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KEEP YOUR EYES ON THE HORIZON
Get some fresh air.
When feeling seasick, it is often helpful to go out on an open deck or balcony and look toward the horizon. Doing so helps your eyes see the motion, which will then send signals to the brain more in alignment with what the inner ear is “telling” the brain. Fresh air, especially wind blowing in your face, tends to help. It also helps to focus on something other than the boat’s motion.
The recent uncertainty around government funding made for some choppy seas. If you were told to stay home from work, those sixteen days were a tsunami. If you are a government employee or contractor, you likely felt hurricane force winds. For most others, it was more of a squall than a storm.
Since we are likely to revisit the entire subject all over again in January, it is important to keep our eyes on the horizon. Interest rates are near historical lows. Homes remain more affordable than at any time in our recent history. For the moment, there is a good selection of inventory. As you know, every cloud has a silver lining.
Take advantage of this passing storm. Chart your course and set sail.
PERSPECTIVE
Any rate at or below seven percent is an historically low
interest rate. In our generation, the only instance when rates have fallen below this mark was in response to a housing crisis of epic proportion.
Statistically, this is the rate where the average price home is affordable for a family earning the average income for our area.
The graph to the right demonstrates just how attractiveinterest rates are when compared to the historical trend. Some remember the early ‘80s when fixed rate loans were
in the eighteen percent range. Many celebrated the early ‘90s when rates finally ebbed below ten percent!
Hovering in the mid four percent range today is incredibly attractive for any buyer able to take advantage of the opportunity.
COST OF FUNDS SHOULD BE A PRIORITY
While rates will continue to fluctuate modestly, the overall bias is towards higher. Once under contract, a purchaser can secure a
commitment for a specific rate for a period of time through settlement date. Today’s buyer will likely borrow at considerably lower cost than those purchasing in 2014.
The Federal Open Market Committee (FOMC) has indicated a bias toward raising rates since the housing market began to turn the corner. They do so by increasing the overnight lending rate and by scaling back their acquisition of bonds. The recent uncertainty around government funding caused the FOMC to delay their plan to taper back bondpurchases. That uncertainty creates a window of opportunity for borrowers.
TIMING THE BOND MARKET?
The chart on the right reflects the most recent 75 day historyof fixed rate mortgage loans. Rates have dropped over fifty basis points since concern over a potential government
shutdown became a reality. Current monetary policy is a windfall for buyers who are prepared to execute before the end of 2013.
Since the issues surrounding government funding were not dealt with for the long term, we expect to see some volatility in rates between now and February 2014. Once resolved,
the moderate escalation of rates should resume. Rates for qualified borrowers are currently in the lower end of the four percent range.
Experts forecast that by the end of 2014, rates will be around five percent. The table below details the significant advantage gained by borrowing at today’s rates.
| VALUE TREND While our median home value stands about fifteen percent below the peak in 2006, we have recovered substantially since the bottom. Since 2009, we’ve enjoyed a twenty percent increase in the median property value. Rising tides lift all ships. Restored equity is allowing many owners to upgrade or “right size” locally. The event is neutral from an inventory perspective, but many are borrowing at a rate significantly lower than it was in the home they sold. We expect to see this segment of the market continue to strengthen.  |
| WINTER BIASED TOWARD BUYERS Typically, two thirds of home sales are completed during spring and summer months. Fall and winter markets historically favor buyers. 2013 is offering some additional advantage topurchasers.
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| SELECTION. Buyer side activity typically increases as we approach the Spring market. This year, additional demand is building from those who lost their homes through short sale or foreclosure. Depending upon circumstances surrounding the event, many are able to qualify as soon as two years from the distressed transfer. We now enjoy a balanced market where homes are selling for fair market value. There are plenty of homes to pick from. When you buy a home today, it is likely you’ll be able to sell it for more later if you want to or need to. In the meantime, you get to live there. All indicators suggest that 2014 will be a very positive experience for homeowners.
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SUMMARY
If you are considering a real estate transaction, thorough analysis and competent representation are essential.
We are in a transitioning market. There is potential for profit, as there is risk of loss. If we understand the underlying facts, we can continue to make good business decisions logically and without emotion. I am a real estate professional and accept responsibility for keeping my friends, neighbors, and business community informed as to all aspects of things affecting the real estate portion of their holdings.
If your home is currently listed for sale, this is not a solicitation. If you have a real estate question, I will be happy to answer it or find the answer. If you have a real estate need, I will appreciate an opportunity to compete for your business.
Our team is very good at what we do. Results demonstrate that now more than ever before. Don’t settle for less.