Mortgage rates and the housing market

[dgies9156]

whoops, not 4.25.

2.75.

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

[jficke13]

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

I'm happy for them to be mad at me. They wrote the loan on fixed rate terms. It's not like they can be surprised by the fact that when rates increase, low rate mortgagees with fixed rates are incentivized to maintain their existing loans.

[Skatastrophy]

What's interesting about your mortgage and others in that category is something called duration convexity, or duration drift. It's the concept that as market mortgage rates change, existing mortgages extend or contract in estimated life. In your case, mortgage mortality would factor out most rate-based factors and use a baseline mortgage life of 100 PSA, or about a 6 percent constant prepayment rate ("CPR") when the loan is pooled with others.

A 6 percent CPR effectively assumes a mortgage life of seven years. To get at that rate of prepayment, the borrower dies, moves to a different home or becomes fortunate and pays off the mortgage. Anything short of dying isn't going to happen, which effectively means the mortgage you and many like you have will be a lot longer than anyone thinks. It is unlikely for the foreseeable future that we'll ever see mortgage interest rates as low as your's again. That's going to have a huge effect on real estate agents, as supply and buyers will be fewer.

You will have a bank, insurance company, sovereign wealth fund or other investor screaming at you for a long time to come!!!!!!

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

[jficke13]

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

Especially now given that all buyers' agents do is a tiny bit of form paperwork. It's not like there's some mystery to finding homes that are for sale.

[dgies9156]

Hopefully RE agents will have much bigger things to worry about in the near future. They should be fixed fee instead of % of sale. What a bunch of jokers, adding so little value to the home buying process.

Much depends on the agent and the market you're in. I admit, I have a generally low regard for real estate agents but there are times when they're useful.

A Realtor(c) brings access to the MLS, for one thing. It's not the only way to sell a home, but it's a proprietary network and probably the best opportunity to get noticed.

Secondly, the adept real estate agent, stages, helps prepare things for sale and has a pool of potential buyers.

Two years ago, I sold two houses and bought one within six months. The selling agent in Florida helped stage our home, got everything "perfect" and attended every showing to ensure the features of the house were fully explained. The selling agent in Illinois on my home there was good at staging but once the house was listed, we never saw her again.

I'll agree the buy side in Florida had limited utility but I'll also admit, I know real estate finance better than most people. We found the house we live in now; we knew the neighborhoods where we wanted to live; and, we ultimately set the price. The agent was our messenger but their idea on structuring a deal helped us get the house we wanted.

It's interesting that in Illinois, the real estate agent presents the buyer and then lets counsel for both sides negotiate a transaction. In Florida, the agents do the negotiation and legal counsel drafts the definitive agreement.

Much of the value of real estate agents depends on the customs in a region and their "connections." In both communities, we already had access to financing, attorneys and anyone else we needed. My concern with most agents is why they are recommending certain folks and whether there's kickbacks between the referral and referral source. Maybe it's because I lived in Illinois too long and no one's hands are clean!

[MU82]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

[dgies9156]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

Brother MU:

The problem with discount brokers comes from real estate agent behavior. In effect, if there isn't a satisfactory commission in it for the Realtor(c), they won't show the house. That, frankly, has been one of the reasons why the National Association of Realtors(c) was sued and ultimately lost!

You're a smart dude in a good neighborhood. That makes life a lot easier, I'll concede. But not everybody knows the market as well as you or has the time to assist in the set-up and sale.

A good real estate agent knows the market well and knows how to position a home to sell. The problem, in my mind, was commissions were not negotiable, agents were lazy and the set-up/marketing work sucked. I found the quick way to separate real from pretend real estate agents is to ask "who would buy my house?" and "how many clients do you and your agency have that you will show this house in the first week?"

[Hards Alumni]

You don't need a realtor to have access to the MLS.

Way back in 2004, we sold our Chicago house using a "discount broker." For a flat fee of $500, we got an MLS listing (that we wrote, filling out an online form) and a kit to handle the transaction ourselves. We did our own photography for the listing. We secured a real estate attorney (for another $500 I believe) to make sure all the paperwork was filled out correctly and filed to the right places. To make sure buyers' agents would show their clients our house, we did offer a 2.5% commission on that end; the realtor who brought our buyer ended up handling all the paperwork because she "wanted it done right."

Back then, it was a novel concept. Discount brokers can be found easily now in any metro area.

They aren't ideal for everyone, especially those who need to move quickly and/or those who might be in a tough-to-sell market. But it was perfect for us in 2004 - we lived in a popular North Side neighborhood where properties were selling quickly at (or even above) list price, and we faced no pressure because we were staying in the city and hadn't bought our next house yet.

It saved us thousands upon thousands of dollars and went very smoothly. We'd consider doing the same here in Charlotte if the opportunity presents itself.

We did the same in 2012.  It was very easy.  Sure there wasn't a ton of showings, but we were in no hurry to leave or sell below what we thought our property was worth.

Also, I wouldn't for a moment consider using an agent to sell in 2024.  The market is still red hot and you're giving up a ton of money for someone who is a glorified pencil pusher.  People are buying homes sight unseen, and without contingency or inspections. 

[MU82]

Brother MU:

The problem with discount brokers comes from real estate agent behavior. In effect, if there isn't a satisfactory commission in it for the Realtor(c), they won't show the house. That, frankly, has been one of the reasons why the National Association of Realtors(c) was sued and ultimately lost!

You're a smart dude in a good neighborhood. That makes life a lot easier, I'll concede. But not everybody knows the market as well as you or has the time to assist in the set-up and sale.

A good real estate agent knows the market well and knows how to position a home to sell. The problem, in my mind, was commissions were not negotiable, agents were lazy and the set-up/marketing work sucked. I found the quick way to separate real from pretend real estate agents is to ask "who would buy my house?" and "how many clients do you and your agency have that you will show this house in the first week?"

Well, buying agents definitely WILL show the house if offered 2-3% (using local norms).

[Herman Cain]

Much depends on the agent and the market you're in. I admit, I have a generally low regard for real estate agents but there are times when they're useful.

A Realtor(c) brings access to the MLS, for one thing. It's not the only way to sell a home, but it's a proprietary network and probably the best opportunity to get noticed.

Secondly, the adept real estate agent, stages, helps prepare things for sale and has a pool of potential buyers.

Two years ago, I sold two houses and bought one within six months. The selling agent in Florida helped stage our home, got everything "perfect" and attended every showing to ensure the features of the house were fully explained. The selling agent in Illinois on my home there was good at staging but once the house was listed, we never saw her again.

I'll agree the buy side in Florida had limited utility but I'll also admit, I know real estate finance better than most people. We found the house we live in now; we knew the neighborhoods where we wanted to live; and, we ultimately set the price. The agent was our messenger but their idea on structuring a deal helped us get the house we wanted.

It's interesting that in Illinois, the real estate agent presents the buyer and then lets counsel for both sides negotiate a transaction. In Florida, the agents do the negotiation and legal counsel drafts the definitive agreement.

Much of the value of real estate agents depends on the customs in a region and their "connections." In both communities, we already had access to financing, attorneys and anyone else we needed. My concern with most agents is why they are recommending certain folks and whether there's kickbacks between the referral and referral source. Maybe it's because I lived in Illinois too long and no one's hands are clean!

In my experience real estate agents are business tools that have utility in certain conditions. The key is identifying the conditions.

My experience is the selling agents can help a lot if your home is in any way unusual or offbeat for its local market. Or if there  are issues that come up in inspections. Many times they can help work through the common problems facing older homes. Often they will cut their commission to “subsidize” a buyer issue.

Or if there is a limited potential market. The selling agents who are willing to hustle and market to the family who is the perfect buyer are worth  a lot. One of our homes fit that description . It was the lowest house in a great neighborhood and school system, not of the predominant style. So finding a family willing ,and able ,to fork over 7 figures for the place was not easily done. Basically the agent had to find someone who had enough equity and earnings to buy our home but not enough for the homes the next level up. Also had to have little kids who were young enough that the house was a good size , but the kids were old enough for the parents to get the value of the school district and not have to shell out 36 k a kid for private school. The agent found the one and only buyer at our price range. Took over a year to find the right buyer.

I have found buyers agents are valuable in settings where there are competitive market conditions . In our case both on our primary and secondary home the buyers agent created the deals for non listed properties . In each case we got premium properties without getting into bidding wars . They then helped negotiate for items that came up in inspections. We got lucky and bought current home for high 500s per foot and current market is over 1,000 a foot if you can even find a property to buy as most people keep in their family.

In some states the real estate agents controlled the process in a process working through the title companies that eliminated the need for lawyers . There is a lot of value in that.

[MU82]

Good synopsis of the housing market in today's NYT The Morning e-newsletter:

Buying your first home has long been a milestone of adulthood. So has selling your first home and moving into something bigger. But in the last few years, many Americans have gotten stuck in their starter house.

That’s because the U.S. housing economy is being hammered by three forces: the highest interest rates in around two decades, record home prices and near rock-bottom inventory. “Home affordability is the worst I’ve ever seen it,” Daryl Fairweather, Redfin’s chief economist, told me.

Many of those who bought their homes in recent years are unable to trade up, hampering the ability of the group behind them to purchase its own starter homes. In today’s newsletter, we’ll look at how the housing market trapped both groups.

Twice as expensive
In the past, the starter home served as a bridge: Families just starting out would squeeze into a smaller home and build equity. With time, as their careers grew and their incomes increased, they cashed in the equity and moved to something bigger.

But now that process has hit a wall. “The trade-up buyer has just disappeared,” Sam Khater, chief economist of Freddie Mac, said.

A majority of homeowners — six out of 10 — have mortgages with interest rates that are locked at 4 percent or lower. With rates now hovering around 7 percent, most people who buy a home today will pay much more interest on their new mortgage.

Economists put it to me like this: If you were to sell your house today and buy an identical one across the street, your payment would double — and that’s before you factor in how much the house across the street has gone up in value. (Which is a lot: According to Redfin, home prices are at a record high.)

In Chicago, Chris and Alison Wentland told me about the predicament in which they found themselves. Last year, they decided to sell their townhouse in the Lincoln Park neighborhood. Their children, at 2 and 6, were sharing a room not much bigger than a walk-in closet, with their daughter’s bed pressing up against their toddler’s crib. They began looking for a four-bedroom.

They had purchased their townhouse in the low $500,000s, and would likely be able to sell it for $700,000. But getting that one extra bedroom in the popular Lincoln Park neighborhood would put their next home in the $1 million range. Despite having a sizable equity from their starter home, the higher rates and higher cost meant that their monthly payments would go from around $3,000 to at least $7,500, their real estate agent warned.

Now, the professional photographs that their broker had taken of the townhouse — including a snazzy 3-D video — are languishing on a hard drive, out of the public’s view. Their home is one of 50 properties that the brokerage has photographed but has not been able to list.

Nothing to buy
It has also become harder to buy your first home. Starter homes — defined as those that cost 75 percent or less of the median home price in a given market — have gone up faster in value than any other category of home.

The problem is being exacerbated not just by rising prices and high interest rates, which affect every tier of the housing market, but also by something more fundamental: The number of new entry-level homes being built has fallen off a cliff.

In the 1970s, more than 400,000 entry-level homes were built every year. By 2020, only 65,000 were built. One reason for the drop is the rising cost of materials; smaller homes just don’t pencil out for builders.

So the supply of starter homes is not being replenished — by builders or by the last generation moving out and selling. The first rung of the ladder of homeownership, long a key part of the American dream, has become especially hard to climb.

As just one example: I spoke to a pair of sisters in Oakland who decided to pool their resources to buy a duplex, each sibling taking one unit. Before the pandemic, they were approved for $850,000. But even in that price range, they couldn’t find anything in a city with famously high property values; one house had a rat infestation, another had fungus, the sisters told me.

Their banker recently told them that they were now qualified for only a $750,000 loan — $100,000 had evaporated because of rising interest rates. If they couldn’t find anything at the higher amount, they wonder, how will they find anything at this lower price point?

[Skatastrophy]

Here's a gift link to the article

https://www.nytimes.com/2024/06/02/realestate/housing-market-rates-prices-slow.html?u2g=i&unlocked_article_code=1.wk0.XB74.ZbTFqGDIh56n&smid=url-share

[WarriorFan]

We are shopping for interest rates... anyone got any good recent fixed rates lately?

(yes I know circumstances are different for everyone - still think there might be something to be learned!)

[CreightonWarrior]

We are shopping for interest rates... anyone got any good recent fixed rates lately?

(yes I know circumstances are different for everyone - still think there might be something to be learned!)

Right around 7 right now...lots of fed talk last week that a rate cut could still be in the cards for 2024 so rates are trending a little better right now.

[drewm88]

We are shopping for interest rates... anyone got any good recent fixed rates lately?

(yes I know circumstances are different for everyone - still think there might be something to be learned!)

My only advice is to play companies against each other. Last summer I talked to at least 15 different companies for fixed and adjustable rates. Best rate was some online-only company I had never heard of, couldn’t find a lot about, and so didn’t completely trust. But I took that offer to a local bank who matched their rate.

[Skatastrophy]

My only advice is to play companies against each other. Last summer I talked to at least 15 different companies for fixed and adjustable rates. Best rate was some online-only company I had never heard of, couldn’t find a lot about, and so didn’t completely trust. But I took that offer to a local bank who matched their rate.

Huh, I didn't know you could negotiate your rate down. Good to know.

[MU82]

Huh, I didn't know you could negotiate your rate down. Good to know.

It's not as if you're gonna get someone to go from 7 1/4% to 5 1/2%. But if you show one local lender proof that another is 1/4 or 3/8 point lower, there will be times a lender will beat a rate to win business. At least I had success doing that in the mid-aughts.

[WarriorFan]

Right around 7 right now...lots of fed talk last week that a rate cut could still be in the cards for 2024 so rates are trending a little better right now.

We locked one company at 6.325 (no points) but I'm still shopping.  Another promises 6.25...Honestly never thought of my local bank - will try them too!

[MU82]

With home prices up more than 50%, some states try to contain property taxes

https://apnews.com/article/property-taxes-home-values-assessments-780631c8a0d3dce9f5c56249cc0e3ab9?

For retirees Tom and Beverly McAdam, the good news is the value of their two-bedroom home in suburban Denver has risen 45% since they purchased it more than six years ago.

That’s also the bad news, costing them thousands more in real estate taxes and leaving less for discretionary spending.

“To pay the higher property taxes, it just means we’ve got to take more money out of our investments when it comes time to hit those big bills,” Beverly McAdam said.

She backs a Colorado ballot proposal that could cap the growth of property tax revenue. It’s one of several measures in states this year to limit, cut or offset escalating property taxes in response to complaints.

Over the past five years, single-family home prices have risen about 54% nationally, according to S&P Dow Jones Indices.

That means higher tax bills for homeowners when governments don’t offset higher real estate values by reducing tax rates. And with offices seeing higher vacancies as people still work from home after the coronavirus pandemic, some commercial property values are declining, putting even more pressure on residential properties to deliver revenues.

“With assessed values skyrocketing over the past few years,” said Jared Walczak, vice president of state projects at the nonprofit Tax Foundation, “homeowners are clamoring for relief, and state policymakers are increasingly exploring ways to provide it.”

Colorado, like Alabama and Wyoming, also has a new law that will limit the growth in tax-assessed values for homeowners. Property tax relief will be part of a special legislative session beginning June 18 in Kansas, while Nebraska also could hold a special session to cut property taxes.

Georgia voters will decide in November whether to authorize a new law limiting increases in assessed home values for tax purposes to the rate of inflation, unless local governments or school boards opt out.

[Scoop Snoop]

I did not think about this factor MU 82:


"And with offices seeing higher vacancies as people still work from home after the coronavirus pandemic, some commercial property values are declining, putting even more pressure on residential properties to deliver revenues."

Wow!

[MU82]

I did not think about this factor MU 82:


"And with offices seeing higher vacancies as people still work from home after the coronavirus pandemic, some commercial property values are declining, putting even more pressure on residential properties to deliver revenues."

Wow!

I hadn't thought about it, either, but it makes sense.

Triple-whammy, especially for new buyers: Higher interest rates, higher property taxes, higher insurance costs (substantially higher in some states).

[dgies9156]

With home prices up more than 50%, some states try to contain property taxes

https://apnews.com/article/property-taxes-home-values-assessments-780631c8a0d3dce9f5c56249cc0e3ab9?

Hell will freeze over and Satan will be wearing ear muffs before that EVER happens in Illinois. The Suburban Chicago school districts live off assessed value increases and will fight tooth and nail, even when the economics badly disfavor them.

In our community here in Florida, we're revalued when the house is sold. It means over the long-haul, taxes are low. But you better be prepared when you buy a home here. Cape Canaveral isn't the only launch pads in our state. Even then though, our taxes are a fraction of what they were up north.

[Pakuni]

Hell will freeze over and Satan will be wearing ear muffs before that EVER happens in Illinois. The Suburban Chicago school districts live off assessed value increases and will fight tooth and nail, even when the economics badly disfavor them.

Guess Beelzebub needs ice skates.

https://www.nbcchicago.com/news/local/new-illinois-law-provides-property-tax-relief-to-some-residents-heres-what-it-includes/2838129/

[dgies9156]

Guess Beelzebub needs ice skates.

https://www.nbcchicago.com/news/local/new-illinois-law-provides-property-tax-relief-to-some-residents-heres-what-it-includes/2838129/

Brother Pakuni:

For a home with a fair cash value of $500,000, the Homestead exemption increase of $2,000 to $4,000 represents a reduction in value of 0.4 percent to 0.8 percent. Assuming your tax bill is 3 percent of Fair Cash Value, the benefit is $60.00 to $120.00.

Under these circumstances, Satan is still looking for a cold drink and a good air conditioner.

[Pakuni]

Brother Pakuni:

For a home with a fair cash value of $500,000, the Homestead exemption increase of $2,000 to $4,000 represents a reduction in value of 0.4 percent to 0.8 percent. Assuming your tax bill is 3 percent of Fair Cash Value, the benefit is $60.00 to $120.00.

Under these circumstances, Satan is still looking for a cold drink and a good air conditioner.

Not sure where you're getting your figures, but the homestead exemption went up to $8,000 in the collar counties and $10,000 in Cook County, not $4,000.
The senior exemption went up to $8,000 in Cook and the collar counties.
It's all right there in the story.

Regardless, you're shifting goalposts. You wrote that "Hell will freeze over and Satan will be wearing ear muffs before that EVER happens in Illinois."
I pointed out that it happened in Illinois just last year, to which your response was "Well, yeah, but ..."