Monthly Archives: February 2017

Mortgage rate projections for 2017

According to the Orange County Register,  median home prices eclipsed $935,000 at the end of 2016, which begs the question, “Is now a good time to buy?”

Home for sale in Dana Point. Click photo for details.

Of course, there are so many factors that will ultimately have an impact on the decision to buy now or hold out for better market conditions.  I would suggest that mortgage interest rates play an important factor in that decision.

In late 2016, mortgage interest rates on a 30-year fixed loan bottomed out at 3.46% according to  A home with a purchase price of $500,000 @ 3.46% would equate to a $1,787.26 monthly mortgage payment.  Today, that same $500,000 house equates to a $1,991.25 monthly payment at 4.35%, which represents a 12% increase in your monthly mortgage expenses.

The Mortgage Bankers Association predicts that the 30-year fixed-rate mortgage will rise gradually over 2017, averaging 4.7% in the fourth quarter. The National Association of Realtors expects the 30-year fixed to be around 4.6 percent at the end of this year. This means that the same $500,000 home purchased at the end of this year may cost around $2,074.55 a month.

Look at it a different way: A buyer that pulled the trigger on a home purchase in late 2016 could have afforded a home valued at $580,000 ($2,073.22/mo @ 3.46%) versus only a $500,000 home if that buyer had waited until the end of 2017 ($2,074.55/mo @ 4.7%).  That $80,000 of buying power lost could represent an extra bedroom, that 3-car garage you always wanted, or a variety of other things.

If Orange County real estate prices rise 1% in 2017, a home you’re interested in now that has a sell price of $500,000 might be $505,000 at the end of the year.  That change in value is negligible compared to the forecasted rise in interest rates, at least as far as your monthly payment is concerned. As mentioned above, there are so many things to consider when purchasing a home and I would never tell anyone to run out and buy a house just because mortgage rates are still pretty low. However, it might be something to consider!

Listing of the week: 34346 Calle Naranja

This week’s property is a great remodeled home in Capistrano Beach.

34346 Calle Naranja
4 bed, 2.5 bath
2,352 square feet total

Here’s why I think this is a great buy:

  • Great curb appeal and right across the street from a beautiful park
  • Quiet neighborhood, close to the beach
  • Great space for a family–4 large bedrooms, large family room, large dining room (could be converted into a 5th bedroom, office, or den)
  • New roof, fresh paint, 80% new plumbing, large garage and loft (for storage or workspace)
  • Located on a 1-way street with plenty of parking
  • Local schools are rated 8 or 9
  • No HOA or Mella Roos fees

Want to check it out? Contact me today.

Preparing for an earthquake

Are you prepared for an Earthquake?  If you’re not sure, there’s a TON of good information online and I’ve selected my favorites below.

To start, this is the most comprehensive earthquake guide that I could find.  It contains lots of interesting info on Southern California’s history of earthquakes, what kinds of damage future earthquakes might do, and how you might be able to minimize the impact for your family.

Before an Earthquake

  1. Assemble an emergency preparedness kit .
  2. Create a household evacuation plan that includes your pets.
  3. Stay informed about your community’s risk and response plans.

Here is a concise, 1-page checklist for what to do before, during, and after an earthquake.

Here is a more thorough guide.

Protecting your home
Here is a great document on the various ways you can inspect your home and identify and fix potential problems before they happen.

Communicating with loved ones
Communication may be tough after an earthquake. Internet and cellular services may be unavailable, so it’s always a good idea to diversify and have a backup plan.  In the event that cell phones work, there are some really good apps for emergency preparedness.

I also thought this Google PersonFinder app was a really useful tool to use and get familiar with if you’re ever in a situation where you’re searching for a friend or family member.


2017 real estate predictions

Source: OC Housing News

Bold 2017 Real Estate Predictions

Whatever is going to happen in the housing market in 2017 depends entirely on the course of mortgage rates. If mortgage rates remain below 4.25%, both sales and house prices will rise next year. The economy is improving, and with an improving economy will come increased demand. If this demand is amplified by super-low rates, housing will do well. If mortgage rates settle between 4.25% and 4.75%, sales will be down while prices drift slowly upward. A reduction in sales volume always proceeds price, and as long as mortgage rates stay below 4.75%, the pressure on pricing won’t be enough to overcome the inventory.

If Mortgage Rates Rise a Lot

If mortgage rates rise above 4.75%, sales volumes will be severely impacted and prices may drift gently lower. The increased cost of financing will not allow buyers to bid high enough to support current prices. The discretionary sellers active in the market will be forced to lower their prices if they want to sell. The activity of these few discretionary buyers will cause prices to drift down at higher mortgage rates.

What’s ahead in 2017

My first prediction is above: sales will be weaker in 2017 than 2016 due to rising mortgage rates. This will surprise all the pundits who claim that rising wages and an improving economy will overcome the impact of rising rates.

Perhaps this one isn’t controversial, but I haven’t heard it articulated elsewhere: First-time homebuyers will be priced out of every market in California. The median home prices will rise above the FHA loan limit across the state leaving first-time homebuyers without inventory within their price range.

Nearly all new construction in California will be high-density, mostly apartments, but some attached for-sale product as well.

Dodd-Frank and the Consumer Financial Protection Bureau will survive unscathed by Republican assaults (as will most of ObamaCare). Credit standards will not loosen significantly.

Trump will pass tax reform that includes a higher standard deduction, weakening support for the home mortgage interest deduction.


How Trump’s tax plan will shift housing demand

Source: OC Housing News

Trump’s tax plan will shift housing demand from move-ups to entry-level

Like it or hate it, Trump’s Tax Plan will impact real estate markets across the County. By greatly reducing the tax advantage of mortgage debt, many renters may choose to remain renters rather than assume large debts to buy a house. However, by reducing taxes on lower-income Americans, Trump’s tax plan should stimulate demand for entry-level housing.

Photo: The Orange County Register

One of Trump’s tax proposals involves raising the standard deduction. The Trump Plan will increase the standard deduction for joint filers to $30,000, from $12,600, and the standard deduction for single filers will be $15,000.

So how would increasing the standard deduction impact the home mortgage interest deduction? When people file taxes, they can either itemize or take the standard deduction. Only high wage earners with deductible expenses greater than the standard deduction itemize, and most of them do so because they have a large mortgage debt that costs them more than $12,600 per year in interest.

At 4% mortgage rates, any family with a mortgage larger than $315,000 pays more than $12,600 in mortgage interest debt alone to prompt itemizing on taxes. Most Coastal California homebuyers borrow more than this amount because house prices are so high, it’s a necessity. If the standard deduction were raised to $30,000, only borrowers with mortgage debt exceeding $750,000 would pay the $30,000 in mortgage interest that provides them enough deductible expenses to itemize. A huge swath of Coastal California borrowers will stop itemizing and stop taking advantage of the HMID.

Further, since high-wage renters would have a $30,000 personal exemption, the pressure to buy rather than rent would lessen, reducing demand overall.

The current home mortgage interest deduction provides a strong incentive for high wage earners to buy rather than rent. This distorts the market in areas like Coastal California and inflates house prices, and in the end, the subsidy only benefits bankers.

An increase in the personal exemption is a major tax cut for low-income and middle-income Americans because it reduces their taxable incomes by $18,400 per year. Increased disposable income will increase demand for low-end housing. So while the increased personal exemption may reduce demand in high-cost neighborhoods, this may be offset by increased demand in low-cost neighborhoods.