JUNE GLOOM -- MARKET GRIDLOCK

 

I know you will all agree with me that the gloomy wet weather needs to depart Southern California, so we can return to Sunny SoCal!

RATES AND MARKET UPDATE

Home prices continue to rise, albeit more slowly.  We are seeing a stronger return to the market for buyers for the spring home buying season.  However, we continued to be plagued with low inventory which is causing a shift again to a strong seller’s market with multiple offers being received for most properties.

For those property owners who might consider selling but are held back by higher interest rates for a purchase, remember this:  rates will come down and mortgages can and will be refinanced. 

MORTGAGE INDUSTRY NEWS

·        Some pesky fees for certain loans have been reversed by the Agencies, e.g. Fannie and Freddie.  This is great news for homebuyers who would have faced higher rates for some loans.  There was a great outcry by the mortgage industry and the additional fees were removed.

·        Bank statement loans for self-employed individuals are gaining in popularity as their rates are now competitive with standard full-documentation home loans.

·        Buying investment property is gaining in popularity and made much simpler with Debt Service Coverage Ratio loans.  These programs qualify the buyer for financing based on the anticipated rental income coverage of the Mortgage payment, taxes and insurance.   The buyer does not qualify for a loan based on her or his income, but on the property cash flow.

·        Income from an ADU may now be considered when qualifying for a mortgage.  We have construction loan programs that can finance the construction of an ADU.

THIS AND THAT

We are off for a quick weekend visit to the wine country north of Santa Barbara.  We have a couple of tasting events scheduled in the Foxen Canyon area, and will be tent-camping at El Capitan with friends in their new RV. 

We also have a family camping adventure scheduled for late July at Carpinteria State Beach.  All the kids and grandkids will be joining us.  Can’t wait for some fun in the sun on the beach with games, biking, swimming etc.

We just spent the Memorial Weekend celebrating our fallen warriors with the Dana Point Yacht Club.  There were many boats anchored in the marina to make space for visiting sailboat racers.  The raft-up is always filled with fun, food and live Music on Sunday. 

Please reach out to us with questions!  We are here to help!

Karen

Market Updates, Panama Canal and Scuba Diving

 THE MARKET

We just returned from our Company Summit meeting, with industry updates, information about new programs, a variety of speakers, and great information coupled with a lot of fun!  New technology allows us to have files quickly and completely approved within 24-48 hours to allow realtors to avoid lengthy contract contingencies.  Good news for buyers and agents alike! 

We also have been using our Mobile App more and our clients love it.  They can do everything on their file right from their phone, from uploading documents, to signing required items. Wow!

Rates are moving up and down a bit with no indication yet of a real direction.  We continue to expect rates to decrease by year end, as recession finally takes hold of the economy.  Home prices are holding  steady, at least here in Southern California.  As of now there is still so little inventory that there is no downward pressure on prices.  And, when rates do drop, there will be more buyers ready, willing and able to step up competition for the homes that are on the market.  So, why buy now?  Because when rates drop there will be more competition for your dream home.

PANAMA CANAL AND SCUBA DIVING

We escaped the local cool March weather and rain to complete a “bucket list” trip through the Panama Canal and up to the Cayman Islands over the last four weeks.  We joined friends on their 55’ sailboat in Panama City, awaiting clearance to go through the canal.  The locks were quite an experience, as we went first up, and then down to get through to the Atlantic from the Pacific Ocean over about 14 hours.  

We then sailed to the San Blas islands which are inhabited by the Guna peoples.  These tiny tropical islands are picture-postcard beautiful, and the people are friendly.  They live in very primitive circumstances and seem happy as clams!

Next we sailed to the island of San Andres off the coast of Nicaragua (although it is Columbian) and spent a couple days there resting/regrouping before our longer passage to Grand Cayman.

After our arrival at Georgetown yacht Club, and general boat clean-up, we moved off the boat to the Sunset House Dive Resort for the last week of our trip.  We only saw a couple of sharks and turtles-- but had a great time diving and touring Grand Cayman. 

The sailing was harrowing at times with a couple of mishaps involving sails and a lost kayak, but overall it was the adventure of a lifetime. 

FHA AND VA LOANS LOOKING BETTER!

BIG NEWS ON FHA AND VA LOANS!       

HUD has finally reduced the monthly Mortgage Insurance (MI) premiums for FHA loans. We’ve been anxiously awaiting this correction since they had amassed a rather large overage of funds collected for this insurance, which basically protects the lender from losses on high loan-to-value loans.

This is great news for first time homebuyers with low down payments.  The drop in monthly MI of 35 basis points presents a big savings in the monthly payment, particularly for those with 3.5% to 5% down, on purchases up to $1.1 million.  Savings is in the range of over $3000 annually.

VA has reduced their upfront Funding Fee, which is a fee charged by the VA for all VA loans.  This fee is paid directly to the VA and is typically added to the loan balance so it is financed over time as part of the loan payment.  This reduction makes it more attractive for repeat uses of VA loans, which offer lower interest rates and higher loan-to-values, without any Mortgage Insurance. 

WHO WANTS TO SELL?

Our inventory of homes for sale is shrinking again locally.  This means that sales volume has dropped quite a bit.  Many homeowners who might like to sell are postponing a move, as they don’t want to lose that low interest rate loan they currently have.

But it also means that home prices are just not going to drop much at all, at least locally.  Demand is currently about equal to or exceeding supply.  We aren’t seeing multiple offers on properties, but we also aren’t seeing big price drops.

We still see this as a great opportunity for those homebuyers with the stomach for higher rates, as they have little competition.  And those buyers who move in now will have the opportunity to drop their rates and refinance sometime later in the year, or early next year, when we anticipate rates to drop.

PET UPDATE

After quite a long hiatus, we decided to adopt two cats (siblings) last July.  It has been an adjustment but they have settled in and we are enjoying their company.  The only thing we forgot is now we have to have cat sitters while we are out of town!  Isabel and Theo are here:

As always please reach out with questions on these programs.

GIFT FUNDS --- AND ARM LOANS

 ARE YOU TAXED ON GIFT FUNDS?

One of the most common questions we hear from home buyers is about gift funds.  You can use gift funds from a relative towards a down payment and in most cases, there is no tax consequence to the donor.

The current annual amount that is tax-free, or excluded from taxes, is $17,000 per donor per individual.  For example, a couple may gift to their child $34,000 tax-free.  ($17K per donor) They may also gift $34,000 to their child’s spouse.  And, to all their other children and spouses, grandchildren, etc. at $17,000 per donor per recipient. 

But, what if they gift a larger sum, $200,000 or more?  Right now, the lifetime exclusion for gift tax is $12,920.000.  Yes, almost $13 million per individual.  A gift larger than $17,000 per individual must be reported to the IRS on form 709 and yet, no tax is due unless and until the donor passes the threshold of $12.92 million.   However, this threshold expires in 2026.  At that point it will likely revert back to $5 or $6 million.  Funds already gifted over that threshold will be “grandfathered” and no gift tax will be due.

We always suggest consulting with a professional CPA, tax preparer or estate attorney on these matters.  But, for most of the “hoi polloi” (the common people, or the masses) this will likely not present a future tax issue.  If you are a Hoi Oligoi (elite or the few) you may owe taxes for larger gifts.

RATES and ARMs

You’d think that short term ARMS (Adjustable Rate Mortgages) would have lower rates, right?  Not in this environment.  Since the market anticipates more volatility in the short term-- and that rates will drop sooner than later, short term rates, for 5- and 7-year ARMs are HIGHER than for 30 year fixed rate loans right now.  This is the dreaded “inverted yield curve” foretelling recession on the horizon. 

INCOME TAXES

Yes, it is that time of year again! We are in the process of sending out the final closing statements for all clients who closed a loan in 2022.  This is necessary when prepping for your 2022 tax return.  This year the due date is April 18 for individual federal tax returns. The IRS is already accepting filings. REMEMBER IF YOU PLAN TO BUY OR REFINANCE THIS YEAR, HAVE YOUR LOAN OFFICER REVIEW DRAFTS PRIOR TO FILING.

Recently a client reached out with a complaint regarding capital gains on the sale of a rental.  This in turn affected her Medicare premiums.  A quick review of her taxes revealed her CPA had entered the wrong basis for the property upon inheritance, which means she overpaid by a hefty amount on her taxes.  Good news:  Amending the returns will result if a refund of over $30,000 and an attendant reduction in the Medicare premiums.

REVERSE FOR PURCHASE LOAN

Yes, you can use a reverse loan to buy a home.  This increases your buying power, and there is no monthly payment required for the loan. Please reach out to us for more information.  These are a very useful tool in the retirement planning process.

Rain, Rain, and....Rates!

Happy New Year!  2022 was a humdinger!!!   The start of 2023 has brought a lot of cold weather and rain here in California.  We need the rain and snow, so we can’t complain too much.  We need to sit back and enjoy sweater weather.

RATE AND HOUSING OUTLOOK

Interest rates have remained relatively flat for the month of December and show no signs of coming down…yet!  Most “experts” are banking on a drop by the end of this year.  Home prices are on a downward trend with the median home price in both Orange and Los Angeles counties dropping a bit.  Orange County is down to $960,000 and La County is down to $865,000.

Many buyers are either using a permanent “rate buydown” paid by either buyer or seller, or a 2-1 buydown paid by the seller.  This has the effect of reducing the rate and payment to a more affordable level.  Most homes are not receiving multiple offers, so the buyer is in the driver’s seat today.

BUY/FI Program

We offer a program where any client who closes a purchase before April 30^th can refinance that loan with us – at a lower rate, as anticipated by next year, with NO LENDER FEES.  We will waive all lender fees so long as the refinance is completed by end of 2024.  This provides a great motivation to buy now, and refinance later to lower your interest rate.  Less competition + lower prices = good timing to buy now, and refinance later.

HOMEBOT

This is a cool service providing a monthly digest including a lot of information about your home value and neighborhood.  It will also note opportunities to sell or refinance.  Our clients love it, and if you aren’t receiving it yet you can click here to sign up: Home Owners

For prospective buyers, it is also a useful tool for watching market activity and values in a specific area.  Potential buyers should click here to sign up: Home Buyers

HELOCS

Home Equity Lines of Credit are very popular currently for homeowners who want to pull cash out of their home for home improvements or revolving debt payoff, but don’t want to touch their low interest rate mortgage.  We have some competitive programs to offer to our clients.

WE LOVE REFERRALS

We work hard for our clients and do our utmost to provide clear information and choices, and great communication.  We truly care about our clients and always try to provide the best experience for their home loan. Please think of us when you hear of a friend or relative who could use our help.  We love referrals.