Rate increase: NBD

Media are so invested in ‘reporting’ sensational news that often, stories are made out of nothing. For example, all of the major networks this week have reported a “hike” in interest rates – as if that was news worthy.

First of all, a “hike” in the woods is typically a big deal. A “hike”can also refer to down hill movement. So that choice of words is used out of the media’s numb mindset of “breaking news” and “shocking developments“. A more appropriate word to describe an interest rate increase would be “adjustment” as in, “interest rate adjustment“. Our speech patterns however, have gotten lazier so saying a 3-syllable word like “adjustment” might be too much work for media-types.

Consider the truth about an interest rate increase. If you get a home loan of $424,000 at 4.5% interest rate for a 30 yr. loan, your monthly principle and interest payment will be $2,085.83. Last month, that loan might have only cost 4.25% with a payment of $2,085.83. The total difference in this “shocking development” is $62.50/mth. That’s it. And, that slight upward adjustment translates into $178 more gross pay per month needed to qualify for the 4.5% loan. No big deal (NBD) – right?

Having said this, in a season of increasing interest rates, there is no value in waiting for better rates. The slight adjustment in payments pails in comparison to typical appreciation of the home’s value. Just a 5% increase in our example home’s value would be $2,208/mth (annualized). So, don’t procrastinate buying or refinancing a home rationalizing to yourself,  “I’ll wait until the rates go back down”. 

Debt: Adios! Dump the Debt

Now that we’re back to work and are seeing the bills from our seasonal shopping we may need to take a nap!  Instead, take charge (oops) of your bills and get rid of them.

Here are a few, easy ways to retire debt.  This video summarizes what I have taught me kids and clients for years:

  1. Select the highest interest rate debt and throw all of the money you can at it’s balance.
  2. Make minimum payments only, on all of the other cards so you can focus on #1.
  3. When #1 is gone tumble down to #2 highest rate and do the same thing. You’ll be able to pay even more on this one because #1 is gone.
  4. Put the cards away!  Only use them once or twice a year – and then, only on something you really NEED.
  5. Remember: those who understand interest, charge it. Those who don’t understand interest, pay it.

Also, make sure to put, say, 10% of your paycheck into savings and don’t touch it.

2016 can be a liberating year. Make it happen.

Home Buyers: Now’s the Time

I have been in the housing business so long that I’ve been through several outgoing, 2 term presidents, where their party was in control of both houses.  Typically, at the beginning of the election year, interest rates and gas prices begin to rise.  They peak during 3rd. quarter and begin to improve toward the national election in November.  (Watch, as soon as I say this, we’ll see an aberration in 2016.)

However, this article may well be a signal that the trend will repeat itself in the coming months.

Prospective homeowners would be wise to buy their home as soon as they can.  Sales prices in the South County (San Jose, Morgan Hill, Gilroy, Hollister, San Juan Bautista, CA) begin to rise more rapidly at the end of March and peak in July.  The interest rates will probably inch their way upward during this same time frame.

And look at the impact of a 1.0% rise in interest rates*:  A $400,000 home with 10% down to a new, $360,000 30 yr. fixed rate loan will see a $214 higher monthly principle and interest; a corresponding increase in the qualifying income needed by $642/mth.  The closing costs will also be slightly impacted.

If you are thinking of buying a home, now will be the lease expensive time for South County homes for the next year or more.

*4.0% to 5.0%

Home Prices in Our Bay Areas

Here is a quick glance, one page summary of year-over-year values for of our Bay Areas.

The median prices increased slightly in Santa Clara County (up 9%) and Monterey County (up 6%) but dropped 1% in San Benito County.

At the bottom of the summary page we see some indicators which suggest San Benito County values may rise in 2015: Inventory of homes for sale increased 14% 9/13 to 9/14 which is one of the causes of the median price to drop. However, the Days on Market (DOM) dropped a whopping 46%!  Since homes sold significantly faster year-over-year we may see San Benito County single family prices rise next year.

With one eye on these opaque indicators and one on “the holidays” disengagement many get caught up in – a shrewd buyer should buy a home before the year is out. And, with interest rates around 4% for a home loan, you could be one of the few others admire in the future: “You bought at the end 2014?  You really ‘lucked’ out”.

Why not text, email or call me?  With your answers to 4 simple questions I will be able to compute for you how much of a home you can qualify for and provide you with a list of those homes in your price range.

“Happy (Holiday) shopping”.



Smart Home Purchase = Good Investment

home's appreciationAfter nearly 8 years Americans are once again considering the purchase of a home as an investment.

As in all good investments you want to “buy low and sell high” with regard to your home.  As this article points out there are 4 key considerations when buying a home with “investment” in mind:  Don’t buy the nicest home in the neighborhood; look for a home which needs a little T.L.C.,; of course location is very important and plan on living in the home at least 5 years,.  10 years is even better.  Regarding location, look for a home in a nearby suburb of a job-rich metropolitan area and, off the main thorough fairs.  Morgan Hill, Gilroy and Hollister, CA for example, are ideal communities near the San Jose and Silicone Valleys.

The other side of the home buying equation is the financing of it.  With the goal of living there at least 5 years it actually pays to buy down the interest rate of your home loan.  If you pay 1.5 to 2.0 points (percent of the loan amount) you should be able to lower your rate by .25% for the term of the loan.   This little tax deductible investment will repay itself within 3 – 4 years through the savings in house payments and will save 10s of thousands of dollars in interest over the life of the loan.

Lastly, design your budget to allow an extra payment toward the principle loan amount.  Just an extra $100 or two paid with your regular payment each month will reduce the number of years you will pay on the loan and builds equity much faster.

Buying smart imitates the investment growth and the extra payments on points and principal will quickly grow your equity.  When time comes to move up or, out, you should have a sizable profit from your home’s investment.

What’s your ‘buy low sell high” success story?



Hollister, CA Home Values Up 36%

home's appreciationThe average home value in Hollister, CA rose 36% over the last 6 months as compared to the same period last year (June to the end of Nov.)  Homes sold for an average of $421,798 this year vs. $316,894 for the same time last year in Hollister.

There are 3 indicators which provide some measurable reasons for this significant increase:

  1. The number of home for sale dropped from 323 in ’12 to 283 during the same 6 months this year.
  2. The average number of days on the market dropped from 54 last year to 44 days this year. That 19% decrease suggests a robust demand.
  3. Finally, the actual sale price was 102% of the asking price in the last 6 month where last year’s relationship of “asking and actual” was 99%.

Gilroy, CA has experienced similar appreciation.  The South County (Morgan Hill, Gilroy, Hollister and San Juan Bautista, CA) is a favorite ‘bedroom’ community for Bay Area employees.  Gilroy & Morgan Hill home values were just as impressive.

What does this mean for home values in 2014?  Probably more of the same.  Do you think we’ll see the same pace?  Are we headed for another bubble?  Watch the home loan interest rates.  Their direction will have an inverse affect on the rate of appreciation: if they go up significantly or, quickly, all 3 factors above should head in their opposite direction.  The rate of appreciation will slow or stop – depending on the severity of the rate changes.  Stay tuned.  It’s going to be exciting!

(data from MLSListings)


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Refinance…Rates Are Headed North

Home loan interest rates have risen over the last week.  We have enjoyed rates in the  “3’s” for the last several   months.  Today, however, we are nudging up against 4.0%.  The impact on home loan payments, and qualifying is really surprising! Here, for example, is the affect on a $300,000 fixed rate, fully amortized loan that went up .5% from 3.5 to 4.0%:

4.0%                                       $1,432.25/ mth
3.5%                                      – 1,347.13/ mth
Increase:                                    $85.12 every month
Increase in income to qualify:  $224/ mth

4.5%                                      $1,520.06/ mth
3.5%                                      – 1,347.13/ mth
Increase:                                 $172.93 every month
Increase in income to qualify:     $455/ mth

So, will the interest rates go up further?  How much?  How fast?  What do you think?  This is not a time to ponder.  It’s a time to pursue! Why not text or email me your current: Loan Balance, Principle & Interest payment, and interest rate.  Or, you could just email me a copy of your current home loan statement.  I will send back to you how much a refinance will save you each month.

(APR for 3.5%: 3.875%, 4.0%s APR: 4.374%, APR for 4.5%: 4.873%)

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The Cost of Waiting to Buy

It is getting harder to find homes for those buyers we have been working with for months.  The entry level prices are rising and qualifying for prospective buyer’s  is shrinking.    

After looking at several Hollister homes I heard the frustrated buyer sigh:  “I think we’re just going to wait to buy a home“.  I tried to reason with him regarding rising prices and the likely increase in home loan rates.  He was just too disappointed to hear anything right then.  So, this post is my therapy for today’s weary home buyers. 

Home loan rates WILL go up.  It’s only a matter of when will they start.  All of the attempts to stave off a sick economy cost money and will begin to push rates higher.  As they rise, ‘purchasing power’ drops:                      

Let’s say my buyer waits 6 months and the rates then are up .5%.  His $300,000 loan will cost $92 MORE each month than he could get today.  To qualify then he will have to earn $225 MORE per month for the same loan he could get now.  If his income hasn’t changed his purchasing power will drop by $17,150!

If the rates go up by 1.0% the payment will jump up by $192 per month for the same $300,000 loan he could have gotten today.  $192 PER MONTH!  Yikes!   His income will need to be $460 more per month to qualify for the same loan he could have gotten today.  With no change in income, his  purchasing power will drop by $32,800!

Postponing the purchase of your home doesn’t make cents.  Get a good night’s sleep and go back at it tomorrow.  Afterall, somebody is buying these homes.  Why not you?