Is This Helping?

Just thinkin
Just thinking out loud...

A recent survey conducted at Zillow has provided some eye-popping insights into the consumer’s mortgage brain trust. In short, they are wildly un-slash-mis-informed about mortgages.

Blame The System, Not The Consumer

It’s a full time job for me to understand this business, the marketplace, the regulatory elements, and the general process of navigating a home financing transaction. It’s nothing short of complicated. And to be fair, it’s rather boring unless you’re at that point in life where you need to go through the process – one that happens a handful of times at best in our lives (even then, to call it an enticing area of study would be a sham…). So there’s not a lot of incentive to stay “fresh”.

I certainly cannot blame the consumer for being lost.

However, some of the misunderstandings are notable. Most of my clients appreciate the time I take to sit down and educate them about the process so that they can make well-informed decisions. It’s not what everyone I work with wants, but my objective is to be as available to them as desired in this capacity. So these misunderstandings are notable, to me, as one who educates others about the process.

Sometimes I get too complex, too deep, or grind over details that are not ultimately of concern to my clients. I’ve seen their eyelids get kind of heavy on a few occasions. But I’d rather be at fault for over-explaining than under-explaining something.

Why I Do This

This survey reminds me not to gloss over even the most basic of concepts on the assumption that they’re already understood. Much of this site’s mission is about sharing information and helping to educate the consumer when in need of guidance. Sometimes I’m here just to blow off a little steam. From the basic mechanics of mortgage borrowing to the subjective and contextual  facets of the journey each individual consumer embarks upon when exploring the idea of borrowing money, everyone is in search of slightly different information. I hope to have a little something for everyone.

What brought you here? Are you finding what you’re looking for?

Is Now The Time To Buy A McMansion?

McMansion - a gigantic suburban home

Social trends influence real estate development – what little of it there is right now – and the result is a meandering set of styles, attributes and value systems in the fabric of the marketplace as time marches on.

This piece from Slate speculates about the waning appetite for the super-sized “McMansion”, characterized by extra bedrooms, gigantic kitchens, and above-average square footage, that were increasingly sought after as the real estate bubble was inflating a few years ago.

I think these are pretty easy to find in certain Bay Area suburbs.

Get a mortgage rate quote for a McMansion

Those homes still exist. Even if the demand falls, it’s not like they’re removed from the market. But after a few years of punishment for living on too much credit, does the consumer psyche have what it takes to justify so many extra bedrooms? Or a fully functional outdoor kitchen? Does that imply that the McMansion is hit harder on value in favor of more practical options? It wouldn’t surprise me if the data supported this idea.

What about when we bounce back from this mess – has the consumer credit monster been lobotomized? Was that just a crazy fad like bell bottoms?

Guess you better slow your mustang down…

Take a look at what happened in the auto industry in the early 80s – after a bout of hyper inflation and skyrocketing fuel costs, gas guzzling muscle cars like the Dodge Charger, Pontiac GTO, and Plymouth Road Runner fell out of favor to the newly energy conscious driver. Compact fuel efficient models took over the marketplace until society worked out the hangover of high prices. And that’s when the SUV arrived.

Now that we’re becoming fuel cost-sensitive again, I happen to find myself in need of a large vehicle while everyone else is chasing after the hybrids. Politics aside, there are some sweet deals on the big thirsty family haulers these days…

I looked in the mirror, a red light was blinkin

So if the McMansion is declining in appeal, I doubt it will last. Now might be a good time to go bigger on real estate in a sector that is in a bigger state of decline. In 2006, everyone wanted the McMansion. Now, they’re half as expensive, and there’s concern about value decline… I wonder if in a few years we’ll look back and think do that whole woulda coulda thing…

If you’re shopping for a new home, how has the recent environment shaped the profile of your target property?

 

How Often Do Mortgage Rates Change? (April 2011 update)

Mortgage Rate Volatility updated through April 2011
Mortgage rate change volatility is down in April

One way you can drive yourself crazy trying to get the best deal you can on a mortgage is to obsess over comparing interest rates. Don’t get me wrong – we’re usually talking about a 30 year expense here, and the rate and general loan pricing is a critical component of effective, financially responsible, home ownership.

But you can take it too far by trying to nail the market at it’s absolute best level, and you can also disrupt the process by idling for too long in shopping mode.

Luckily, there are a few general guides you can stick to in order to maximize your outcome, and avoid shooting yourself in the foot.

Rates changed 36 times during the 21 bond trading days in April.

That can really make it a pain in the neck to figure out what the best rate is going to be when you’re in the middle of buying or refinancing a home. You call one lender first thing in the morning, email two others at lunch, one of whom doesn’t reply until the end of the day, and by the time you have all your research, you’re looking at three different ‘vintages’ of rate quote. Can a fair comparison be made?

Maybe.

But you’ll need to know first if rates have changed over the course of the day. And based on recent history, odds are you’ll be comparing apples and papayas. Besides, even if you can get three quotes in the same window, how do you know if today is better than tomorrow?

When it comes to mortgage quotes, the little differences can be meaningful. If you want to maximize your shopping results, you need to make sure you are comparing quotes from the same vintage, and you need to know what vintage is produced in the best climate.

Rates changed every 4.12 hours in April

In April there were 21 bond trading days. We received 36 rate sheets over those 21 days, or an average 1.71 rate sheets per day.

Most lenders have open lock desks for 8 hours a day. Some are open for 9, and the most aggressive lenders, often the most sensitive to bond market fluctuation, accept rate locks for about 6 or 6 1/2 hours a day. On turbulent bond market days, they often delay the first rate sheet release.

Assuming an average of 7 hours for an open lock desk, and 1.71 rate sheets per day, that means rates changed every 4.12 hours. Compared to January’s average expiration of 2.29 hours, the volatility has been cut nearly in half over the past few months.

Intra-day Volatility is Only Part of the Picture

The trend toward lower volatility compared to prior months can be seen in several ways. The most changes in a single day was 3, which happened only twice. We had more calm days; there were 8 days with one rate issue, up from 6 in March, 3 in February, and none in January.

Lower volatility is a good thing. It takes some anxiety out of the process for working through a purchase or refinance transaction, and it also tends to help reduce defensive pricing by lenders, giving them greater confidence to be aggressive.

But volatility only provides part of the picture. During the month of April, mortgage rates traveled quite a range, ending significantly lower than both where they began, and also the highest mark set on April 8. If you were in escrow looking to lock your rate, you’d not only want to know about vintages for comparing quotes, but when in the month would be the best time to lock no matter where you do it.

How to Make the Most of it

Last month, rates changed 36 times on 21 bond trading days. If a typical escrow period when you’re buying a new home is 30 days, that means you had a 1 in 36 chance to nail it on your rate lock. If you’re applying for a mortgage, it’s a virtual certainty that you already have a full time job, so you really should rely on a professional with the time and insight to be able to monitor this for you.

If you speak to someone who suggests they can get you the perfect lock, that’s probably a bad sign. Market prediction on that level is impossible. Similarly, you shouldn’t expect to catch the market at it’s absolute low – it’s not a realistic expectation. But a professional who can explain the market context you’re transacting in, and show you which calendared events have potential to introduce greater risk or opportunity to your strategy, is probably more valuable as a resource than anything else when trying to maximize your rate lock.

Make sure you get your rate quotes in the same vintage. This means that any lender who isn’t quick to reply to your inquiry isn’t really helping out. Then, make sure your lender is tuned in to the economic calendar, so that you can be aware of what days are more or less likely to be volatile ones. The market gets little economic data snacks to munch on every day. It’s critical to know which ones are bigger, might cause indigestion, induce vomiting, etc. The last thing you want to do is leave your rate lock open when the risk is greater than the potential reward.

Working with your lender to create a lock and pricing strategy suitable for your transaction will probably shed some light on who you’re working with, and serve you far better in the long run than comparing apples and papayas.

Need help with a rate lock strategy? Contact me below and tell me how I can help.

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    Mothball Fleet Revealed – Peek Behind The Curtain Of A Bay Area Icon

    National Reserve Fleet, Suisun Bay, Calif.photo © 2009 NOAA’s National Ocean Service | more info (via: Wylio)If you remember when you were a kid taking family road trips up north, and at the crack of dawn as the family station wagon was crossing the Benicia/Martinez bridge, and your father pointed to his right and said “look kids, the Mothball Fleet” every time you made that trek, well then, just like me, the Mothball Fleet likely became a recurring family joke. I mean, we all had Griswald Family moments like that, right?

    Maybe that doesn’t ring a bell. But if you’ve ever traveled over Suisun Bay on 680, you’ve likely looked out into the water and wondered what the dozens of idle Naval warships were doing there.

    Well, folks, that collection of rusty, peeling-paint, barnacle-clad vessels is known around here as the “Mothball Fleet”. The Mothball Fleet is part of the US National Defense Reserve Fleet which has installations in several locations. This one is the largest in the Pacific. Apparently, despite the ghosty appearance, those bad boys are maintained and service-ready, and in fact two ships were called upon for transport as recently as the Gulf War.

    If you’ve driven by, and not noticed, well, thanks for keeping your eyes on the road, I suppose. But if you’ve ever been intrigued by their appearance, you could always have taken a guided tour around the bay – I did it once. It was a birthday surprise with my family, for my father, who was utterly fascinated with the up-close inspection and historical insights given by the tour guides. (I’ll see if I can track down the contact info for that tour – good stuff.)

    But now, you can get a peek behind the scenes at some of the inaccessible views of these ships, at a live showing of the work by some local photographers. It’s on May 7 at Workspace Limited in San Francisco. You can see all the details of the event on this page, as well as some intriguing historical background, sample images, and bio about the photographers.

    Go check it out.

    I love this kind of photography – abandoned, deserted, decrepit relics of commercial and industrial magnificence. A ways back, I pointed to a 100 photo collection of abandoned homes in Detroit MI. There are quite a few real estate related collections like this making their way around, and sometimes you just have to sit back and appreciate what you can about some of life’s less pleasant moments. Anyway – enjoy the scenery…

     

    Freak Nasty Predicted This Real Estate Market In 1997 (proof)

    Who knew back in 1997 that Freak Nasty was talking about a housing bubble?

    Consider this quote as evidence – was it a clue?

    “Drop down, double-up on those dips”

    YouTube Preview Image

     

    Following the release earlier this week of the Case-Shiller home price index, there has been a rash of articles about the Double-Dip in housing hitting the wires. While that conversation is a little big different than the much-debated Double-Dip in the broader economy – another downturn in housing will not help an economy that is struggling to recover from the last one.

    Yikes. Kind of makes me feel like just throwing my hands up and dancing.

    What say you, homeowner past-present-or-future? Case-Shiller looks at national figures, and 20 metro markets. But inside the Bay Area, there are hundreds of micro-hoods where different forces are at work. Even San Francisco proper has dozens. What’s going on in your neighborhood? Post your thoughts about your local market (or about Freak Nasty if that’s what you’d prefer).

    Do Earthquakes In Japan Cause US Mortgage Rates To Go Up?

    Inflation Tsunami?
    Running from the inflation tsunami? Look to lock in long term mortgage rates now.

    photo © 2005 J | more info (via: Wylio)The earthquake, tsunami, and nuclear meltdowns that have happened in Japan have left quite a path of physical destruction. Aside from the tragedy associated with property and human tolls, the impact to global markets is an interesting one to consider. We’ve discussed in the past how surprise events can affect markets, and natural disasters fall into that category.

    Paul Kasriel, economist with Northern Trust, writes some of my favorite perspectives on economics. In a recent essay, he discussed the facets of this event and how they’d likely impact markets. Japan is a nation with relatively few natural resources.  He raises the issue that if government spending in Japan is boosted to rebuild infrastructure, an increasing demand on imports of raw materials can help to fan the inflationary flames of an already hot commodity market, pushing prices higher. Similarly, demand for products formerly produced in Japan, now on hold due to factory shutdowns, will increase in other economies as global demand persists across a shortened supply.

    Kasriel uses the example of demand for hybrid Fords increasing as the supply and availability of Japan’s Toyota Prius reduces. Increasing demand leads to increasing price, and there you have a component of the data showing inflation.

    What To Do About Your Mortgage

    It doesn’t matter where it comes from; inflation, or fear of inflation will drive interest rates higher, and this pertains specifically to long term instruments like mortgages. There’s an increasing buzz about inflation in the economy, with many consumers confused by reports of low to moderate inflation when they feel it in their day to day living costs, particularly in food and energy costs. Food and energy are excluded from the core inflation data, but for reasons that really only matter in the short term view, not the long term.

    Inflation can sneak up on you, sometimes through a string of events that are difficult to connect. It’s best not to be left exposed, and locking in long term financing on your real estate now will help you avoid some of the uncertainty headed our way. You can gain quite an advantage by setting a long term cost (such as a 30 year fixed mortgage) before markets turn on short term trajectories. Don’t sit idle here.

     

     

    The Push-Pull Debate On The Real Estate Market Recovery

    Who will feed the whale?

    I’ve always thought that the “Plankton Theory” on housing made a lot of sense. It says that for values to increase, there must be demand at the entry level costs, since move-up buyers need somebody to sell to before they can buy a bigger house. Just like big fish in the ocean wouldn’t be able to eat small fish if the small fish couldn’t eat the plankton. I believe the analogy was first introduced by PIMCO’s Bill Gross in 1980. Logically, it makes perfect sense, and when pondering the question of when/where will housing recover, my eyes have accordingly been on the first time buyer activity.

    About a year and a half ago, we looked at some data supporting this concept – the ripple up from first-time buyer values showed gradually weakening support.

    And in recent weeks, there’s been a flurry of news from the other end of the spectrum – the high end property. There are several theories about why the wealthy are buying, and why they are buying with cash. But the bottom line is that February 2011 sales data showed that homes selling above 1MM were up 3.9%, outperforming all other price ranges.

    There have been several stories about this trend. And some prominent folks in real estate and finance – Barbara CorcoranDonald TrumpJohn Paulson – are turning up the volume on their excitement over housing at these levels.  –

    As opposed to a push up from demand among first time buyer, are we going to see recovery from the top down? Where wealthy buyers gobble up high end homes, and essentially pull from the top, demand rippling all the way down to the bottom? Maybe a little of both? The number of wealthy buyers who can afford to buy another property without selling one at the same time would seem to be small relative to the overall market. But this activity represents a force at play. It’s an interesting dynamic to keep an eye on. What do you think?

    Greed, Capitalism, Budget Debates and Bank Robberies – What’s Changed Since 1979?

    There’s a lot of crazy in the air right now, with the impending threat of a United States Government shutdown. Politicians are in a deep, muddy ditch of negative public sentiment, and by the way: when you’re in a hole, you’re supposed to stop digging… Budget fighting is nothing new, but it seems the stakes are growing larger with ballooning federal debt, compounded by increasing fears of rising interest rates. This graphic from Planet Money helps put the dispute in perspective:

    There are swelling fears about entitlement costs (crazy infographic on social security from visualeconomics.com).

    There is anger over wall street titans getting rich (from Big Picture blog):

    somebody call the cops!

    About That Shutdown and Mortgages

    Anyway, this is a mortgage website. So it’s worth making a quick comment here about what a government shutdown would mean inside this space. The primary concern is with Federal Housing Administration (FHA) lending. FHA is under the US Department of Housing and Urban Development, considered a “non-essential service”, and therefore subject to some “lights out” time. If lenders cannot obtain FHA case numbers from FHA offices (part of the origination process), that will prevent forward progress on FHA transactions. Also, FHA will not be available to issue endorsements and mortgage insurance certificates. Banks seeking to make FHA loans are unlikely to do with a delay/block of this step in the process. Functionally, FHA lending could take a hiatus along with your elected representative. A shutdown in 1995 caused such a disruption with FHA lending, then a much less important sector of the Bay Area real estate marketplace. It won’t crush the marketplace, but it has the potential to stress a few people out.

    What’s Changed?

    This is a really interesting snippet of an interview of famed economist Milton Friedman by Phil Donahue in 1979. Phil questions the philosophy of capitalism, core to the spirit and foundation of the United States of America. As we sit here approaching 2 and a half centuries as a nation, and our fearless leaders are bickering over ideologies and the near-term direction of our teetering economy, this conversation from a different time and a different social and political and economic context is really, really interesting.

    YouTube Preview Image

    Craziness. It’s in the air today, isn’t it? What do you think about it all? Welcoming (encouraging) comments below…

    How Often Do Mortgage Rates Change? (March 2011 Update)

     

    Mortgage Rates frequency of change by day January - March 2011
    Mortgage Rates frequency of change by day January - March 2011

    One of the things that can be difficult about shopping for a mortgage, or for a mortgage provider, is that as you make contact with a few people and ask about rates, the ground is shifting beneath your feet.Call one lender first thing in the morning, email two others at lunch, one of whom doesn’t reply until the end of the day, and you’re looking at three different ‘vintages’ of rate quote. Can a fair comparison be made?

    Maybe.

    But you’ll need to know first if rates have changed over the course of the day. And based on recent history, odds are you’ll be comparing apples and raspberries.

    But when it comes to mortgage quotes, the little differences can be meaningful. If you want to maximize your shopping results, you need to make sure you are comparing quotes from the same vintage.

     

    Rates changed ever 2.71 hours in March

    In March there were 23 bond trading days. We received 53 rate sheets over those 23 days, or an average 2.30 rate sheets per day. We had a few calm days with only one issue of rates, and the most extreme day had 5 different rate sheets. That was yesterday, attributed to some pre-jobs data jitters.

    Most lenders have open lock desks for 8 hours a day. Some are open for 9, and the most aggressive lenders, often the most sensitive to bond market fluctuation, accept rate locks for about 6 or 6 1/2 hours a day. On turbulent bond market days, they often delay the first rate sheet release.

    Assuming an average of 7 hours for an open lock desk, and 2.30 rate sheets per day, that means rates changed every 3.04 hours. Compared to January’s average expiration of 2.71 hours, that’s 12% less volatility for March. February was less volatile than January also, so this is now a 3 month trend of decreasing volatility, but this is by no means a placid market.

    Only A Partial Picture

    Lower volatility is a good thing. It takes some anxiety out of the process for working through a purchase or refinance transaction, and it also tends to help reduce defensive pricing by lenders, giving them greater confidence to be aggressive.

    But volatility only provides part of the picture. During the month of March, mortgage rates went on a round trip, dipping for the first half of the month to a low point on March 16, and then climbing back to where they began the month for a net break-even. If you were in escrow looking to lock your rate, you’d not only want to know about vintages for comparing quotes, but when in the month would be the best time to lock no matter where you do it.

    How to stay in front of it

    First, make sure you get your rate quotes in the same vintage. This means that any lender who isn’t quick to reply isn’t really helping out. Second, make sure your lender is tuned in to the economic calendar, so that you can be aware of what days are more or less likely to be volatile ones. The market gets little economic data snacks to munch on every day. It’s critical to know which ones are bigger, might cause indigestion, induce vomiting, etc. The last thing you want to do is leave your rate lock open when the risk is greater than the potential reward.

    Working with your lender to create a lock and pricing strategy suitable for your transaction will probably shed some light on who you’re working with, and serve you far better in the long run than comparing apples and raspberries.

    Need help with a rate lock strategy? Contact me below and tell me how I can help.

      Your Name (required)

      Your Email (required)

      Subject

      Your Message

      Why Is The Interest Rate On My Purchase Agreement Different Than What My Lender Said?

      This is a question we hear all the time.

      The sequence of events leading up to buying a home includes the following:

      • pre-approval & custom rate quote
      • present offer to buy a property
      • acceptance of offer & eventual rate lock

      The first and last of these steps are handled by the lender, and the second one by the real estate agent.  A buyer will often get mixed signals  from these first two steps, because both include a snapshot of the mortgage rate prior to the point where it gets locked in.

      But there is a key difference between the two snapshots. The rate indicated in the contract is deliberately high. In most contracts/purchase agreements, there is a section indicating a ceiling rate at which the buyer will obtain financing for their loan. And if the best market rate they can get is above this rate, it means the buyer has the option to cancel the contract. There’s always a chance that a buyer could make an offer, and by the time it gets accepted, see rates run up beyond a level that they can afford, so using this maximum rate as a ceiling limits the buyer’s exposure to the interest rate market.

      Reading between the lines, sellers might look at a lower ceiling rate as a higher risk. In other words, “this buyer is only willing to buy if they can finance at X.XXX% or less”. From that perspective, the higher the rate, the safer the seller, and the stronger your offer. The real estate agent knows to pad the actual market rate by a little just so they do not portray the buyer as skittish.

      The cost of financing is as significant as the cost of the house in the long run. So having a ceiling rate here is a safety valve to protect the buyer.

      The rate indicated in the contract is not a mortgage quote. A rate that is above the current market rate tells the seller you are eager to buy their home. A rate at or below tells them you want to have an easy out. You’ll want to find the right balance when presenting an offer that is appealing to the seller, and safe for the buyer.

      When it comes to getting at the actual interest rate for your loan, work with your lender to devise a locking strategy. And keep in mind, rates are changing frequently.