10K in repairs doesn’t equate to a $25K price reduction for my sellers… (couldn’t make this stuff up…).
Have a great week! ☀️
You remember that pet name on “Seinfeld” right?
It doesn’t even MEAN ANYTHING, but we all got it. It’s a little too emotional. A little irrational and kind of annoying…
Believe it or not, “Schmoopie” kind of goes hand in hand with “There’s no place like home…” (I know I’m reaching, but just stick with me on this…). It all sounds totally cliche, right? But, who knew that when Jerry muttered those words that they’d collide some day with Dorothy’s and make so much darn sense!
Our “home” is our sanctuary, kingdom, etc.
It’s the place where we open our eyes to start our day, where we lay our heads at night, hang out and let it all hang out. Did you ever think yours would be anything more than a few walls that contain all our stuff? “Home” is also where we retreat, find strength, pull ourselves together after defeat, yadda yadda.
As a Realtor®, I’m amazed at how lightly many would-be buyers & renters take this. Don’t get me wrong, many buyers absolutely understand just how important this is, but so many mores squander the opportunity. Yeah, I’m sure you’re skeptically muttering under your breath something along the lines of “champagne tastes… beer budget”. You’re missing what I’m saying.
“Home” doesn’t represent the latest design dream drawn up on HGTV by the Gaines’ or Property Brothers.
I’m talking about the *real* stuff… waking up in the AM and hearing, seeing, smelling & tasting things that ground you. Knowing you can WALK, run, hike or ride out the door to something that means a lot to you. Let the emotion and sentiment guide you, but NOT blind you to reality.
Here are a few tips to make sure you get a good one…
1. Think about what you need.
It’s knowing that the park where you do your circuit training, your favorite coffee place or grocery store or hiking loop, your bus stop, and even your job, if you work A LOT, is close by and you can retreat there in a heartbeat.
What does your ideal morning and/or evening look like?
Do you really not care about either of those but relish afternoon lunches at home? What do those moments look like?
Where’s your dogs’ favorite walking route or dog park?
Lest you think I’m off my real-estate rocker, clients like a couple I ADORE, bought their house just off Murphy’s Bridle Path in North Central Phoenix because the backyard reminded the husband of a favorite pond when he grew up & the wife of the trees in her native European country. Another couple I worked with spent an entire weekend biking the greenbelts in McCormick Ranch before professing, “This is it! *THIS* is where we want to be!!”. They loved that area until it no longer suited the needs of their families. I have tons of stories like these.
You can’t put a dollar amount on any of this. It doesn’t need to be deep. It definitely doesn’t make sense, but being aware of these details could profoundly impact one of your life’s biggest purchases.
2. Make a list.
Seriously. Don’t keep it all upstairs and hope you can recall it at a moment’s notice. I promise you. Inevitably, you’ll be “blinded by the pretty” of some aesthetically pleasing aspect of a home. You’ll forget all about [Kyle Jeanne, Sammy, …], the [barrista, butcher, server, convenience store clerk] right down the street in your current hood [Old Town Scottsdale, Willo, Kierland, Arcadia, …], who makes your [coffee, oatmeal, eggs, knows which newspaper.] *just the way you like it*. EVERY. DAMN. DAY. You’ll kick yourself if you don’t. Or maybe you’ll do what I say and just be happy.
3. If you haven’t put a ring on it (or received one) yet, PLEASE don’t let your Schmoopie help you make the list.
Schmoopies come and go… This is YOUR pad. YOU pay for it & may really pay for it if the place sucks or the relationship doesn’t work out… They don’t even need to know about your list. I won’t tell them… Promise! 😉
A couple who searched in vain to find the *right* home followed my advice and brought their list with them when they bought their 2nd home from me. The checked off each of the boxes in glee as they confirmed the home they were standing in, in N Central Phoenix was “their perfect home” (they knew they were on to something) REALLY WAS their perfect home. Think I set the bar high? Not really. The 1st one I sold them near Uptown Phoenix was “too perfect” and they almost didn’t buy it!! LOL Don’t be intimidated. This home doesn’t have to be the “end all be all”. It just has to be the “end all be all” *right now*.
The Final Takeaway:
Whether you’re buying or renting, put some thought into this and get organized. You’ll probably live wherever you end up for a while- at least a year right? Life’s too short to be unhappy. Find your inner Schmoopie and go get yourself someplace good. I’ll help you! 🙂
In a nutshell, here’s a market recap of how real estate went down in April…
“Seller Concessions Have Risen Despite Buyer Frenzy
Buyers continue to find themselves in a frenzy of competition for homes as March recorded the highest number of non-distressed sales through the MLS since September 2005. While supply has dropped a significant 12.7% overall compared to this time last year, it’s dropped a whopping 22% in the Southeast Valley and 27% in Pinal County! Despite the extreme lack of supply under $300K, 30% of closings in this price range are showing some form of seller-paid concession at close. Compare this to 27% in March of last year and it indicates that even as demand and prices are on the rise, a larger percentage of sellers are contributing financially to closing costs, home warranties and repairs in order to get top dollar for their home.
March 2017 recorded the highest Listing Success Rate for normal listings since July 2005 at 81.8%, which means more homes are coming off the market because they successfully sold and not because they cancelled or expired. In a balanced market, the Listing Success Rate ranges between 60-65% for this time of year. To compare, the lowest Listing Success Rate was recorded in December 2008 at 21% and the highest was in May 2005 at 87%.
Normal listings between $100K and $200K currently have the highest success rate at 90%, followed closely by the $200K-$300K range at 87% and $300K-$500K at an impressive 79%. It’s a good time to be a seller!” – source The Cromford Report
The market is strong! At face value, this is all good stuff, but what the numbers don’t say is that supply is not evenly matched with demand at all price levels- namely the high demand for affordable homes (under $300K) & very little supply; conversely, there’s lower demand for luxury homes, and LOTS of supply. And seller concessions (sellers pitching in cash to help their buyers close)? Whaaaaat?! Stay tuned for more!
Here’s a quick video about wire fraud- what it is & how it can affect you.
QUICK NOTE: As I prepared to do this vlog, I received an email from an escrow officer in Las Vegas whose email signature had been swiped and slightly altered so the phone number was off by a digit or 2. They were trying to get me to download something but her email signature contained this:
“**Be aware! Online banking fraud is on the rise. If you receive an email containing WIRE TRANSFER INSTRUCTIONS call your escrow officer immediately to verify the information prior to sending funds.**
Section 1 of Chapter 355 prohibits data collectors doing business in the State of Nevada from transmitting any personal information through any electronic, non-voice transmission (except fax) to anyone outside their (the data collector’s) secure system unless encryption is employed”
You JUST CAN’T make this stuff up!!!
Have a great week!!
“Mortgage rates are going up!”
Yeah…….. I hear that a lot. But what does that mean and how does it affect you? Is the sky falling?? The short answer is “a little”. The Federal Reserve lowered it’s interest rate (“Fed Funds Rate”) or the money banks pay to borrow money before they loan it to use for more.
A loan officer at Wells Fargo in Scottsdale forwarded me his mortgage interest rate sheet. I try to stay current and make an effort to look from time to time. For grins, I compared my current mortgage interest rate with the one they quoted on their rate sheet. My current rate (3.625%) is lower the one on this rate sheet.
Rates dropped before the election and rallied afterward, but they’re still low. In the last ~5 years, they haven’t moved very much. Yes- market fluctuations affect your buying power (up and down). (Note: the rates above are the AVERAGE for the US- they may be higher or lower depending on where in the US you live.We’re coming out of a period of historically low rates when you compare them to interest rates in the teens (Yes! 12%, 14%, 18% for mortgages) during the 1980s.
My takeaway and advice to you? Don’t listen to anyone about the rates did before. It doesn’t matter what rates were in the 80s if you weren’t buying a house or what they were 5 years ago. The only thing that matters is TODAY. Does the interest rate and mortgage payment make financial sense for you today and for the foreseeable future? It’s a yes or no answer. Period. If it doesn’t work, what are your options to make it work? If there are none, do not proceed.
Make sure you ask yourself, “Which direction are rates trending?” If they’re going up and you’re buying, get out there and find what you need! If you’re refinancing your mortgage soon, speed up the financing process unless you want to pay more for the same loan. If they’re going down, you have time to lock a rate and potentially pay less. If they’re stable, you have a little time to think before you make a decision.
However, you need to know the rates will always change and YOU will need to do keep doing your homework to protect your interests. You’re not in it alone, you can always ask for help (me, a lender, a trusted friend or family member). Make sense? 😉
I’ll be the 1st to admit, I hate being in front of a camera, but I’m back at it again. Watch this video for a quick run down of what’s going in our area, over the next few months:
Here are the links to the events I mentioned if you want to get more info or buy tickets:
- 2017 Waste Management’s Phoenix Open (AKA: The Greatest Show on the Grass): https://wmphoenixopen.com/ (can’t for get the party at the Bird’s Nest: https://wmphoenixopen.com/tickets/birds-nest-tickets/ )
- 2017 Scottsdale Arabian Horse Show: Scottsdale Arabian Horse Show :: Arabian Horse Association of Arizona
- MLB Cactus League Spring Training: http://www.cactusleague.com/
- 2017 NCAA Men’s Basketball Championship; Don’t even know how I forgot to mention this one… it will be played right here in Phoenix on 4/1 & 3!!! http://www.phoenixfinalfour.com/
There are 2 sides to this story- one for Sellers & one for Buyers. There are pros and a whole lot of cons. Let’s take a look…
Frequently, frustrated sellers with homes to sell find themselves with a willing tenant throwing the “lease-option” or “lease-to-own” plan into their lap. There are still lots of sellers in Phoenix & Scottsdale, who bought homes between 2006-2008 when the luxury market peaked, who are still unwilling to sell their homes at current market value, likely below what they paid when they bought. In ’08 I watched a seller decline a clean, but lower-priced purchase offer for a shinier lease-option… Let’s just say, I don’t believe that property has sold since.
If you’ve ever asked me about doing along the lines of “lease purchase”, “lease-option”, “lease with the option to buy”, etc., this, I may have said something slightly warmer than “Hell no!”- but not much. Aside from the fact that I’ve never seen one actually close (not even if I’ve personally been party to it), legally it can have negative implication for sellers. My broker, Realty Executives’, & our attorneys frown heavily upon these agreements. Finally, I once heard that the statistical probability of completing the agreement to a closed sale is ~22%, but I don’t have any concrete numbers to back that.
If you ever wanted an additional opinion about it, the AZ Association of Realtors (AAR) weighed in with their thoughts. Here’s what they had to say (note: that’s their title, not mine):
You may not be familiar with “recording” a lease. We record (make public record) real estate sales & loans with the county recorder, but leases are usually drafted and executed without recording. Options are a little different because they give an irrevocable right to the tenant to purchase the property within some pre-determined amount of time. The landlord/seller doesn’t have too many ways out if the tenant/buyer can’t perform. They are subject to the whim & follow through of the tenant/buyer. Even when you have hefty, non-refundable earnest & security deposits, if you decide you need to sell, you may not be able to do so quickly…
Note: One of the most important lines of this discussion is the very last one:
“Please note also that unless the lease and option to purchase contain cross-default provisions, a breach of the lease by the buyer and subsequent eviction by the seller may not prevent the buyer from exercising the option to purchase.”
Then there are the other risks to Sellers:
- Tenant/buyer fails to qualify for a new loan (lacking the down payment, credit, job history, etc.)
- Landlord/Seller suddenly needs the money from a sale now, but the option is still good for another… (X amount of time).
- Even if the Tenant/Buyer assumes all maintenance, they don’t actually have the ability to make a critical repair that arises
- Tenant/Buyer, tries before they buy and change their mind…
Sure, it looks pretty grim for Sellers, but if you’re a buyer considering a lease option, there’s a lot you need to know too! Chances are you want to lock in today’s price for tomorrow. Maybe your credit history isn’t good and/or you don’t have the down payment or income you need to buy a home today, but you will… soon!
Most landlord/sellers want a sizable sum for the option”- maybe a few % of the price of the home, which could be several thousand dollars up front. They may want an inflated (from market) rent price, from which a portion gets set aside for your down payment down the road.
There are risks to Buyers too:
- Will the Seller keep the existing mortgage(s) paid & in good standing?
- Are there any “latent defects” (AKA the roof/plumbing/electrical/HVAC unit on its last legs) the Seller hasn’t disclosed because they’re not really a problem, yet?
- At the end of the lease option period, are you sure you’ll have all your ducks in a row to buy? If not, what will you lose?
- What if the money you pay for your option and/or monthly rent premium vanishes, when you have a valid reason to cancel?
- What if you don’t record your option (most aren’t) and the seller sells the house out from under you?
It’s a 2-way Street- what’s good for one is probably bad for the other
Aside from all the risks to Sellers & Buyers I mentioned above, there also the unknowns:
- The value goes up, but the price is fixed lower- Buyer is glad, Seller is MAD!
- The value goes down, but the price is fixed higher- Seller is glad, but buyer is MAD. BUT… buyer now can’t qualify because the house won’t appraise…
- Buyer never had any intention to buy, but has a good lease in place…
- Seller demands contract terms that the buyer is unlikely to ever meet…
The Devil is in the Details:
How you draft the contract is important. This is not a simple, everyday transaction. Everything from, the purchase price, lease length, deposit amounts, clauses for default (either side)… must be pre-determined. The terms need to factor all of these details and MORE! The final document WILL be complicated- these transactions usually are. If both Tenant/Buyer & Landlord/Seller are not savvy, knowledgable participants, one or both have much to lose.
Sure, you can hire an attorney to do the legwork or a lender with strong knowledge of qualifying a Buyer for a lease-option agreement, but unless they’re familiar with both the lease & sale markets, trends & even buyer financing, they may not be the best ones to advise either party from start to end. Both parties really need to know who you’re dealing with and plan for just about everything. If Buyer & Seller don’t have a vested interest in a win-win outcome, a lot can go wrong.
All this said, Buyers & Sellers DO benefit from these types of agreements. There are also other ways to accomplish the same thing without it being a “lease option”. Participants who pull this off are usually sophisticated with this type of deal and have lots of stop-gap measures to avoid the pitfalls. If you have any hesitation you fit that description, this may not before you… We’ve scratched the tip of the iceberg, but consider yourself “informed”.
If you’re still not sure how to avoid all the pitfalls above or completely understand what they are, we need to talk… There are other options outside of *this* one and I can tell you all about them!
Happy New Year!
On 1/1/2017, buyer get a bump to their purchase power when they finance a home loan. The conventional (AKA “conforming”) loan limit increases to $424,100 (from $417K; min 3% down required) and the FHA loan limit increases to $275,665 (from $271,050; min 3.5% down required).
In simple terms, buyers purchasing property with a 20% down conventional loan, have $8,875 more buying power (from $521,250 to $530,125). For buyers with a 3.5% down payment on an FHA loan have $4,783 more buying power (from $280,880 to $285,663). Every penny counts, right? If you have less than 20% to put down on a conventional loan, you’ll still benefit. Here’s the bump to purchase power on conventional loans by down payment amount:
- @ 15% down– from $490,588 to $498,941
- @ 10% down– from $463,333 to $471,222
- @ 5% down– from $438,947 to $446,421
- @ 3% down– from $429,899 to $437,216
Conversely… on 12/14/16 (last week) the Federal Reserve voted to increase the Fed Funds Rate- the rate mortgage banks pay to borrow money from the Federal Reserve. Mortgage banks pass the increase on to their borrowers (US- who buy & refinance homes) via higher rates. But, 30Yr, fixed mortgage rates were already increasing…
They’ve been trending up nationally (understatement) since the election in early November: (12/21/16: 4.16%- avg US 30YR fixed mortgage rate)
Here is the Arizona mortgage rate trend line: (12/21/16: 4.19%- avg AZ 30YR fixed mortgage rate)
Before you freak out at the big spike since September, look at the trend over 5 years:
In December 2011, the average rate was 4.02%. In the past 5 years, we’re up by 0.17%. The market can fluctuate that much in 1 day (rates move in increments of 0.125%). To give you perspective, in 2009, I paid 6% on a fixed, non-conforming loan when the market was mid-crash and 6.125% on a fixed, non-conforming loan in 2004 as the market gained steam. Note: non-conforming loans (AKA jumbo loans), usually run close to conforming rates and in some cases are lower.
We are a LONG way from that at the current average rate of 4.19%. If you’re under the age of 30, ask your parents or someone of that generation what their mortgage interest rate was in the ’80s (if you’re too lazy, add ~10% or more to any of the numbers I quoted; rates were in the teens!).
Michael Orr of the Cromford Report (LOVE him!!), recently commented about the rising mortgage rates:
December 17 – With little prospect for a cut in interest rates and the likelihood of further rises, many home buyers could be kicking themselves for not buying in 2016 while they had the chance. As recently as October it was possible to get a 30 year fixed loan at 3.42% according to Freddie Mac’s interest rate survey. Today we are looking at 4.18%.
For a $200,000 loan that translates to a payment of principal & interest of $976 per month. In October that same loan would have cost just $889 a month. This is a rise of almost 10% in a matter of weeks. The purchases prices at price points below $300,000 are still moving north at a brisk pace, so a home purchase in 2017 is likely to be a lot more expensive than it would have been in 2016.
If interest rates continue to climb, as many are forecasting, it is not impossible we could see 5% reached before the end of 2017. That would make the principal & interest payment for a $200,000 loan rise to $1,270. This is a 43% increase from the payment corresponding to a 3.42% rate, and this could potentially be happening in a little over a year.
Millennials are likely to be squealing if this were to happen, and they probably will not take kindly to being reminded by baby boomers that 8% is the long term average rate for a 30-year fixed loan. The monthly payment at 8% is $1,664. Mind you, it was last at 8% in August 2000, so it is easy to forget what it was like.
Economists have been predicting interest rate rises for the last 4 years and each year they have been wrong. It appears that 2017 may possibly be the year in which the forecasts finally come true, but no-one knows that for sure, even Janet Yellen.
Anyone who thinks rising interest rates cause home prices to fall will discover that is a false premise and has never been borne out by historical example. Home prices depend on supply versus demand. Higher interest rates are likely to cause lenders to be more interested in approving loans and a higher approval rate leads to increased demand. The shortage of construction labor is going to put a lid on additional supply, so unless there is an external change (e.g. a massive population shift) non-luxury home prices in Greater Phoenix are likely to continue rising in 2017, especially for the low end and lower mid-ranges up to $300,000.
December 12 – Interest rates have moved higher quickly over the last month, with the most recent Freddie Mac report showing 4.13% for a 30-year fixed. This is 18 basis points higher than this time last year and 20% higher than the 3.44 reading we saw in July and August. Sudden interest rate rises like this tend to increase the sales rate as borrowers try to lock in their existing loan commitments. The sales rate then tends to fall back as the market adjusts to the higher cost of ownership for buyers who were unable to lock in lower rates. We can see that the sales rate was very high for the time of year over the last four weeks, and this is a typical reaction. Listings under contract readings are currently rather weak given the sales rate, again typical of a period just after a significant rise in interest rates.
How fast the under contract count rises in 1Q 2017 will very key. This will determine if the positive effect of less stringent loan qualification rules is balancing out the negative impact of higher borrowing costs.
The Bottom Line:
Most of what buyers gained by having an increased loan limit is probably going to be wiped out by rising mortgage interest rates. In Maricopa County, AZ, with a median home price in the low-$200Ks, the impact per month isn’t earth-shattering. Nonetheless, buyers need to be aware of how small rate increases do affect their total homeownership cost. Only they can draw the line at affordable & not.
More importantly, right now buyers should be aware of bank requirements to qualify for their mortgage and respond quickly. If you lag on forking over your pay stubs and your mortgage rate isn’t locked, you might kick yourself if a rate increase means an additional $25-50/mo for the next 30 years. Banks really aren’t loosening their lending standards and will patiently wait for your documentation, regardless of what rates do. You’ve been cautioned…