Archive for the ‘Housing and the economy’ Category

This is why Housing Sales Matter to our Economy

In a study by the National Association of Realtors (NAR) to determine the impact a single home sale has on the economy. They included data compiled by the Bureau of Economic Analysis, the Census Bureau, Macroeconomic Advisors and the Joint Center for Housing Studies at Harvard. After reviewing the information, they determined the total economic impact of a typical home sale in the United States is an astonishing $56,464!

This figure contributed economically to things such as home construction, real estate brokerages, mortgage lending, title insurance, rental & leasing, home appraisals, and moving truck services.

When a House is Sold in the United States:

$14,958 – Income generated from real estate related industries

Home sales turn into money for the economy

$5,647 – Additional expenditure on consumer items such as on furniture, appliances, and paint service

$3,509 – Expenditure on remodeling within 2 years of purchase

It also generates an economic multiplier impact. There is a greater spending at restaurants, sports games, and charity events. The size of this “multiplier” effect is estimated to be:$11,575

Home sales induce additional new homes being built. Typically one new home is constructed for every 8 existing home sales. Therefore, for each existing home sale, 1/8 of new home value is added to the economy which is estimated in the U.S. to be:$20,775

This study was done on a national level, where home prices and the cost of living is less than in southern California. San Diego home prices are also well more than double the national average. While the above figures only cover nationally average numbers to come up with $56,464, the economic impact for a place like San Diego would be far more!


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The Federal Reserve Has Finally Raised Rates-Now What?

The Fed just raised rates:  Here’s what it means for real estateThe Federal Reserve raised the fed funds rate

The Federal Reserve finally increased the federal funds rate-a key benchmark rate that affects interest rates on consumer and business loans. In an effort to boost the struggling economy, it’s been at or near zero for seven years. The last time the Fed actually increased the rate was almost a decade ago, in January 2006.

The hike ushers in a new era for the Federal Reserve, which has said it will increase rates gradually to ensure that economic growth isn’t compromised. Here are some ways you may feel the effects of the Fed’s new policy direction:

1. Buying or refinancing a house
Anyone that has an adjustable-rate mortgages should know their rate (and thus monthly payment) is rising a bit. This loan will react quickly to any rise in the fed funds rates. That’s because the rates on ARMs typically are tied to the prime rate or LIBOR, both of which are tied to the Fed rate.

But rates on the most common type of mortgage — the 30-year fixed — will rise gradually. Since that rate follows the yield on the 10-year Treasury note, it usually moves in the same general direction as the fed funds rate, but not in lockstep. The same goes for the 15-year fixed home loan, a popular choice for those that can afford a higher monthly payment.

Consistent rate hikes over time by the Fed could eventually price some buyers out of the housing market. So how much of a difference does a .25% interest rate increase make in a monthly mortgage payment? On a $400,000 loan, it adds about $58/month to the payment. Not bad, but one can see how this starts adding up with further rate increases down the road. See the chart below. For a mortgage calculator, go HERE

effect of mortgage rates on monthly payment2. Borrowing from your house
Rates on existing home equity loans are fixed, so they won’t be affected by a rate hike. But if you’re shopping for a new equity loan, you will see rates track the increase of the 10-year Treasury yield, which follows the direction of the fed rate, but at a slower pace.

If you have a home equity line of credit, or HELOC, your rate is rising. Most HELOCs track the prime rate, which is also tied to the increased fed funds rate. The increase will be almost immediately, taking effect within 30 days. To help yourself, see if your lender will fix the interest rate on the amount you have already borrowed on the HELOC. The rate increase would then only affect any future borrowing.

3. Other Effects

Credit cardsMost interest rates on credit cards are variable and are often tied to the prime rate. Your rate will thus increase on purchases made after the increase.

Student loansMany private student loans have variable rates, many of which are tied to the prime rate. When the Fed raises rates, the prime rate also goes, increasing your monthly payment.

Auto loansThere’s no direct correlation between the fed funds rate and auto loan rates, but they will eventually follow the general interest-rate environment,

Saving accounts-There’s good news for savers! Rates on certificates of deposits (CDs), money market accounts, and savings accounts are highly correlated with the fed funds rate and move closely with it. If the Fed raises rates, that means better returns for savers.


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San Diego Housing Market Forecast For 2015

With more available homes now on the market for sale, San Diego’s housing market is now seeing much fewer investors. There is now a return to traditional home buyers, as home sales rise modestly and prices stabilize in 2015, according to the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.) “2015 California Housing Market Forecast.”

2015 Housing Market Forecast San DiegoThe annual C.A.R. forecast sees an increase in existing home sales of 5.8% in 2015, reaching 402,500 units. This is up from the projected 2014 sales figure of 380,500 homes sold.  Sales in 2014 were down 8.2% from the 414,300 single-family homes sold in 2013.

Strict lending standards and double-digit home price increases over the past two years have significantly impacted home affordability in San Diego. This has forced many home buyers to delay purchasing. Next year, home price gains should stabilize; allowing would-be buyers who have been saving for a down payment to be in a better position to make a home purchase. In addition, there are many loan programs available that don’t require the standard 20% down.

The average for 30-year fixed mortgage interest rates will rise only slightly to 4.5%, which is still at historically low levels.

The California median home price is forecasted to increase 5.2% to $478,700 in 2015, following a projected 11.8%increase in 2014 to $455,000.  This is the slowest rate of price appreciation in 4 years.



2011 2012 2013 2014p 2015f
SFH Resales (000s) 422.6 439.8 414.3 380.5 402.5
% Change 1.4% 4.1% -5.8% -8.2% 5.8%
Median Price ($000s) $286.0 $319.3 $407.2 $455.0 $478.7
% Change -6.2% 11.6% 27.5% 11.8% 5.2%
Housing Affordability Index 53% 51% 36% 30% 27%
30-Yr FRM 4.5% 3.7% 4.0% 4.3% 4.5%

p = projected
f = forecast


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Here’s Why Your Should Buy Or Sell A Home Now!

San Diego homeowners who’ve wanted to sell have loved the recent news of rising home prices (up around 20% from a year ago), easier lending terms for buyers and general economic improvement that encourages house hunting. But will rising interest rates can undercut home prices?

Like buyers, sellers need to get a move on before rising rates make buying a home more expensive. Sellers should be careful not to wait too long. Rising mortgage rates are hardly a crisis, as they’re still low by historical standards, but prospective sellers should keep the rate and price relationship in mind as they plot their strategies.

Historical Mortgage Rates

Historical Mortgage Rates

Unfortunately, it’s impossible to say the exact effect on prices of a 1, 2 or 3 percentage point rise in mortgage rates, as so many factors affect home values. But the principle is simple enough: Rising rates make monthly payments bigger, reducing the maximum buyers can spend. That, inevitably, affects prices to some degree.

Rising rates, of course, also have a psychological effect, causing some buyers to wait for rates to come down and making others give up the search altogether. Others may think they better “hurry up and buy” before rates go even higher. Recent data and trends suggest buyers are pulling back a bit now, disturbed by recent rate increases. But in coming months, many may change their minds, realizing that even if they missed the cheapest deals, rates are still low — and lower than they’re likely to be in a year.

This Mortgage Calculator can help you see the relationship between prices and interest rates.

Here is an example: A person with a $4,000 monthly income could afford a monthly payment no higher than $805. That would support a $134,267 mortgage at a 6% rate. Change the rate to 4.5%, about today’s level for the 30-year fixed-rate loan, and the maximum mortgage jumps to $158,876.

So, if rates were to rise from today’s 4.5% to 6%, a historical average rate, this buyer would have $24,609 less to spend. Looked at another way, a 1.5 point increase in mortgage rate would reduce this buyer’s buying power by about 18%.Mortgage-Interest-Rates-Round-Up-for-Saturday-August-101

If that seems surprising, note that raising the rate to 6% from 4.5% is a 33% increase, producing a much larger monthly payment for a given loan size.

As mentioned, this just illustrates the principle, and it doesn’t mean home prices would fall 18% if mortgage rates rise. For one thing, a seller needs only one buyer, and there may be plenty of others who can afford the home even with higher rates. After all, not every buyer applies for the biggest loan that would be permitted. Those planning to spend less than the maximum may still be able to afford the home with the higher payment.

Today, the would-be seller should be on the lookout for a sweet spot in market conditions. That will be the point at which home prices have gone up from today’s level, but mortgage rates remain low enough to bring lots of buyers into the market.

If price gains start to level off (which it seems like they are in the San Diego market), the seller should probably get the home on the market quickly, or rising rates could shave the sales price.

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