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Tag: interest rates

Finally, meaningful declining mortgage rates

Written by Louise Bolger on . Posted in Business, Real estate | Development.

The Federal Reserve finally graced us with a lower interest rate bone on Sept. 16 that should make everyone happy. The reason this ¼ point reduction is important is that the Federal Reserve all but promised two more rate reductions before the end of the year.

Nevertheless, there are homeowners with low-rate mortgages who are still reluctant to sell and move on as much as they may want to. A quarter point or even a half point is just not enough encouragement for them to give up a once-in-a-lifetime 3% mortgage. So, the market may continue to be locked up with prices still pushing up for those properties that come on the market, and there aren’t too many of them.

However, there are still benefits to modest lower rates, especially for a first-time borrower, enough to qualify many buyers at the lower rate to be approved for financing. Here on Anna Maria Island and all of the other coastal communities in the area, including our neighbor, Cortez, buyers in these areas are less affected by mortgage rates. Therefore, the market for high-end properties will be less influenced by mortgage rates than by the overall economy.

Many if not most high-end buyers are all cash and even if they decide on a mortgage to free up more cash, they will likely not decide on buying because of a quarter or even a half point reduction. They’re eyeing the health of the general economy and the position of the lawmakers, particularly in Congress, to business and the stock market.

Nevertheless, a healthy real estate market generally is good for all of the real estate market. There is a trickle-up effect of a robust lower-end market positively impacting all price points in the marketplace.

August may be one of the slowest real estate months of the year, but sales are made nonetheless. These are the sales statistics for August reported by the Real­tor Association of Sarasota and Manatee:

Single family homes closed 5.7% more properties this year compared to last August. The median sale price was $467,640, down 5.3%, and the average sale price was $665,577, up 9.1%. The median time to sale was 101 days compared to 103 days last year, and the new pending sales were up 16.7%. The month’s supply of available properties was 4.6 months compared to 3.9 months compared to last year.

Condos closed 7.0% fewer properties this year compared to last year. The median sale price was $291,250, down 11.7%, and the average sale price was $354,958, with 8% fewer properties compared to last year. Median time to sale was 120 days this year compared to 139 days last year. New pending sales were 213 sales compared to 175 sales last year. The month’s supply of available properties was 6.4 months compared to 5.7 months last year.

According to the Realtor As­sociation, there is modest growth and stability in the single-family market, with the condo market down. Single family homes continue to be competi­tive, and the condo market is becom­ing more and more buyer friendly.

Will the Federal Reserve move the needle on more rates as indicated or will it just be more of the same old same old? The outcome is evolving, so stay tuned.

Mortgage interest rate future ‘uncertain’

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Happy New Year, although this year may not be so happy for homeowners and worse for potential homeowners. Both groups are getting hit with increasing costs they never assumed would come. More next week about the growing expense of owning a home.

On Dec. 18, the Federal Reserve enacted a quarter point reduction in interest rates. Sometimes financial markets and mortgage rates react favorably to rate reductions and sometimes they don’t. This time, both the stock market and the mortgage markets didn’t like it. The stock market took a dive, losing more than 1,100 points for the Dow and the mortgage rates for the following two weeks went up.

The reason for this is the Federal Reserve signaled earlier that inflation was under control and they anticipated further rate reductions going forward. Well, we all know that we probably won’t see 3% mortgage interest rates again, but buyers and investors were anticipating at least a little relief on rates. The Federal Reserve backed off their “inflation is under control” narrative and didn’t leave much hope for future rate adjustments.

Mortgage rates for a 30-year fixed rate mortgage went up to about 6.7% from around 6.4% or 6.5%. It doesn’t seem like a lot, but every increase results in lowering the amount of home purchasers can afford.

The projection for 2025 isn’t much better, either, in spite of the fact that in January 2023 some analysts thought rates would be around 4.5% by the end of 2024, obviously a major overstatement. Federal Reserve Chair Jerome Powell says: “Forecasts are highly uncertain, forecasting is very difficult.” This is where my head started to explode.

Nevertheless, the big brains of finance who admit to the difficulty in forecasting are still forecasting for the new year. So, here’s what some of them are saying.

Fannie Mae’s chief economist says, “Long-run interest rates have moved upward over the past couple of months following a string of continued strong economic data and disappointing inflation readings.” They are putting the average 30-year fixed rate at 6.5% in the beginning of 2025, declining to 6.1% in 2026.

The Mortgage Bankers Association (MBA) in its 2025 finance forecast indicates that mortgage rates will gradually slide from 6.6% at the beginning of 2025 to 6.3% through 2026.

The National Association of Home Builders is forecasting 6.12% in 2025 and 5.71% in 2026. The National Association of Realtors (NAR) is predicting 5.9% in 2025 and 6.1% in 2026. And, finally, realtor.com is saying only that in 2025 the range will be between 6.2% and 6.3%. It is interesting that the organizations involved in actually selling homes are more optimistic than the financial institutions.

Getting back to Fannie Mae, they are saying the 30-year fixed rate mortgage rate is now expected to stay elevated between 6% and 6.5% for the next two years. But since “forecasting is difficult,” who really knows?

My advice to potential homeowners who require a mortgage is act now, since you really won’t know what the rates will be going into 2025. If you find a home you like that you can afford, putting it off waiting for a better mortgage rate is a bad decision. You’ll never catch up with the market just waiting for a ½ point decline or even a full point decline. Live your life now, buy your home and get a crystal ball.

Castles in the Sand

Interest rates suddenly the enemy

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

So, we’ve had a good run – actually, a spectacular run – especially for those of us who already own homes. Lowest mortgage interest rates in history, soaring housing prices, quick sales – what could go wrong?

Don’t look over your shoulder, but the mortgage interest rate monster is right behind you, getting bigger and bigger, fed by your friendly Federal Reserve. Mortgage rates are closely tied to the 10-Year U.S. Treasury note, which is influenced by inflation, the job market and a variety of other business-connected phenomena. The Federal Reserve announced at the end of last year that they expected to raise interest rates multiple times during this year and we’re just starting to see the effects of that. Rates are up and the stock market is down with a lot of nervous investors out there.

During the first week of January, U.S. mortgage rates rose to their highest level since May 2020, according to Freddie Mac. The average rate for a 30-year loan was 3.22% this week, up from 3.11% the previous week, and you can anticipate further increases. A year ago, the mortgage rates were 2.65%. Naturally, this increases the costs associated with buying a home at a time when home sale prices are near record levels. In spite of this, there is still strong buyer demand for homes and very low inventory rates.

However, there will be a negative impact on some buyers who will start to have problems qualifying for a mortgage at higher rates. For example, a 3.22% rate on a $300,000 loan would be a monthly payment of $1,300, excluding taxes and insurance. At last year’s rate of 2.65%, the monthly payment would be $1,209, excluding taxes and insurance. It’s not big, but enough to cause a problem for a marginal buyer and especially first-time buyers who would have to come up with more cash down so the amount of the loan could be reduced in order to qualify.

Just to give you a little perspective of how historically low the mortgage rates were last year, I checked on Freddie Mac’s website, which has a full analysis of interest rates starting in 1971 when the average rate was 7.31%. The highest rate was in 1981 where the average for the year was a shocking 16.63%. Hard to believe even for those of us who actually remember but especially for young first-time buyers now who are shocked at the relatively small recent increase. The lowest rate was, of course in 2021, which was an average of 2.96%.

The years between 1979 and 1990 all had double-digit interest rates. By the time I had a real estate license, the rates were over 10%, but by then, everyone just assumed it was the new normal. From 1991 to now, the rates never hit double-digit again and went progressively down pretty much every year right through to 2021.

My advice is not to get rattled. It would be foolish to assume that rates going up are going to totally crash the real estate market and to also assume that homeowners aren’t going to sell because they have to pay a higher rate for a new mortgage. Yes, some homeowners will use that as an excuse not to move or determine they can’t afford the increase, but for the most part, everyone will get accustomed to the increase. Even a full point over last year’s low would bring the rate to about 4%, which puts us where we were less than 5 years ago when homes were selling for a lot less.

Hang on, there has been nothing during the last two years that has been easy, but the interest rate monster may not be as scary as we think.

Castles in the Sand

Homeownership still a great deal

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Benjamin Franklin was the author of many memorable sayings, and one of the most memorable is, “There are only two certainties in life – death and taxes.” In spite of the very volatile times we’re living through, I’m adding one more: “Homeownership is still the best financial investment for the average person.” It also offers the best tax breaks, not to mention the best way to build equity.

There is a fire raging in the real estate market all over the country. With mortgage interest rates under 3%, those who have secure jobs are racing to either buy a home, if they can find one, or refinance their existing home.

This is happening even though the 2017 tax overhaul made the mortgage interest deduction irrelevant for many homeowners. These individuals have calculated that the standard tax deduction is more advantageous than taking their mortgage interest deduction, even adding in their previous state and local tax deduction.

Nevertheless, there are still plenty of deductions available for homeowners. Even though many homeowners are opting for the standard deduction, which is now $24,880 for a married couple filing jointly, getting to that number with 3% mortgage interest is difficult unless you’re purchasing in a higher price range and have other deductible expenses.

The problem with higher price point mortgages is the cap placed on them. For new mortgages issued after Dec. 15, 2017, homeowners can deduct up to $750,000 on mortgage interest debt. For mortgages issued before then, the cap is $1 million of mortgage debt, which is grandfathered. This rule also has stipulations regarding second homes and unmarried homeowners, so check with an accountant before making decisions.

Refinancing now is also very attractive, but if you refinance and cash out a portion of the new mortgage, you may not be able to deduct all of the interest, unless you can prove the extra cash was used as a home improvement. Home equity loans also fit into this category and interest deductions can only be used for substantial improvements to your home. Again, this could be a moot point if you are opting to use the standard deduction.

With a lot of people moving from cities, boat and RV loans are also getting popular. So, can the interest on these be deductible? Well, like everything IRS-related, it depends. In order for these to qualify for a deduction there must be cooking, sleeping and toilet facilities, then of course the interest deduction is still subject to the two homes requirement.

Home office and home remodels because of working from home are also something that seems relevant now. Home offices are not deductible if you are employed by someone else. However, if you are self-employed, you can make a deduction for a space in your home that is used on a regular basis and used exclusively for your business. Don’t ask how this is verified should you be audited. Interest for remodeling for a business you run from your home can be deducted, but like any business, it can affect the cost basis of the house when it is sold.

Finally, there are some new regulations regarding IRA and 401(k) withdrawals. Congress has loosened the rules for people affected by the pandemic, allowing a withdrawal up to $100,000 without paying the 10% penalty right now. This cost can be spread over three years or pay it back in full at a time when your finances are in a better place. Although this does not directly affect your home, it could improve your overall financial position until after the crisis.

Homeownership can still ease your tax liability and will probably be the best investment you ever make – even now. Stay safe.

Castles in the Sand

Are historic low interest rates a good thing?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

I really hate to use this much-overused opening line from A Tale of Two Cities, but it works and I have no shame. “It was the best of times, it was the worst of times” perfectly describes the residential real estate mortgage market we find ourselves in as another by-product of the coronavirus pandemic.

It’s the best of times for individuals who have the ability to purchase homes since the rate for 30-year conventional home mortgages has fallen to the lowest point on record. In a year that already has massive “firsts” here’s another. About two weeks ago the average rate on a 30-year fixed-rate mortgage fell to 2.98%, per Freddie Mac. Rates are at the lowest level in almost 50 years of record keeping. This was the third consecutive week and the seventh time this year that rates on these loans have fallen.

At the beginning of the year before the pandemic hit, the 30-year mortgage was about 3.72%, an extremely good rate. Those of us who remember the early 1980s may remember a high of 18% residential home mortgage rates, an unthinkable number now. In addition, Jumbo loans, those typically larger than $510,400, are around 3.77% in most markets. However, lenders have placed more restrictions on these non-government-backed loans, considered to be risky compared to loans backed by Fannie Mae and Freddie Mac.

So why is this happening and why may it be considered “the worst of times?” Mortgage rates are influenced by the 10-year Treasury note since they compete for the same type of investor interested in stability. Because we’re in a very volatile financial time, investors are looking to protect their assets by buying long-term Treasury bonds, narrowing the gap between bonds and mortgage rates. Therefore, mortgage rates dropping like a rock may not be as great as it sounds for the economic health of the country.

Again, if you have the capacity to purchase at this time, the mortgage rates are fabulous. However, you will still have a rocky road ahead because of the lack of available inventory and increasing asking prices. Although mortgage applications were up 17% in June from a year earlier, according to the Mortgage Bankers Association, prices have also accelerated nationally by 4.7% from last June; at the same time the number of homes on the market fell 27.4% per Realtor.com. Some of this can be offset by the lower mortgage rates allowing buyers to qualify for a larger mortgage.

Overall, historically low interest rates may look like a good thing, but it can actually be an indicator that the real estate and financial markets are functioning at borderline crisis levels. Also, home purchasing is out of the question for many Americans who have lost their jobs and may not return for years. Even those who can afford to purchase may shy away from making a life-changing commitment during such unpredictable times.

In spite of everything I just said, Anna Maria Island is a specialized region and hopefully somewhat immune to big national swings. Real estate decisions always have to be viewed through the lens of the future, and unfortunately right now the immediate future is hard to predict. Best of times, worst of times, certainly difficult times. Stay safe.

Castles in the Sand

We’re Americans; we borrow

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Americans are very comfortable with debt, whether its household debt or government debt. And apparently, rising interest rates aren’t making any difference in our enthusiasm for borrowing.

The Federal Reserve Bank of New York has reported in its quarterly statement that household debts rose by $82 billion in the second quarter of the year. Much of this is because of higher interest rates for mortgages, credit cards, and auto loan balances. Household debt is now nearly 20 percent higher than five years ago and higher than before the financial crisis. Nevertheless, the feds report delinquency rates have been stable for most categories of debt and actually falling for student loans presumably because of the improved labor market.

In an effort to return interest rates to the levels before the financial crisis, the feds have been gradually raising rates since 2015. The average rate on a 30-year, fixed-rate mortgage was 4.6 percent a few weeks ago, up from a low of 3.4 percent in 2013. We can expect this to continue possibly influencing marginal buyers from qualifying.

Buyers with lower credit scores may be seeing those scores increase if they had collection accounts removed from their credit reports. The three credit reporting firms have agreed to remove items like collections for gym memberships, library fines and traffic tickets from reports as well as medical debt collections that were ultimately paid by insurance companies.

So how is any of this increased borrowing affecting our real estate markets? These are the statistics for Manatee County for July from the Realtor Association of Sarasota & Manatee.

There were 19.2 percent more single-family homes closed this July compared to last July. The median sale price was $309,500, which is 3.2 percenter higher than last year. The average sale price was $383,398, 2.4 percent higher. Median time to sell was 90 days compared to 92 from last year and the month’s supply dropped to 3.9 percent below the 4 months we’ve been carrying.

Condo sales for July were also up compared to last July at 10.1 percent. The median sale price was $199,250, up 20.8 percent, and the average sale price was $231,836, up 10.3 percent. Median time to sell was 87 days compared to 105 days last year, and the month’s supply of properties was also 3.9 percent.

Our market keeps improving in both number of sales and sales price and is apparently not slowing down because of the increased cost of borrowing. We’re also doing better than the state in all areas but one. Based on the July sales statistics published by the Florida Realtors website under market data, the single-family median sales price was $255,000, up 6.3 percent and the average was $335,055, up 5.7 percent. The number of sales for single-family was also up 3.8 percent.

The state of Florida condo sale median price was $180,000 in July, up 5.3 percent, and the average was $247,413, up 1 percent. The number of closed sales were up 8.5 percent.

The month’s supply of single-family properties for the state was 3.9 percent the same as Manatee County’s. However, the month’s supply of condos was 5.3 percent well over Manatee’s.

If you’re going to have debt, mortgage debt is the easiest to justify. You have to live someplace, so a home of your own where you can build equity is always better than paying rent. Based on our sales statistics buying a property in Manatee County looks like a good investment, and we do love debt. It’s the American way.

More Castles in the Sand

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Management of condominium associations

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