Mortgage vs. Cash: Which Is the Better Option When Buying a Home?

An article by Colin Robertson, of TheTruthAboutMortgage.com, April 29th, 2014:

Buying a Home with Cash Has Its Benefits

First let’s talk about buying a home with cash. This is almost certainly the favored approach of real estate investors  and perhaps the mega-rich, though billionaires like Mark Zuckerberg still take out mortgages.

And investing gurus like Warren Buffett think the low mortgage rates are a great deal…

But for a large swath of the population, this either/or question doesn’t even get any consideration because most of us can’t afford to buy a home (or even a small condo) with cash.

Still, there are some advantages to buying a home with cash as opposed to taking out a mortgage.

The most obvious is that you don’t pay any interest when you buy with cash. That’s right, no mortgage, no interest payments.

Additionally, you don’t have to make any payments to principal either, seeing that you own your home free and clear right off the bat.

However, that doesn’t mean you won’t have recurring costs. You’ll still need to pay homeowner’s insurance (unless you’re really brave), along with property taxes and possibly HOA dues depending upon where the property is located.

The insurance thing becomes optional when you own your property outright. Not so if you have a mortgage because you don’t really own your home. Your lender does, until that loan is actually paid off in full.

Another plus to paying with cash is the negotiating power you gain when making an offer. If you’re going up against some other would-be buyers that need to finance the purchase, you’ll have the upper hand in pretty much every situation.

Sure, you could get outbid by another buyer willing to offer more for the home, but your cash offer should be king if all else is equal. And it may still be king even if you offer less than the competition.

Once your offer gets accepted, you won’t have to worry about dealing with a bank or mortgage lender. That means it doesn’t matter if your credit score is in bad shape, or if you don’t have the necessary income to qualify for a mortgage. Or if you’re a foreign national who might otherwise have difficulty getting a loan.

There is still a process to purchasing the home, but you can cut out the middleman, otherwise known as the lender. And that means you won’t have to pay lender fees, including a costly loan origination fee, or lender’s title insurance, underwriting fees, and so on.

But you might not want to skimp on the appraisal, even though it’s not a requirement. It’ll buy you some time to determine if the house is in good shape and worth what you agreed to pay.

That lack of a mortgage also means you’ll be able to move in sooner, or rent out the property sooner. Speaking of renting it out, you won’t have to worry about occupancy issues, or a higher mortgage rate because it’s an investment property.

Taking Out a Mortgage, Even If You Don’t Have To

On the other hand, there’s the traditional approach to buying a home, with the help of a mortgage.

This is kind of the default option more out of necessity than preference. As I alluded to earlier, most of us can’t afford to buy a home with cash. We need a mortgage to get the deal done.

In fact, many Americans need a sizable mortgage to get the job done, with practically zero-down FHA loans a popular choice for a large number of prospective home buyers.

So like it or not, a mortgage is often just a fact of life.

The number one downside to a mortgage is all that interest. On a $200,000 loan set at 4.5%, the total amount of interest due over 30 years is close to $165,000. Yeah, you pay nearly double what you agreed to pay for the home. Sounds pretty rough, doesn’t it?

But like I said, this is the price of not having a substantial amount of money to put down. Along with that, you also have to pay a bunch of lender fees, which can certainly add up.

If you put down a very small amount, you’ll also be subject to paying mortgage insurance premiums, possibly for life if you go with an FHA loan and never refinance.

Oh, and you don’t just get a mortgage. You need to qualify for a mortgage, and not everyone qualifies for countless reasons. Having the lender pry into your personal and financial life may also be extremely annoying and frustrating, but if you need hundreds of thousands of dollars, they’ve earned that right.

The good news is that you write off that mortgage interest as long as you itemize deductions and they exceed the standard deduction.  So some of that interest can result in a lower tax bill each April, which lessens the blow pretty significantly.

Additionally, mortgage rates are dirt cheap compared to just about every other type of loan out there. Yes, you pay a lot of interest, but it’s only because the loan amounts are so large.

That means there’s a decent chance you can invest the money that would be locked up in your home (if you paid cash) at a better return elsewhere.

Having a mortgage on your home also means you’ve got more liquidity and less at risk, assuming something goes wrong.

Imagine something devastating happens to your home that isn’t covered by insurance. Would you rather have 20% invested, or 100%?

Also consider the recent housing bust – a lot of homeowners were able to walk away from their homes relatively unscathed because they didn’t have much invested.

Those who purchased all-cash could cut their losses, but they couldn’t walk away without losing a lot of money. There’s also that old saying about putting all your eggs in one basket.

If you don’t have money in other places, it certainly shouldn’t all be tied up in your home.

Can You Get the Best of Both Worlds?

Absolutely. Most people buy homes with cash and a mortgage, not just either or. In other words, when you put 20% down, you’re paying a decent chunk of cash and financing the rest.

As a result, you avoid the requirement for mortgage insurance, you get a lower rate of interest, and you have an equity investment.

Putting down 20% or more should also put you in a pretty good position when it comes to a bidding war, though an all-cash buyer willing to make a good offer will always have the upper hand.

Additionally, you can always pay your mortgage off earlier than planned seeing that most mortgages don’t have prepayment penalties anymore.

Sure, you will subject yourself to the closing costs associated with a mortgage, along with the qualifying process, but you don’t have to pay off your mortgage over 30 years.

If you decide your money isn’t earning as much as you’d like, you can move more of it towards the mortgage balance.

Got plans to retire in 10 or 15 years? Start prepaying the mortgage faster so you’ll be free and clear by the time you’re on a fixed income.  Or go with a 15-year fixed mortgage instead.

Remember, it doesn’t have to be an either/or discussion. You can make adjustments based on your financial standing as time goes on. With cash, you can also pull equity via a cash out refinance. So both options provide flexibility.

Advantages to Buying a Home with Cash

• No need to qualify for a mortgage
• No need to shop for a mortgage
• No mortgage payments (good if you lose your job or are close to retirement)
• No interest due
• No lender fees
• Homeowner’s insurance isn’t required
• You don’t need to pay for an appraisal
• More negotiating power when making an offer
• Lower purchase price possible
• Faster closing process
• Could be a better return for your money than a low-yielding CD or bond
• Set it and forget it investing (don’t have to manage your investments)
• Can tap home equity if and when needed
• Can always sell or take out a mortgage
• Less hassle overall (one less thing to manage)
• Sense of security because it’s your home!

Disadvantages to Buying a Home with Cash

• Most of us don’t have the money required to buy a home with cash
• Mortgage rates are a cheap source of financing
• Real estate is an illiquid asset (not easy or free to sell)
• The property could lose substantial value
• You could lose a lot of money if your home is destroyed and not covered by insurance
• You miss out on the mortgage interest deduction
• Your return on investment might be poor relative to other options
• Poor diversification if a lot of your money is in one single property
• House rich and cash poor if savings get depleted

Advantages to Buying a Home with a Mortgage

• Mortgage rates are very low
• Mortgage interest is tax deductible
• Inflation should make future monthly payments “cheaper”
• You only need to bring in a small down payment
• More cash on hand for anything else
• Getting a mortgage isn’t really that difficult
• A mortgage can actually improve your credit score
• You can prepay your mortgage whenever you want in most cases
• You can invest your money elsewhere for a better return
• Your money is more liquid
• Forced savings each month
• Less risk if something happens to your home or if values drop

Disadvantages to Buying a Home with a Mortgage

• Tons of mortgage interest must be paid
• 30 years of monthly payments (maybe less, but still a long time!)
• You need to shop for a mortgage
• You need to get approved for a mortgage
• You could get declined
• More (lender) costs associated with a mortgage
• Closing process more work and more time
• You may buy more house than you should (get in over your head)
• Harder to sell the property if little or no equity
• You can lose your home if you fall behind on payments
• You don’t actually own your home

The O.C. Housing Report: “Inventory Has Doubled”

A bi-weekly report on the housing market in Orange County, California, from Steven Thomas:

Despite extremely strong demand, the active inventory has doubled from last year’s historical lows.

Active Inventory: In the past month, the active inventory has increased by 9%.

In the first quarter of 2013, the active inventory in Orange County was at an unprecedented, extremely anemic  level. The low was achieved at the very start of January and bounced around that bottom through mid-March   where it reached a level of 3,183 before climbing without pause for seven straight months. It tapped out at 6,350 homes in mid-October, after nearly doubling. Typically, the inventory reaches a yearly height at the beginning of   the Autumn Market, the end of August when the kids go back to school. Reaching the height was delayed because   too many homes were coming on the market despite the slower season. Homeowners were hearing about massive appreciation in year-over-year numbers, so they were still clamoring onto the market. But, they were not getting   the complete picture. Many of these reports failed to talk about, or highlight, month-over-month appreciation.    True appreciation had come to a grinding halt at the beginning of the Autumn Market.

One way to explain what we were experiencing in terms of housing appreciation is in the analogy of taking off from John Wayne Airport, the craziest airport takeoff pattern in the country. Because of a noise ordinance over Newport Beach, pilots accelerate their jet engines to an extraordinarily high level and then release the brake as they rapidly take off and climb into the sky. That was appreciation from January 2012 through July 2013.  After hastily climbing for a very short period of time, the pilot cuts back the engines as the plane flies over the Newport Beach Back Bay. Passengers feel like they are on an amusement park ride, zooming into the air and then, suddenly, gliding over Newport. From August through now, Orange County housing has been flying over Newport Beach, experiencing very little appreciation.

The market has shifted from buyers climbing over each other, doing whatever it took to purchase a home, even if that meant wildly paying way over the last comparable sale, to a much more methodical approach, a desire to pay the Fair Market Value for a home. Sellers used to be able to get away with randomly pricing a home way over the last comparable sale because demand was high, prices were low, interest rates were low, and the inventory was at a very low level. As prices escalated, the desire to pay much more than the most recent comparable sale dropped substantially. When sellers overpriced their homes, they sat on the market and did not achieve success. More homes were coming on the market than were going off as pending sales. The active inventory blossomed.

This year has been no different in terms of buyers approach to the market. They still are acutely aware of price and do not want to overpay. The active inventory started 2014 at 4,733 and has since added an additional 1,636 homes, again without pause. It has climbed by 35% so far this year and now sits at 6,369, a level not seen since March of 2012, over two years ago. Compared to last year’s bottom, prior to turning skyward, the inventory has increased by 100%, doubling. From here the trend will continue in adding more inventory at a faster clip than homes are pulled off the market and into escrow. It appears as if it will reach a height of 8,000 to 8,500 homes at the end of August, attaining a long term average for Orange County, a normal. To this point, the inventory has been at abnormal, anemic levels. It has been growing on the backs of overzealous, overpriced sellers.

For buyers, more inventory is great news. That means that there are more homes on the market with more choices. However, buyers need to understand that it is still a seller’s market, with an expected market time of 2.3 months, or 69 days. Sellers are still in control. That does not mean that they are in control of price, able to randomly choose a value and achieve success. It does mean that if they price according to the Fair Market Value, they will sell fast, with multiple offers, and will be able to dictate many of the terms.

Ultimately, the market is moving towards balance as the inventory rises. It has come a long way since the crazy lows of last year, moving towards a healthy, sensible level.

Last year at this time, the active inventory was at 3,556, that’s 2,813 fewer than today.

Demand:   Demand decreased by 2% in the past two weeks.

Demand – the number of new pending sales over the past month – decreased by 65 and now totals 2,753. Last year at this time, demand was at 3,108 pending sales after increasing by 7% in just two weeks, 355 more than today. Demand was increasing last year, yet dropping this year because of Easter weekend. Typically, real estate takes a backseat during Easter, yet the date is always different. Last year Easter fell on March 31^st, that’s nearly three weeks earlier than this year. So, the current demand reading is muted due to the holiday weekend. From here, demand will most likely increase slightly and then remain elevated through the rest of Spring, cyclically the hottest time of year for housing.

Distressed Breakdown: The distressed inventory decreased by 9% in the past two weeks, despite an overall rising inventory.

The distressed inventory, foreclosures and short sales combined, decreased by 24 homes and now totals 249, its lowest level since August of last year. The distressed inventory long term trend is to remain at a very low level, representing less than 10% of all sales in Orange County. As a matter of fact, it was only 6% of all closed sales last month. Only 4% of the active listing inventory and 8% of demand is distressed.

In the past two weeks, the number of active foreclosures dropped by 9 homes and now totals 63. There are 144 zip codes in Orange County, so there simply are not enough foreclosures to go around. 1% of the inventory is a foreclosure. The expected market time for foreclosures is only 34 days. The short sale inventory increased by 15 homes in the past two weeks and now totals 186. The expected market time is 33 days and has remained one of the hottest segments of the housing market. Short sales represent a little less than 3% of the total active inventory. ( End of Steven’s report.)

Trulia: 10 most out-of-touch housing markets

An article by Brena Swanson, of HousingWire.com, April 28, 2014

As the whispers of housing reform start to grow into greater fruition, the topic of conforming loan limits is brought up as well.

In his latest blog, Jed Kolko, chief economist with Trulia, noted that the current system of conforming loan limits falls far short of reflecting the actual differences in local home prices and ends up favoring borrowers in lower-cost markets.

“The housing finance system – as well as other national housing policies – needs to serve a country where local home prices in some markets are 10 times as high as in others, and where local and state laws affect how much new construction is allowed, how long foreclosures take, and more,” Kolko said.

In the current system, the conforming system sits at $417,000. However, in 2008, the Housing and Economic Recovery Act granted “high cost area” higher conforming loans limits to reflect local price differences.

But as housing regulators markup the Johnson-Crapo housing finance reform bill on Tuesday, April 29, 2014, Kolko pointed just how the conforming loan limits fall short.

Using Trulia’s database of homes for sale, Kolko listed the top 10 housing markets with the highest share of for-sale homes above the local loan limit, showing just how out of touch conforming loan limits are.

10. Boston, Mass.

Currently,  $470,350 is the conforming loan limit, while 30% of homes for sale are above the local loan limit.

9. Oakland, Calif.

Right now 30% of homes for sale are above the local loan limit, with the conforming loan limit sitting at $625,500.

8. New York, N.Y.

The conforming loan limit sits at $625,500 for New York, with 30% of homes for sale above the local loan limit.

7. Middlesex County, Mass.

The city’s conforming loan limit weighs in at $470,350, with 33% of homes for sale above the local loan limit.

6. San Diego, Calif.

So far, the city’s conforming loan limit is  $546,250, with 33% of the homes for sale above the local loan limit.

5. Ventura County, Calif.

The conforming loan limited is $598,000, with 34% of the homes for sale above the local loan limit.

4. Orange County, Calif.

Orange County has a conforming loan limit of $625,500, with 38% of the homes for sale above the local loan limit.

3. Fairfield County, Calif.  

In Fairfield County, the conforming loan limit is $601,450, and 39% of homes for sale are above the local loan limit.

2. San Jose, Calif.

This city posted a $625,500 conforming loan limit, with 43% of the homes for sale above the local loan limit.

1. San Francisco, Calif.

San Francisco posted that its conforming loan limit sits at $625,500. With a whopping 61% of the homes for sale above the local loan limit, it is the nation’s most out-of-touch housing market.

What’s Ahead For Mortgage Rates This Week – April 28, 2014

Last week’s economic news supported recent reports that home sales were fewer and home prices increased, but did so at     a slower pace.

The NAR reported a slower pace of existing home sales, and FHFA reported a slower year-over-year rate of growth for  home prices on properties financed by Fannie Mae and Freddie Mac.

The U.S. Commerce Department reported that new home sales fell to their lowest level since July 2013. Mortgage rates    rose for fixed rate mortgages, but were unchanged for 5/1 adjustable rate mortgages. Here are the details:

Existing Home Sales Slow, Moderate Growth In Home Prices

March sales of existing homes dipped by 0.20 percent according to the NAR. 4.59 million previously owned homes were sold on a seasonally adjusted annual basis against projections of 4.55 million sales and February’s reading of 4.60 million pre-owned homes sold.

Rising home prices contributed to the slowdown in sales, which started last summer. Rapidly rising home prices due to short supplies of available homes and high demand for homes caused some buyers to leave the market. The national average price for existing homes was $198,500 in March, which represented a year-over-year increase of 7.90 percent.

The Federal Housing Finance Agency, which governs Fannie Mae and Freddie Mac, reported that home prices for homes financed with Fannie Mae and Freddie Mac owned mortgages rose by approximately 7.0 percent year-over-year as of February.

Severe winter weather was cited as a possible factor in slowing home sales, but as the peak home buying season gets underway, analysts forecast that some sales lost may be recovered in warmer weather.

Mortgage Rates Rise, New Home Sales At Lowest Level In 21 Months

Freddie Mac reported that average mortgage rates for fixed rate mortgages rose. The rate for a 30-year fixed rate mortgage rose by six basis points to 4.33 percent; the rate for a 15-year fixed rate mortgage also rose by six basis points to 3.39 percent.

The average rate for a 5/1 adjustable rate mortgage was unchanged at 3.03 percent. Discount points were also unchanged at 0.60,.60 and 0.50 percent respectively.

Sales of new single-family homes slumped to their lowest level in since July 2012 according to the U.S. Department of Commerce. The median price of a new single family home rose to $290,000, which represented a 12.60 percent increase year-over-year.

Analysts noted that month-to-month home sales numbers are not as reliable as sales trends measured over months, but 384,000 March sales of new homes fell markedly short of expectations of 450,000 new home sales and February’s upwardly revised reading of 440,000 new homes sold.

Unemployment Ups And Downs Contribute To Buyer Uncertainty

New jobless claims rose to 329,000 against expectations of 315,000 new jobless claims and the prior week’s reading of 305,000 new jobless claims. The Labor Department said that seasonal adjustments were incomplete due to the Easter holiday, which occurs on different dates.

As labor and other sectors of the economy endure ups and downs during the economic recovery, it is reasonable to expect some home buyers to put off buying homes.

This Week 

This week’s scheduled economic news includes Pending Home Sales, Case-Shiller’s Housing Market Index, the FOMC meeting and statement and Construction Spending. The Bureau of Labor Statistics will release April’s Non-Farm Payrolls Report and National Unemployment Report on Friday.

California dreaming? Be prepared to pay up

An article by Ben Lane, of HousingWire.com, April 18th, 2014:

Interested in a day at the beach or a day on the ski slopes? California has you covered.  Want to take in some culture or an NBA game? California is the place to be. Want world-class food and drink? Take your pick from thousands of choices.

Interested in sightseeing? Music? Movies? Theme parks? Zoos? Art? Museums? Nature?

California has it all.

That’s probably why it’s home to the U.S.’s eight most expensive cities to buy a home. It basically takes gold to live in the Golden State.

It may come as no surprise that a home in San Francisco is more expensive than any other city in the country. The median listing price for a home in San Francisco is $867,280, according to March’s National Housing Trend Data from Realtor.com.

The exorbitant prices don’t seem to be affecting how long it takes to sell a home in the city though. The median age of inventory in San Francisco is 33 days, which is the 4th lowest out of the 142 cities that make up Realtor.com’s list.

There’s also a scarcity of inventory in San Francisco. There are only 2,140 homes are on the market in the city.

Just how expensive is a San Francisco house relative to the rest of the country? Well, on the opposite end of the list, ranked 142nd, is South Bend, Indiana. The cost of one house in San Francisco would buy almost 10 houses in South Bend, where the median listing price is $89,900.

San Francisco’s median listing price is $167,000 above the second most expensive city, Santa Barbara. In Santa Barbara, the median listing price is $700,000.

Just below Santa Barbara is San Jose, where the median listing price is $699,000.  The cost of San Jose homes isn’t driving buyers away. In fact, inventory is coming off the market in 31 days in San Jose. That’s 3rd fastest in the country.

Nearly $100,000 behind San Jose is Orange County. The median listing price for Orange County is $599,999. The number of homes on the market has increased substantially in Orange County in the last year. According to Realtor.com’s data, there are 10,072 homes available in the county. That’s up 63.51% from March 2013.

Next on the list is Ventura, where the median listing price is $525,000. The total listings have increased by nearly 29% from last year. There are 2,719 homes available in the city. [Editor’s note: This list does indeed refer to   Ventura city, and not Ventura county.)

The amount of available homes has also increased significantly in the next city on the list, Oakland. Available   homes are up 47.11% from last year. The price tag of $499,000 isn’t keeping buyers away either. The median age     of inventory on the market is 27 days, which is 2nd in the nation, despite prices being up 16% from last year.

San Diego is just behind Oakland with a median listing price of $469,000. Prices are up in San Diego as well over    last year. The median listing price is 15.8% above March 2013.

Rounding out the top eight is Los Angeles/Long Beach, where the median listing price is $459,900. There are 20,983 homes available in the Los Angeles/Long Beach area, which is 12.19% above last year. The median age of inventory in the area is growing. It’s at 59 days now, which is 25.53% above last year.

The other two cities in the top ten are Washington, D.C., where the median listing price is $459,000 and Boulder, Colorado, where the median price is $419,715.

Only two cities in the country have median listing prices below $100,000: the aforementioned South Bend and Toledo, Ohio, where the median price is $99,900.

So if you want all the amenities that California has to offer, be prepared to empty your wallet. But who wants a heavy wallet weighing them down when they’re swimming in the ocean or bounding down a ski slope anyway? ( End of Ben’s article.)

From Bob Phillips:  I’ve been a South Orange Countian for the past 46 years, and continuously feel blessed to have landed here.  Yes, it sometimes seems expensive to live here, all it takes is a brief memory of my childhood Mid-Western winters, to help me realize that it is worth it.

Do you know someone from back East, or even the Inland Empire, who is dreaming of a life in South Orange County, I hope you’ll think to refer them to me.  It would be my highest honor to help them achieve such a dream.

Either have them call me at (949) 887-5305, or shoot me an email, BobPhillipsRE@gmail.com.

It Frequently Pays Off To Refinance Your Mortgage

To refinance a mortgage means to pay off your existing loan and replace it with a new one.

There are many reasons why homeowners opt to refinance, from obtaining a lower interest rate, to shortening the term of the loan, to switching mortgage loan types, to tapping into home equity.

Each has its considerations.

Lower Your Mortgage Rate

Among the best reasons to refinance is to get access to lower mortgage rates. There is no “rule of thumb” that says how far rates should drop for a refinance to be sensible. Compare your closing costs to your monthly savings, and determine whether the math makes sense for your situation.

Shorten Your Loan Term

Refinancing your 30-year fixed rate mortgage to a 20-year fixed rate or a 15-year fixed rate is a sensible way to reduce your long-term mortgage costs, and to own your home sooner. As a bonus, with mortgage rates currently near all-time lows, an increase to your monthly payment from a shorter loan term may be negligible.

Convert ARM To Fixed Rate Mortgage

Homeowners with adjustable-rate mortgages may want the comfort of a fixed-rate payment. Mortgage rates for fixed-rate mortgages are often higher than for comparable ARMs so be prepared to pay more to your lender each month.

Access Equity For Projects, Debts, Or Other Reasons

Called a “cash out” refinance, homeowners can sometimes use home equity to retire debts, pay for renovations, or use for other purposes including education costs and retirement. Lenders place restrictions on loans of this type. A refinanced home loan can help you reach specific financial goals or just put extra cash in your pocket each month – just make sure that there’s a clear benefit to you.

Paying large closing costs for small monthly savings or negligible long-term benefit should be avoided. Many lenders offer low- or no-closing costs options for refinancing. Be sure to ask about it.

Don’t have a preferred lender?  I have a few I can wholeheartedly recommend.

Offers Above The Asking Price

This really is old news. it’s not happening much here in 2014

The Ultimate List of Homebuyer Tips

Invest In Real Estate Like A Pro With These Tips

Real estate investments are still going strong and will probably continue to be a popular method of financial gain into the future.

Real estate is solid. It is a tangible product that is attractive to both beginning investors and experienced pros. The most important part of getting started in real estate investing is knowing what you’re getting into and what to watch out for.

Here are 4 top tips from real estate investment professionals:

Understand The Realities

Real estate investment, like any form of investment, is risky. Do not use money you cannot afford to lose. Careful study, understanding the market, and practice help alleviate a lot of the risks but things happen in the best of situations so don’t play with what you can’t afford to lose.

Research Is A Constant

Research in real estate investment isn’t something you do once. Research is constant. It is a daily part of your efforts and should always be at the forefront of your mind. From changing banking methods to market changes, researching and learning must be ongoing to be a successful real estate investor.

Know The Property

Research isn’t limited to financing and the real estate market. You need to thoroughly investigate each property before you buy. Fill out an investment worksheet to see if all the costs associated with the purchase will allow a satisfying profit.

Learn About Personal Protection

Taking risks with the money you have set aside for investment is one thing. Taking risks with your family’s savings, property, and other assets is another. Consider starting an LLC. You can choose from a single LLC to cover all of your real estate holdings, or having a separate LLC for each property purchased.

About Bob Phillips

I’ve been working with real estate investors in South Orange County for over 3 decades, helping them to identify suitable properties, helping them to manage their holdings, and helping them to increase their holdings, using devices such as 1031 exchanges.  There are always investment opportunities in our area, and I am well trained and experienced to help you ferret them out.  Give me a call – 949-887-5305 – or shoot me an email – BobPhillipsRE@gmail.com – and let’s talk about your real estate goals.

What’s Ahead For Mortgage Rates This Week – April 21, 2014

Last week’s economic news supported the general outlook for moderate economic growth. Housing related news included the National Association of Home Builders / Wells Fargo Housing Market Index for April and Housing Starts for March.

NAHB: Builder Confidence Holds Steady Amid Concerns

The NAHB/Wells Fargo HMI for April ticked upward by one point to a reading of 47 against the March revised reading of 46. Home builders surveyed expressed concerns about high home prices, a lack of available lots for development and a labor shortage. Some desirable markets have been held back due to low inventories of available and/or affordable homes.

Builders surveyed for the HMI were asked to rate three components used in compiling the monthly index; these include current market conditions, market conditions expected over the next six months, and buyer foot traffic in newly built homes. April’s readings were 51, 57 and 32 respectively.

Readings for current market conditions and buyer foot traffic were unchanged from March, but builder confidence for market conditions in the next six months rose by four points.

Any reading above 50 indicates that more builders are confident about market conditions for newly-built single-family homes than not.

Housing Starts Pick Up After Winter Storms, But Fall Short Of Expectations

March Housing Starts rose by 2.80 percent at a seasonally adjusted annual rate of 946,000 starts as compared to expectations of 990,000 and February’s reading of 920,000 housing starts, which was revised from 907,000 starts.

The March reading represented a 5.90 percent decrease from March 2013, and is consistent with concerns expressed by home builders surveyed for the NAHB HMI for April.

Building permits issued for March were also lower by 2.40 percent at a rate of 990,000 permits issued. This slippage was largely due to the falling rate of building permits issued for apartment construction.

Higher home prices and mortgage rates along with inconsistent (but improving) labor markets were cited as reasons for builder pessimism, but analysts said that projects delayed by severe weather are expected to pick up in the coming months.

Mortgage Rates Fall, Discount Points Hold Steady

Last week’s average mortgage rates fell across the board according to Freddie Mac’s weekly Primary Mortgage Market Survey. The rate for a 30-year fixed rate mortgage fell by seven basis points to 4.27 percent. 15-year mortgages had an average rate of 3.33 percent as compared to the prior week’s reading of 3.38 percent. 5/1 adjustable rate mortgages had an average rate of 3.03 percent, down from 3.09 percent the previous week. Discount points were unchanged at 0.70, 0.60 and 0.50 percent respectively.

Fed Chair Upbeat In New York Speech

Federal Reserve Chair Janet Yellen struck a positive note in a speech given before the Economic Club of New York last Wednesday. She indicated that the Fed and many economists expect a return to full employment and stable prices by the end of 2016. Analysts characterized Yellen’s speech as upbeat on economic recovery and inflation, while “dovish” on monetary policy.

Ms. Yellen reiterated the Fed’s intention to monitor current and developing economic situations before making changes to its current monetary policy. She acknowledged that “twists and turns” in the economy could occur, and that Fed policy would shift as needed to address changes.

The Fed also released its Beige Book Report last Wednesday. This report indicated that the economy is recovering in most areas of the U.S.

This Week

This week’s scheduled economic news includes Leading Economic Indicators, Existing Home Sales for March, FHFA House Price Report for February and New Home Sales for March. The University of Michigan Consumer Sentiment report for April rounds out this week’s news.