Category: Real Estate

What a Fed rate hike could mean to mortgage borrowers – The Washington Post

This week’s expected rate increase by the Federal Reserve should not cause home buyers to panic, if history is any indication.

Back in the early 2000s, after the tech bubble burst, the Fed dropped its benchmark rate to 1 percent. Then in the summer of 2004, it began raising it by a quarter percent. At the time of the central bank’s first increase, the interest rate on a 30-year fixed-rate mortgage was around 6.3 percent. During the next four months, it dropped to 5.7 percent.

As the Fed continued to raise the benchmark rate, the rate on a 30-year fixed-rate mortgage declined, falling to 5.58 percent in June 2005. By the time of its last increase in the summer 2006, the rate on a 30-year fixed-rate mortgage was at 6.68 percent. It had gone up less than half a percentage point even though the benchmark rate had climbed from 1.25 percent to 5.25 percent.

Could mortgage rates follow the same course this time around? Possibly. But keep in mind the Fed hasn’t raised its benchmark rate in nearly a decade. It’s hard to predict how the market will react to such a momentous change.

“You’ve got 33-year-old bond traders who’ve never in their career seen” the Fed raise its benchmark rate, said Bob Walters, chief economist at Quicken Loans, the largest non-bank mortgage originator.

“You’ll clearly have some reaction in the market, even though [the rate increase is] expected. Just the reality of it plopping in their laps is going to create some volatility, not only in the bond markets but also the equity markets as people try to sort this out. People should expect prices of bonds and equities to start to gyrate.”

John Wake, a self-described “geek-in-chief” at Real Estate Decoded and a real estate agent in Arizona, believes that in 2004 when the Fed increased the benchmark rate it caused an already frenzied housing market to become more manic. Home buyers, worried that rising rates would prevent them for affording a house, became desperate to buy right away.

“The real estate economy is more sensitive to interest rates than most of the economy,” Wake said. “An interest rate low enough to move the needle on the national economy may cause the real estate economy to overheat. We may have seen a bit of that the last couple of years. And because real estate is more sensitive to interest rates, expectations of higher rates have a bigger impact on real estate than most of the economy.”

Wake points out that often what people expect determines what they do. If home buyers expect mortgage rates to increase, they will act as if rates are increasing even if they don’t.

“That could get people to buy sooner rather than later, which could drive prices up even more next year, which is what I am worried about,” he said.

Walters doubts a slight mortgage rate increase will have much impact on the housing market.

“I don’t think most people are going to run out and make a life decision for a quarter of a point interest rate,” he said.

Will the Federal Reserve rate increase affect you | News Journal

Ever since the recession some 8 years ago, the Fed has kept the benchmark interest rate at almost zero so as to help strengthen the economy. But, as per minutes from a Fed gathering in October, the rate increase is most likely in a few days.

Such economic changes usually come with both good and bad news. Here are some things which may just get effected by this rate increase:

Home sales

A rise in interest rates will put downward pressure on home demand as well as prices at least right now. Not many people are going to be selling homes if the rates go up. For anyone who is planning to sell their house, this may be a sign to panic. But if the increase is a small one, it shouldn’t cause the housing market to plummet again.

Bonds

There is no denying the fact that bond prices usually move in the opposite direction of interest rates. Whenever interest rates rise, bond prices fall. So if you want to sell your bonds before maturity, these high interest rates aren’t suitable for you. But if you want to keep them until they mature, you will be able to sleep well at night.

Stocks

The effect on stock prices is murkier than bonds. Stock prices usually fall from interest rates rise. But this isn’t always the case. During economic expansion, stocks usually go up with interest rates. But if an overheated economy is being cooled down by increased interest rates, stocks go down before they rebound.

Income and Employment

By keeping interest rates low, the Fed hopes that they will be able to encourage economic growth which is usually measured using employment numbers. If the rates rise, it will show that employment is improving and more firms are hiring. And more hiring obviously means more income.

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Bayview Ave, Sunnyvale, CA

Should you or anyone else you know is thinking of buying or selling a him, I will be delighted to provide my services. Please let me know – yrai@kw.com or 408-547-7845.

Home Buying And Home Selling Tips: Keep These Tax Tips in Mind! : Home : Realty Today

Home buying and home selling may come with a lot of expenses which is why it’s better if you are aware of what benefits you can claim come tax time. As the New Year comes near and you’re taking care of your taxes, here are some things that you wanna think about:

Capital Gains

If you gained money from your home sale through a capital gain, this amount may actually be excluded from your tax filing. If you have lived in the property that you sold for at least two years of the five years before you sold the house, you do not need to report this on your tax filing, hence a significant financial win.

Gain Reports

If you have not met the previously mentioned condition (living in the home for 2/5 years), you’re gonna have to report that sale and capital gain during tax filing. This is important whether you want to claim the amount or not. If this is your case, it’s better if you make yourself aware of the ‘Net Investment Income Tax’ before you start filing your tax so you can assure the accuracy of your claim.

2 Year Claim

While it’s beneficial to not report your gain as much as possible, it’s important to remember that you can only exclude gains you received from a sale every two years. So if you have moved multiple times in the previous years, you’re gonna have to report any amount that you have gained from these sales.

Selling At A Loss

It is certainly more ideal if you earned money from your home, but if you gained less than what you paid for for the property, you may not be able to claim this. As disheartening as this may be, you really cannot deduct this amount off your tax return.

Buying or selling a home has benefits beyond the actual transactions, and there are ways to make your tax filing pleasant if you are aware of all possible tax benefits. If you want to pursue real estate business in the future, contact your agent for specific details and assistance.

Here’s how increased interest rates will impact housing

An increase in federal funds would almost certainly prompt interest rates to move higher, and the housing market is already moving in anticipation of this, says one analyst.

“The housing market’s capacity for existing-home sales is declining with the expectation of a Fed rate increase pre-adjusting mortgage rates and causing a slowdown in house price appreciation,” said Mark Fleming, chief economist at First American Financial, in a new report on the fourth quarter Real Estate Sentiment Index.

“Market capacity remains modestly in excess of actual sales due to leverage-assisted housing asset inflation, which is home price appreciation fueled by low mortgage rates. Rising mortgage interest rates and moderation in house price appreciation were the most important market fundamentals that reduced market capacity this month. Now that interest rates are pre-adjusting in response to signals from the Fed for a highly expected increase in December, demand is also declining.”

Fleming says that home appreciation would likely be slowed down by one percent more than expected if there’s a 25-basis point rise in the 30-year fixed-rate mortgage. This would lead to existing-home sales slowing down by around 2.5 percent on an annualized and seasonally adjusted basis. That would amount to around 150,000 less sales a year.

While that’s bad news for real estate pros, it could also have an effect on home buyers too. According to this article in Forbes, at current rates, a 30-year fixed-rate mortgage with ten percent down payment on a home valued at $350,000 would cost buyers $1,503.86 per month, in addition to taxes, homeowner’s insurance and Private Mortgage Insurance. But if interest rates rise to 4.5 percent, that same mortgage would increase to $1,596.06 per month – $92.20 per month more. Alternatively, if rates rise to fiver percent, the same mortgage would cost an extra $184.40 per month.

Even so, Fleming says that “expectations for future home ownership demand remain positive, despite changing market conditions.”

However, Fleming said interest rates would only have a significant impact on residential housing transactions if they exceed 5.1 percent.

Fed interest rate hike may have less of an impact than you think – EconoTimes

There is a very high chance the Federal Reserve will raise interest rates next week.

It would be the first time the Federal Open Monetary Committee (FOMC) – the Fed’s rate-setting team – has lifted its benchmark rate since 2006, beginning the so-called return to normal.

Economists, traders and policymakers have been pontificating, prognosticating and placing bets about this decision for a long time, because the impact is expected to be far-reaching.

So how will higher rates affect you?

Depending on your situation, an increase in rates could be wonderful news, a disaster or another headline story that after the initial excitement has no impact on your life.

Whether you save, travel, want to buy a house or invest in stocks, a rate hike will almost certainly affect you in one way or another – though perhaps not as much as some commentators will make you think.

Who gains when rates go up

If you have a lot of money in savings accounts, certificates of deposit (CD) or money market accounts, higher rates are wonderful news.

Many retirees in the US live off their Social Security checks plus interest and dividends from their savings. When interest rates rise, retirees and people with large amounts of cash savings earn more money. This enables them to spend more.

Even if you don’t have a single penny in savings but live or work in an area with a large number of retirees such as southern Florida, Arizona or parts of California, the interest rate increase means more jobs and an overall better economic situation.

Another group of people who will love higher interest rates are people planning on traveling abroad for vacation. Interest rate changes often have an impact on a country’s foreign exchange rate. When interest rates rise in the US, the dollar often buys more foreign currency. This makes traveling to other parts of the world much cheaper.

The reason interest rate changes affect foreign exchange rates is that people around the world have saved money. When US interest rates rise, people living outside the country want to put their money in US banks and money market accounts to get the higher rates.

To do this, they need to sell their local currency and buy dollars before making a deposit. This results in the price of dollars going up and the price of other currencies going down. US tourists will find when visiting other countries that each US dollar buys more hotel rooms, food, museum admissions and other attractions, making travel after the rate hike much more pleasant.

The change in foreign exchange rates also makes people who sell goods to the US much happier. Japanese cars, French wines, Chinese televisions, Brazilian coffee and many other items will become cheaper for people in the US. This reduction in price causes people in the US to buy more products from abroad, which will boost employment in countries selling these items.

Who loses

If you owe money on your credit cards, then higher rates are a disaster because you will shortly be forced to pay more money every month.

In 2010, US credit card issuers had to follow new rules in the “CARD Act.” One of the key provisions of this act was to give people at least 45 days before their interest rate changed.

However, the CARD act’s section 171(b)(2) contains a loophole that enables interest rates to go up much faster. If the credit card company determines the holder’s interest rate by adding a fixed percentage on top of a widely available index, like the “prime rate,” then there is no need for a 45-day notice.

How long will it take your credit card company to start charging you more money? For the average person it will take about two weeks.

I just received a notice from my credit card company to remind me that the interest I pay on any balances “will vary with the market” and that if interest rates rise, “any new rate will be applied as of the first day of your billing cycle.”

This means for me and many other credit card holders that the shortest time frame to begin paying more is just a few days after the Fed makes its decision and the longest time is 45 days, for people whose banks need to send out a fee hike notice. Either way, people with credit card balances are affected very quickly.

Almost everyone associated with residential real estate is not happy that interest rates are rising. Home builders, furniture makers, appliance salesmen and others will likely see a drop in sales as rising rates make purchasing a new home more expensive, because borrowing money to pay for the new home costs more. Additionally, people with variable rate mortgages will owe more money each month to pay for their homes, giving them less money to spend.

Stock investors will also be adversely affected, likely through lower returns and prices. My full explanation is found here, but the synopsis is that when interest rates rise, investors value profits earned in the future much less and are not willing to pay as much for outstanding shares of stock, thus causing prices to fall.

The price of stock is important because some people, like retirees, base their spending not only on their Social Security checks but also on the value of their portfolio.

The final groups that will lose out when interest rates rise are people in the US who sell products abroad (exporters) or who deal with foreign tourists.

Exchange rate changes that make imports 10% cheaper make exports 10% more expensive. This means when importers are happy, exporters are miserable. Foreign tourists will find the US a more expensive travel destination. Foreign buyers will find US crops like wheat, corn and soybeans more expensive. Large multinationals, like Boeing, will have a more difficult time selling planes and other expensive capital equipment outside the US.

The final score

In general, it is hard to say who wins absolutely because many of us do not fit into a single category. We may win a little and lose a little.

For example, I have money in savings, which will earn more interest, but I also owe money, so it means I’ll have to pay a higher rate. I love traveling outside the US, which will cost me less, and this makes me better off. However, some of my pay comes from teaching, and there has been a surge in foreign students attending US universities over the past 20 years. If foreign students stop coming to the US because it is too expensive, fewer college professors will be needed, which is bad for me.

When the FOMC raises rates, large headlines and talk show hosts will scream that the world has changed with the end of seven years of near-zero interest rates. The hype and coverage will probably be tremendous.

However, an interest rate hike makes different parts of each person’s finances better and worse off. For most of us, thinking seriously about all the effects will result in mixed feelings about any upcoming interest rate hikes.

My guess is that for many readers, the offsetting forces will make this another headline story that, after the initial excitement has worn off, actually has relatively little effect on your life

Housing Market Expansion to Continue in 2016: CoreLogic – 24/7 Wall St.

Housing prices have risen by around 6% over the past 12 months and, barring any major economic downturn, demand for housing should support additional growth in home prices next year. Researchers at CoreLogic have noted five factors that will affect the housing market in 2016, based on assumed overall economic growth of 2% to 3% in the United States.

First is an expected increase in the Federal Reserve’s policy rate of around 1% between now and the end of 2016. That will affect adjustable-rate mortgage holders and cost new fixed-rate mortgage borrowers an additional half a percentage point, pushing mortgage interest rates to around 4.5% by the end of 2016.

Second, more than 1.25 million new households are projected to be formed in 2016, most of which will be seeking rental homes.

Third is continued strong demand for rental housing. CoreLogic expects rental vacancy rates to remain low and rent payments to rise faster than inflation.

Fourth, the owner-occupied housing market should see a rise in both sales and prices. Purchase demand may lead to the best sales year since 2007, and home prices could appreciate in a range of 4% to 5% during the year.

Fifth, mortgage originations for single-family homes are likely to decline by 10% in 2016, while new loans for multifamily properties are likely to rise. Overall CoreLogic projects that total loan originations will rise by 10% to 12% and that home equity lending will also increase. Refinancings, however, could drop by a third.

What a Fed Rate Increase Could Mean for You – NerdWallet

Since the Great Recession started eight years ago, the Federal Reserve has kept its benchmark interest rate near zero as a way to strengthen the economy. However, according to the minutes from an October 2015 gathering of Fed officials, a rate increase is likely in December. A decision should be announced Dec. 16.

Any economic change brings good news and bad news. Here are a few parts of your financial life that might be affected by a rate increase:

Home sales

Rising interest rates generally put downward pressure on the demand for homes and home prices, at least in the short term. So if the Fed raises rates, you may not see very many “For Sale” signs in front yards for a while.

This might make you nervous if you’re planning to sell your home soon. After all, most people’s wealth is in their homes. But a small rate increase doesn’t necessarily mean that the housing market will plummet. If rates stay near their historic lows, many prospective buyers will realize that they still can afford a new home and will buy one, anyway.

Bonds

Interest rates and bond prices move in opposite directions. When interest rates go up, bond prices go down. If you’re thinking about selling your bonds before they mature, higher interest rates will work against you. However, if you’re holding those bonds until maturity, you can sleep well. You’ll still collect interest, though at a lower rate than you would on newer-issue bonds.

If you own shares of a bond mutual fund, a rate increase will more than likely cause those shares to temporarily drop in value. But fund managers will begin to buy higher yielding bonds, which might help soften the blow. For the future, consider this strategy used by proactive bond fund investors: Stay out of long-term bond funds, which take the biggest beating when rates rise.

Stocks

The effect of rising interest rates on stock prices is a little murkier than its effect on bonds. Stock prices generally decrease when interest rates go up, but that’s not always the case. If we’re in an economic expansion when rates rise, more often than not, stocks go up. Conversely if the Fed is raising rates to “cool down” an overheated economy, stocks tend to go down before rebounding. If you own CDs, their rates will increase immediately if the Fed raises the benchmark.

Hiring and income

By keeping rates low, the Fed hoped to encourage economic growth, which is often measured by employment numbers. If the Fed does raise rates, it would be a signal that employment is recovering, and firms are hiring.

More hiring means more income for everybody. And higher incomes tend to solve other problems, including low demand for housing. Even though a rate hike would mean that it costs more to borrow money, higher incomes help offset these costs.

Higher incomes also mean more spending. More spending means that workers keep their jobs. And the cheap prices that we’re seeing at the gas pump put even more money into consumers’ pockets that they’ll want to spend.

In the Fed’s words, it might be time for a rate increase because there’s been a “tightening of the labor market.” In plain English, that means more hiring and less firing. Ultimately, the Fed’s decision reflects growth — which means that, for you, the good news of a rate increase should hopefully outweigh the bad news.

6 Selling Strategies That Kill Home Sales – Real Estate 101 – Trulia Blog

From going it alone to having sky-high expectations, these are the seller mistakes that most often keep a sale from going through.

When the time is right and you’re ready to list your home for sale in Athens, GA, or Portland, OR, there are certain steps that promote a faster, more lucrative sale — and others that can quash buyers’ interest faster than you can put a FSBO sign in the yard.

Ultimately, the difference between worrying about whether your home sale will fall through and having some confidence that your home will sell quickly lies in these selling strategies — just heeding this advice can save you both time and money.

Choosing to go for sale by owner

The good old FSBO (for sale by owner) route: where the seller plops a sign in their front yard and hopes passersby will take an interest in their home for sale. While it may seem like an easy, low-cost way to sell, selling your home without a real estate agent is one of the worst things a seller can do, says Charles Major, a real estate broker for Savvy Realty in Charlotte, NC. Just putting a sign in the yard doesn’t get you the expertise of a broker or on the multiple listing service, Major says.

And for those expecting to save money by not paying a commission, keep in mind, the buyer often also expects to save on commission, says Susan Weir, a real estate agent with Berkshire Hathaway HomeServices in Corona del Mar, CA.

“The seller may get the same price as using an agent, but the homeowner then does the work and must know all the disclosures,” she says. “Generally speaking, the seller gets less than if they had listed it for the open market to see.”

Not vetting your real estate agent

The work isn’t over once you decide to list your home with an agent — it’s important for sellers to research agents and make sure their agent is equipped to handle the specific challenges of their neighborhood and the age of their home.

“An agent should be familiar with the neighborhood and the comps,” Weir says. Ask friends and family for recommendations, and be sure to ask about the services their real estate agent provided. Did they host open houses to attract other agents who might have interested buyers? Did they offer tips on staging the home for sale? And did they do a good job negotiating with the buyer’s agent to meet seller goals?

Overpricing

You’ve poured money into renovations and upgrades, and you know your neighborhood is selling well. But that doesn’t mean you’ll get all of that money back when it’s time to sell. Keep in mind that not all renovations provide the same return on investment, and when comparing home prices, you must “compare apples to apples,” Major says.

Real estate brokers who are familiar with an area have a good sense of the local market and can pull data to give a sense of comparable nearby home sales. Trust their expertise and the data available to them or risk having your house sit on the market.

Refusing the first offer

First offers may not always be as high as you’d hoped, but remember, all offers are negotiable. Consider any offer a starting point — any offer is better than none!

Interested buyers want the best value and price for their investment just as much as you want to get the most for your home. Most of the time, there is a happy meeting point. Another way to offset a lower-than-expected offer is by asking the buyer to pay closing costs or refusing to pay for repairs.

Not working on your home’s first impression

“It’s very, very important to have a house as perfect as possible [when listing it for sale],” says Weir. If you’ll be living in the house while it’s on the market, clear the clutter, remove personal photos and knickknacks, and be sure it’s kept clean and tidy.

“Go through room by room and depersonalize,” Major says. “Maximize space and make sure each room tells a story.”

Curb appeal also is important. Be sure shrubbery is trimmed and exterior paint looks fresh, and don’t neglect smaller details, such as adding mulch to flower beds and plantings.

Covering up problems

“The rule is, disclose, disclose, disclose,” Weir says. “It’s the best way to avoid lawsuits.” If you know your house is in need of repairs, but you prefer not to pay for said repairs, be upfront about the issues that need addressing. There’s no way around a seller disclosure report, and most home issues, such as a leaky roof or foundation problems, will come up in a home inspection anyway.

Have you ever lost out on a home sale because of one of these situations? Share your experiences in the tips below!

Albuquerque Journal | If you’re ready to buy, start looking

Q: I’m thinking of buying a house but I’d imagine there are a lot more houses on the market in the spring. Should I wait until then to buy? I’m ready now but want to do it at the right time.

A: My answer for when to buy a house is similar to my answer to the question of when to sell: Buy a house whenever you’re ready.

Being ready means having your financing in place, knowing your budget and wants and needs, and being able to move out of your current living situation without too many months of double payments.

If you’re approved for a mortgage (or have the cash to buy) there’s no reason to wait. Start looking for houses now. True, there might be fewer houses on the market in the winter than there will be in the spring, but you also might find some sellers are quite motivated to sell so they don’t get stuck with their house until the warmer months. The winter can be a great time to make a deal for both buyer and seller.

Besides, unless you get very lucky you’re not likely to buy the first house you see. It happens. You might find the perfect place right away, but on the other hand it might take a few months of house-hunting to find something you want to purchase.

In the meantime, if you are getting a mortgage, be careful about your credit and financial situation. Now that you have the approval it’s important to protect it through the entire home-buying process. So no sudden financial moves. No new credit cards, no car shopping, no new furniture. All of that can wait until after you’ve purchased the house.

So get out there and start looking! You might just find the perfect place and be in your new house in the beginning of the year.