Palos Verdes Blog

Palos Verdes blog is about Palos Verdes real estate market trend, valuable news about how to buy, sell, or lease homes, condos, town-homes, apartments, multi-family homes, and land, including short sales, and foreclosure information.

July 13, 2020

National Market Update Week of July 13, 2020

NATIONAL MARKET UPDATE

Fannie Mae’s June Home Purchase Sentiment Index (HPSI) revealed 61% of respondents think now is a good time to buy a home and 41% feel it’s a good time to sell--big rebounds from the survey’s record lows two months ago.

Also rebounding: realtor.com’s latest Housing Market Recovery Index posted the largest nationwide weekly gain since its inception, ending up just a smidge below its pre-COVID baseline.

Plus, Freddie Mac’s Chief Economist likes what he sees in the housing market across the country: “The summer is heating up as record low mortgage rates continue to spur homebuyer demand.

 

REVIEW OF LAST WEEK

CERTAINTY BEATS UNCERTAINTY... Overlooking uncertainty about the path of the virus, investors kept stocks heading up, motivated by the emerging certainty the economy is solidly rebounding.

The recent string of economic surprises continued: after its biggest ever monthly gain, the June ISM Non-Manufacturing Index signaled that the services sector, providing almost 80% of our jobs, is expanding again.

Deliveries are getting back to normal, and the Producer Price Index of wholesale price inflation dipped, a good sign consumer prices should hold steady. Finally, initial jobless claims have now fallen 14 weeks in a row.

The week ended with the Dow UP 1.0%, to 26,075; the S&P 500 UP 1.8%, to 3,185; and the Nasdaq UP 4.0%, to 10,617.

As equities jumped, bonds slid. The UMBS 3.0% ended down 0.39, to $105.19. In Freddie Mac's Primary Mortgage Market Survey, the national average 30-year fixed mortgage rate set a new all-time record low. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?...The first quarter saw a record $6.5 trillion in tappable home equity—the amount a homeowner with a mortgage can borrow while maintaining 20% equity. Black Knight says more than 75% of homeowners are viable refinance candidates who could tap into equity and lower their interest rate.

 

THIS WEEK'S FORECAST

HOME BUILDING, RETAIL, CONSUMER SENTIMENT UP; JOBLESS CLAIMS, INFLATION DOWN... Forecasts call for a continued rebound in Housing Starts and Building Permits. Likewise for Retail Sales and University of Michigan Consumer Sentiment. All were no doubt helped by expected low Consumer Price Index inflation and an ongoing drop in Initial Unemployment Claims.

NOTE: Weaker economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and higher loan rates.

 

Via CB Loans

July 10, 2020

Staying Healthy While Deskbound

Whether you’re working from home or in an office building, sitting at a desk all day has been proven to be bad for your health in many ways. For the modern professional whose work is often centered on the use of a computer, it’s imperative to form healthy habits to reduce the risks associated with a sedentary lifestyle and a desk bound day job. Here are a few best practices to implement for your health.

  1. Set up an ergonomic workspace. At an office, your equipment may be provided for you. At home, you may want to invest in items to help set you up for a full workday (and avoid the temptation of working from the couch)! But anywhere that you’re spending hours sitting needs to be designed to support your body. Your chair should support your spine and should allow your thighs to be parallel to the floor when your feet are planted on the ground. Your desk and keyboard should be positioned such that your hands are at or just below the level of your elbows.
  2. Take breaks. Research has shown that rather than stretching your mind and body to their limits, you’ll be most productive if you take a short break approximately every hour. Your mental energy may feel separate from your body, but the exhaustion that nonstop work can cause is still a physical exhaustion.
  3. Move. Even with the right office chair and the right ergonomic setup, sitting for long periods of time is still bad for your health. Make an effort to get up and move at every opportunity. Lunch break? Take a short walk. (Bonus: It may improve your focus and creativity.) Talking on the phone? Try standing or pacing during the conversation. Schedule regular breaks to stretch or do some “deskercise.”
  4. Don’t forget your eyes. Staring at a screen all day can also be bad for your vision. Try the 20-20-20 method: Every twenty minutes, take twenty seconds to look at something at least twenty feet away from you. Make sure you’re sitting at least arm’s length from your monitor. If you really want to go the extra mile, try getting some blue light blocking glasses to wear while using the computer.
It’s easy to get so focused on working your way through that to-do list that even a ten minute break can feel out of reach. If you’re especially plugged into your work, hours might pass without you realizing it. That’s why building routines, setting reminders, and strategizing around your areas of weakness are all so crucial. You don’t have to sacrifice your health to succeed at work!
Posted in About, Services
July 7, 2020

National Market Update Week of July 6, 2020

National Market Update

The National Association of Realtors Pending Home Sales index of contracts signed on existing homes surged 44.3% in May, its biggest gain since 2001. All regions were up, though the overall index is still down a smidge annually.

The NAR chief economist: “The outlook has significantly improved, as new home sales are expected to be higher this year than last, and annual existing home sales are now projected to be down by less that 10%."

Plus: “All figures light up in 2021 with positive GDP, employment, housing starts and home sales.” Next year’s NAR forecast calls for sales of 5.35 million existing homes and 800,000 new ones.

Review of Last Week

ECONOMY RECOVERS, STOCK MARKET TOO... Economic data has been encouraging for a while, but last week's blow-out reports showed investors the economy really is headed back up, and stocks responded in kind. 

Growing at the fastest rate ever, an astonishing 4.8 million new Nonfarm Payrolls were added in June, shattering forecasts, and dropping the unemployment rate more than two percentage points. 

With the largest monthly gain in more than 40 years, the ISM Manufacturing Index revealed that key economic sector was growing again in June. Economists say full recovery is still a long way off, but there's no question it's begun.

The week ended with the Dow UP 3.2%, to 25,827; the S&P 500 UP 4.0%, to 3,130; and the Nasdaq UP 4.6%, to 10,208.

Cautious investors remained interested in bonds, supporting prices. The UMBS 3.5% ended up 0.05, at $105.22. In Freddie Mac's Primary Mortgage Market Survey, the national average 30-year fixed mortgage rate set a new all-time record low. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?... Compared to a year ago, home prices are higher, but monthly payments are lower, thanks to the drop in mortgage rates. The median asking price on homes listed in May 2020 was $18,000 higher than May 2019, yet the median monthly payment fell to $1,170 from $1,225 a year ago

This Week's Forecast

SERVICES REBOUNDS, JOBLESS CLAIMS RECEDE, INFLATION OK... The economy's services sector, providing most of our jobs, should climb close to a growth read from the ISM Non-Manufacturing Index. Going the other way, happily, is the forecast for Initial Unemployment Claims, while the Producer Price Index (PPI) is expected to show wholesale prices remain under control.

NOTE: Weaker economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and higher loan rates.

June 30, 2020

Home sales up and down

NATIONAL MARKET UPDATE

After their upside surprise in April, New Home Sales blasted ahead 16.6% in May, to a 676,000 annual rate. Sales are up 12.7% from a year ago, the 12-month average just 1.1% below February’s post-2008 high.

Existing Home Sales dropped 9.7% in May, to 3.910 million annually. But those contracts were signed at the height of the lockdowns, while New Home Sales, logged at contract signing, are a timelier indicator of current activity.

Freddie Mac: “After the Great Recession, it took more than ten years for purchase demand to rebound to pre-recession levels, but in this crisis, it took less than ten weeks,” helped by “the low mortgage rate environment."

 

REVIEW OF LAST WEEK

WALL STREET DIDN'T FEEL WELL... Investors lost their appetite for risk and the resulting selloff sank all three major market indexes. A rising coronavirus case count in some Southern states was all it took. 

Before the unfortunate case count news, stocks were doing fine, just like the recovering economy. Durable Goods Orders rebounded 15.8% in May and Personal Spending spiked 8.2%, the largest monthly gain in history.

Initial jobless claims dropped 12 weeks in a row. Personal income fell in May versus April, which was inflated by government stimulus checks. Take those out and income grew 1.6%. Continued economic progress is expected.

The week ended with the Dow down 3.3%, to 25,016; the S&P 500 down 2.9%, to 3,009; and the Nasdaq down 1.9%, to 9,757.

With stocks under pressure, bonds rose. The UMBS 3.5% ended up 0.01, at $105.17. The national average 30-year fixed mortgage rate remained unchanged from its prior week all-time low in Freddie Mac's Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?... Zillow says homes are flying off the market at the quickest pace in two years. Homes sold in the second week of June were on the market about 22 days, the lowest number since June 2018.

 

THIS WEEK'S FORECAST

PENDING HOME SALES, JOBS, CONSUMER CONFIDENCE REBOUND... The  Pending Home Sales index of contracts signed on existing homes, a good read on buyer activity, is forecast to bounce back substantially in May. Also bouncing should be Nonfarm Payrolls, expected to report several million more jobs, giving a nice boost to Consumer Confidence.

The bond market will close early on Thursday, and all financial markets will close Friday, July 3, in observance of Independence Day. Have a safe and Happy Fourth!

NOTE: Weaker economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and higher loan rates.

June 24, 2020

Home Projects With the Highest Returns

Beautiful house with nice lawn

If you’re spending time and money to renovate your house, choosing which projects are worth it should be a top priority. You want to recoup some of your costs, don’t you?

Many upgrades could improve a property’s aesthetics or make it a better fit for your family. But not all projects will increase your home’s value — and those choices might affect how much your home sells for later on.

If you’re looking for remodeling projects that will get you a return on your investment, you may want to focus on these:

  • Stone Veneer Exterior: This is the highest-ROI project you can take on. The average homeowner recoups nearly 96% of the total cost. Plus, it does wonders for your curb appeal.

  • Wooden Deck: Want a great way to get more use out of your yard? This is the perfect place to start. A wood deck could add over $10,000 to your resale value.

  • Metal Roofing: Replacing your shingled roof with metal may net you about 61% of your project cost back and add more than $24,000 to your home’s resale value. As a bonus, it could help lower your energy bill.

  • New Garage Door: Upgrade your standard old garage door for a nicer model, like a wood or paneled one. In return, you might get a whopping 94.5% of your costs back — and improve your curb appeal to boot.

  • Major Kitchen Remodel: Any amount of kitchen remodeling is good for your home’s value. But a major overhaul can add more than $40,000 to your future sales price.
June 22, 2020

Spotting appraisal deficiencies

number 2 pencil

For home sales contingent on financing, the appraisal has the potential to derail the entire sale — or validate the price, cinching mortgage approval.

When an appraisal comes in below the price the buyer and seller agree to, this is known as a low appraisal. The mortgage lender will not approve a mortgage amount above the appraisal amount (including the buyer’s down payment). The only options to go forward with the sale are to:

  • decrease the agree-to price to match the appraised value;
  • cover the amount between the appraised value and agreed-to price with additional money from the homebuyer; or
  • rebut the appraisal.

However, rebutting the appraisal is not a guarantee. In fact, rebuttal letters will only work when there are details missing or wrong in the appraisal report.

Beyond the obvious mistakes like incorrect square footage or missing features, what other factors can agents point to when attempting to rebut an appraisal?

Common deficiencies

The Bureau of Real Estate Appraisers (BREA) outlines the five most common appraisal deficiencies in their spring-summer 2020 newsletter. These deficiencies are not flat-out errors or mistakes — which are easier to spot — but they are instances where the appraiser is out of their depth or has completed insufficient work to turn in a thorough appraisal report.

  1. Appraisers following an atypical assignment break the Uniform Standards of Professional Appraisal Practice’s (USPAP’s) Competency Rule. This applies when the appraiser does not have the personal knowledge or experience necessary to complete the assignment (for example, when the assignment is categorized as complex). When applicable, the appraiser needs to disclose their lack of knowledge and experience to the client before accepting the assignment. Even when disclosed, the appraised value may not match up with the value an appraiser more experienced in the type of subject property would have assigned.
  2. Often, appraisers will come across a unique property attribute and are unable to find any comparable sales with the same attribute. Therefore, they assign the attribute a zero-dollar value, but that is not correct (unless they are asserting the attribute has a literal zero-dollar impact on the property). Instead, the appraiser needs to use an appraisal approach other than the comparison method to evaluate the unique attribute.
  3. The BREA claims a whopping 20% of appraisal reports that pass through their office cite incorrect zoning designations. This doesn’t always impact the appraised value but can have disastrous consequences for the valuation when it does. The BREA suggests going directly to the local government agency for the property’s zoning designation, as public records data providers are not always correct.
  4. Use of the reconciliation to make up for unique attributes or for sloppy analysis is not correct. And yet, it remains a common practice in appraisal reports. Weak sales data and amorphous multiple listing service (MLS) comments about the property’s condition are common occurrences. To make up for this, instead of rounding up or down to suit the sale’s needs, the BREA suggests the appraiser use the reconciliation to express their opinion of the home’s value within each separate cost approach used.
  5. Perhaps the sloppiest deficiency is a wide range of values. For example, an appraiser who says the property is valued between $500,000 and $1 million (a real example offered by the BREA) is flat-out useless. Wide value ranges usually mean a data or methodology error is present.

When an error or appraisal deficiency is identified, the buyer and their agent may draft a rebuttal letter to the lender. A rebuttal letter with the highest chance for success:

  • is written by the buyer with the help of an experienced agent;
  • focuses on hard facts rather than emotions;
  • identifies the errors or deficiencies explicitly;
  • includes professional opinions and recent comparable sales to rebut the previous appraisal; and
  • is sent to all parties to the transaction.

 

via First Tuesday journal

June 19, 2020

How to Stage without Breaking the Bank

staging a house for sale

It is almost universally agreed that staging a home is a crucial part of getting a property sold quickly and for the highest possible price. Research has shown that nearly half of real estate agents believe staging increases a home’s value, and more than half believe it decreases the amount of time a home spends on the market. Best of all, sellers don’t have to sink a lot of money into staging in order to make a property attractive to buyers. Here are a few tips for staging on a budget.

  • There’s nothing more budget-friendly than “free!” It costs nothing to remove things. Moving some of the furniture out can free up space and make rooms look larger. Remind sellers that rooms don’t need to be functional, they just need to look attractive — so don’t be afraid to stage a bedroom without a dresser or stage a living room without a television. Removing personal items like family photos, kids’ toys, and pet products can help potential buyers better imagine their life on the property. And reducing the amount of items in closets and cabinets can make storage look more spacious.

  • Focus on the first impression. Most people make a judgment within the first few seconds of seeing a space and changing that first impression can be extremely difficult. A home doesn’t need expensive landscaping to make the yard look attractive, but make sure the outside of the house is clean and in good repair; pull some weeds and mow the grass. Painting the front door an interesting color and adding a welcome mat, or adding some flowers and chairs on the porch can go a long way. Also, make sure that when potential buyers walk through the front door, they’re given an attractive and welcoming sight.

  • Above all else, prioritize cleanliness. Not everyone will have the same taste and style, but a dirty house isn’t attractive to anyone. Make sure there aren’t any lingering smells (but don’t introduce any overwhelming scents to cover them up, either). Aim for a clean smell that isn’t distracting. Finally, asking for visitors to keep the house clean and safe doesn’t have to clash with the home’s aesthetic. A cute “please wash your hands” sign in the bathroom isn’t going to interrupt staging.

  • If sellers are willing to invest some labor, the cheapest and most impactful change they can make is painting. Fresh paint color on the walls can inject style and create continuity between rooms. Painting cabinets can quickly modernize a dated kitchen. Even furniture can be updated with a fresh coat of paint to pull a room together.

  • Let the light in! There’s a time and place for mood lighting, but a home for sale is neither. The brighter the home, the bigger and more welcoming it looks. Replace all the light bulbs with 100 watt bulbs, and don’t be afraid to add lamps and fixtures if a space still feels dark. While curtains can be a nice decorative touch, make sure they aren’t blocking the natural light coming in the windows. Move furniture that might be blocking windows, and make sure all that glass is sparkling clean, too.

Staging doesn’t have to mean spending money on new furniture, landscaping, or upgrades. With tricks like these, sellers can make a property more attractive without cutting into their bottom line.

via CB Loans

June 17, 2020

2020 ballot initiative seeks to expand rent control in California

2020 ballot initiative seeks to expand rent control in California

Rent control — the controversial solution to California’s rental shortage and rapidly escalating rents — is up for debate again.

Rent control keeps rents from rising beyond the financial abilities of long-term tenants. In theory, rent control creates more stable neighborhoods since tenants won’t be forced out due to rising rents, especially in neighborhoods where gentrification is occurring.

Rent control laws are broadly governed at the state level through the Costa-Hawkins Rental Housing Act (Costa Hawkins) and adapted through local rent control ordinances by individual cities.

In 2018, voters rejected Proposition 10, which would have repealed Costa Hawkins and allowed local governments to take rent control into their own hands. Just two years later, another ballot measure has qualified to appear on the 2020 ballot, titled the California Local Rent Control Initiative or the Rental Affordability Act. This newest measure seeks to rollback certain parts of Costa Hawkins, while leaving much intact.

Under Costa Hawkins, local rent control measures are prohibited for housing units:

  • with single titles, like:

    • single family residences;

    • condo units;

    • townhomes; and

  • first occupied on or after February 1, 1995.

Thus, Costa-Hawkins only permits local governments to enact rent control measures on a limited number of older multi-family units. This has become a big problem in recent years, as the number of residents who can benefit from rent-controlled housing continues to rise with our growing population, while the number of units eligible for rent control remains static.

The 2020 ballot initiative changes the law by instituting an active date that moves with the calendar. It allows local governments to enact rent control measures on units:

  • first occupied within 15 years prior to the date the landlord seeks to establish the initial or subsequent rent rate; and

  • owned by natural persons who own no more than two separate-title housing units, like:

    • SFRs;

    • condos; and

    • some townhomes or duplexes.

This measure is a nod to 2018’s Prop 10, meeting the voters who rejected it halfway.

Rent control’s promises

2020’s ballot measure seeks to add more units to the inventory of rent-controlled housing. Additional qualified housing would help millions of low-income residents who are unable to find affordable housing.

This need is evidenced by California’s worsening housing crisis. For reference, the state is home to 12% of the U.S. population, but 22% of the nation’s homeless population, according to the California Department of Housing and Community Development.

However, rent control is a quick fix to a complex issue. Like most quick fixes, it does not hold up in the long run and can do more harm than good.

Perhaps the biggest issue created by rent control is that landlords of rent-controlled apartments have no reason to maintain or improve their properties. Their only duty is to maintain habitable living conditions, and beyond that, any improvements made won’t provide the landlord any return. This leads to decaying rent-controlled units, blighting neighborhoods and making life harder for tenants.

2019 Stanford study looked into the impact of rent control on San Francisco’s rental housing market and found rent control did help low-income renters remain in their homes. But this was achieved at the cost of a:

  • 20% decrease in mobility for renters of rent-controlled units; and

  • 15% decrease in rental housing stock in the city

 

Better than rent control

There is a more desirable alternative to rent control: simply put, more rental housing.

Our state’s rental housing crisis is responding to an acute imbalance between low-tier rental supply and demand for this type of housing.

California’s legislature has made several steps toward increasing the low-tier housing stock in recent years, including:

  • adjusting how local governments determine housing need;

  • authorizing the creation of accessory dwelling units (ADUs) in areas zoned for SFRs;

  • removing parking requirements in areas near public transit;

  • tightening rules regarding landlord conduct during Ellis Act evictions; and

  • streamlining zoning and permitting approvals for low-income housing developments.

While these steps are all positive moves toward providing more low-tier housing, they have thus far been insufficient — and rent control is not the final answer lawmakers are searching for.

The solution requires a combined effort from builders and government. But local efforts to enact zoning changes are often met with vocal not-in-my-backyard (NIMBY) advocates who seek to preserve their neighborhood’s “character” by restricting building height and density.

NIMBYs tend to be the most vocal — and sometimes the only — voices at city council meetings whenever proposals to increase low-tier housing in the area come up.

Yet, as a real estate professional, you also have an equal stake in zoning regulations and development in your local community. You can help by getting involved and making sure NIMBYs’ concerns are balanced by the real need to increase housing and decrease the strained reliance on outdated rent control measures by:

  • attending council meetings;

  • discussing the need for zoning changes with other professionals in the industry; and

  • showing support for progressive zoning reform.

via First Tuesday

June 15, 2020

National Market Update Week of June 15, 2020

The Mortgage Bankers Association pegged purchase applications up for the eighth straight week, coming in 13% higher than a year ago, noting “the recovery in the purchase market continues to gain steam.”

On a deep dive since March, Fannie Mae’s Home Purchase Sentiment Index finally turned higher in May, indicating consumer views are improving as the economy begins to show signs of recovery from the coronavirus crisis.

A Zillow statement said, “New for-sale listings are up 19.3% month over month” and “newly pending sales up 24.5% over the past month,” plus “traffic to for-sale listings…is up 51% from a year ago.

REVIEW OF LAST WEEK

SELLING SPREE... After recent gains, stocks sank steeply for the week. This was blamed on the Fed’s cautious outlook (nothing new), and the coronavirus (previously ignored), so the real reason was plain old profit-taking.

The big outcome of the Fed meet was no rate hike expected till at least 2023. As chair Powell put it, “We’re not even thinking about thinking about raising rates.” They’ll also keep buying bonds, so mortgage rates should stay low too.

The Fed may be cautious, but initial jobless claims fell for the tenth straight week and 2.5 million jobs came back in May, suggesting the economy bottomed then, making the COVID recession, though sharp, the shortest on record.

The week ended with the Dow down 5.6%, to 25,606; the S&P 500 down 4.8%, to 3,041; and the Nasdaq down 2.3%, to 9,589.

Profit-taking in stocks sent traders over to bonds. The UMBS 3.5% ended UP 0.11, at $105.47. The national average 30-year fixed mortgage rate barely rose in Freddie Mac's weekly Primary Mortgage Market Survey. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.

DID YOU KNOW?... The number of single family home and condo flips in Q1 hit its highest level in 14 years. Gross profits gained too, although the return on investment slipped to 36.7%, still decent, but a nine-year low.

THIS WEEK'S FORECAST

HOME BUILDING, RETAIL SALES SPIKE UP... The forecasts say May Housing Starts will be back up to a 1.1 million annual rate, Building Permits, more than 1.2 million. Analysts also expect Retail Sales to rebound, up 9.0% in May following their 16.4% April decline. 

NOTE: Weaker economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and higher loan rates.

FEDERAL RESERVE WATCH

Forecasting Federal Reserve policy changes in coming months... The Fed chair’s remarks after last week’s confab implied rate hikes will be off the table for a long while. We’ll see. Note: In the lower chart, a 0% probability of change is a 100% certainty the rate will stay the same.

Current Fed Funds Rate: 0%-0.25%

AFTER FOMC MEETING ON: CONSENSUS
Jul 29  0.00%-0.25%
Sep 16  0.00%-0.25%
Nov 5 0.00%-0.25%

 

Probability of change from current policy:

AFTER FOMC MEETING ON: CONSENSUS
Jul 29      0%
Sep 16      0%
Nov 5     0%

Via CB Loans

June 13, 2020

Current market rates June 12, 2020

The average 30-year fixed rate mortgage (FRM) rate remained roughly level in the week ending June 5, 2020, now at 3.21%. The 15-year FRM rate also remained flat, at 2.62%. FRM rates have descended to historic lows due to efforts to stimulate lending during today’s unstable economic times. Beginning in March, the Federal Reserve (the Fed) dropped their benchmark interest rate to zero and began purchasing mortgage-backed securities, fulfilling their role as the lender of last resort to ensure mortgage originations continue. As a result, interest rates will remain near today’s record-low levels for the next several months.

mortgage interest rate chart in california

FRM rates are also tied to the bond market, tending to move in tandem with the 10-year Treasury Note (T-Note) rate. The 10-year T-Note recently plunged to its lowest rate on record, at 0.70% as of June 12, 2020. Bond market investors are reacting to the gutted economy and the expectation of a continued halt to many business activities. This has led them to accept significantly lower yields in return for the safety of treasuries, which in turn has pulled FRM rates down in recent weeks. FRM rates will remain low over the next two-to-three years.

 

The spread between the 10-year T-Note and 30-year FRM rate is 2.51%, well above the historical difference of 1.5%. The higher margins seen through much of 2018-2019 and rising in 2020 signify that mortgage lenders are padding their risk premiums on top of restricting mortgage credit. Now, the only player able to move FRM rates lower is the Fed, which may be accomplished by a combination of the Fed “going negative” and the extreme purchase of mortgage backed securities (MBS) the Fed is currently undertaking. 

mortgage interest rate chart in california

The average monthly rate on ARMs was 3.16% in May 2020, still above its low point of 2.49% experienced in May 2013. The average ARM rate is level with the average 30-year FRM rate, making these riskier mortgage products less appealing. Therefore, ARM use will remain low over the next couple of years, as the Fed will work to keep interest rates on FRMs low. At the end of March, yields on short-term treasury bills went negative, indicating a strong expectation that the Fed will also go negative this year, which will translate to even lower mortgage interest rates. 

 

The economic slowdown that began in 2019 is accelerating downward in 2020. Shelter-in-place orders are causing economic activity to grind to a halt, resulting in lost jobs and less willingness to take on large purchases. Many homebuyers and sellers are hitting pause on their plans and today’s low FRM and ARM rates won’t be enough to stem the outgoing tide. Expect home sales volume and prices to decrease through the end of 2020, not to recover until the recession is over and the recovery underway in 2021-2023. 

via First Tuesday