Owning a Home Benefits Your Children

Ontario, California Real Estate Loans

In This Issue           Last Week in Review: Positive economic data capped a rough week for Mortgage Bonds and home loan rates, despite tame inflation data. Forecast for the Week: Housing news and the Fed meeting minutes highlight a quiet economic calendar. View: Knowing the difference between action and activity can make a big difference in achieving your goals. The easy tips below can help.           Last Week in Review           "If you build it, they will come." And while that line from the movie Field of Dreams may have referred to a baseball field, after last week's news it could also apply to the housing market. The housing sector continues to improve despite the recent rise in home loan rates, as Housing Starts rose 5.9 percent from June to July to 896,000 on an annualized basis. This was in line with estimates. Building Permits, a sign of future construction, were up 2.7 percent, coming in above expectations. In addition, the National Association of Home Builders Housing Market Index rose to 59 in August from the 57 recorded in July. This is the best level in nearly eight years. Retails Sales for July were also positive, rising for the fourth straight month. When stripping out autos, sales surged by 0.5 percent, the fastest pace this year. And there was good news for the labor market, as Weekly Initial Jobless Claims fell to 320,000, a level not seen since October 2007. There were no apparent seasonal distortions in the numbers. In the manufacturing sector, Empire State Manufacturing came in above expectations, while the Philadelphia Fed Index came in just below expectations. What does this mean for home loan rates? Remember that the Fed has been buying $85 billion of Bonds a month to help stimulate the economy and housing market. This includes Mortgage Bonds, to which home loan rates are tied, and these purchases have helped home loan rates remain attractive. The Fed has said the rate of its purchases will continue to depend on economic data, and could be increased or decreased accordingly. Rest assured that the Fed was watching all the good economic reports from last week very closely. The data that continues to come in will be a key factor in whether the Fed begins tapering these purchases as early as its meeting in mid-September, or if it waits until later in the year or even 2014. One thing that is also important to note--inflation at both the wholesale and consumer levels remains tame, as evidenced by the Producer and Consumer Price Indexes for July. This gives the Fed cover to continue its Bond purchases if economic data takes a turn for the worse. The bottom line is that now remains a great time to consider a home purchase or refinance, as home loan rates remain attractive compared to historical levels. Let me know if I can answer any questions at all for you or your clients.           Forecast for the Week           The economic calendar is quiet this week, but the Fed meeting minutes could move the markets. Housing data is front and center, with Existing Home Sales on Wednesday and New Homes Sales on Friday. The only other report of significance is Thursday's Weekly Initial Jobless Claims. In addition, the minutes from the Fed's latest Federal Open Market Committee meeting will be released on Wednesday at 2:00 p.m. ET. If the minutes hint that the Fed may start tapering its Bond purchases after its September meeting, this could cause volatility to ramp up to an extremely high level. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.  When you see these Bond prices moving higher, it means home loan rates are improving -- and when they are moving lower, home loan rates are getting worse. To go one step further -- a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. As you can see in the chart below, last week was a rough one for Mortgage Bonds and home loan rates. I'll be watching the news closely to see if economic reports continue to be positive...and if there is more talk of the Fed's tapering its Bond purchases in September. Chart: Fannie Mae 3.5% Mortgage Bond (Friday Aug 16, 2013)           The Mortgage Market Guide View...             Activity or Action Do You Know the Difference? The words activity and action sound similar, and are sometimes used as synonyms. To a casual observer, there may not be any visual difference between one person's activity and another'saction. Yet when it comes to reaching goals in business or life, activity and action are two very different things. So what's the difference?  Activity is 'doing', it has no destination, it is an expense of energy. Action is 'accomplishing', it is based on a plan, it builds its own momentum. Here are a few examples to help clarify: Activity: Making a New Year's resolution. Action: Stop smoking. Activity: Planning a newsletter to clients. Action: Send a newsletter to clients. Activity: Researching gym memberships. Action: Exercise. Activity: Reading diet books. Action: Eat healthy. Is activity bad?  Absolutely not. We need to plan, and activity is an essential step in the process. This is the appropriate place to prepare, research, study, set goals, or create a vision. Still, it's a preliminary step, and that's where people tend to get stuck. (Did you ever notice how busy you feel when you're procrastinating?) In reality, activity is only preparation for the actions that will make a difference in your life and career. How to take more action: If activity has become your preferred form of procrastination, here's what to do: Schedule it. Schedule everything from working out, to writing prospecting emails, to sending newsletters. Remember, don't use this time for planning goals, use it for taking actions that move your goals ahead. Pick a date. For larger scale goals or projects requiring more planning, it's good to put your deadline in your calendar. Schedule all the pieces as they come up, but stick to your deadline. Tell somebody. Always try to build accountability into taking action. Make both your goals and your deadlines public by telling a close friend, a mentor, posting it on Facebook, or even enlisting as many people as you can. There's pressure, but it's the good kind! Don't forget to pass these helpful tips along to your clients and colleagues. Economic Calendar for the Week of August 19 - August 23 Date ET Economic Report For Estimate Actual Prior Impact Wed. August 21 10:00 Existing Home Sales Jul 5.20M   5.08M Moderate Wed. August 21 02:00 FOMC Minutes 7/31 NA   NA HIGH Thu. August 22 08:30 Jobless Claims (Initial) 8/17 337K   320K Moderate Fri. August 23 10:00 New Home Sales Jul 490K   497K Moderate

The California housing market is providing us with two different pictures.  First, home prices have surged and inventory is still very low (although increasing from the spring low).  However, the homeownership rate continues to decline from the peak reached in 2006 of 60.2 percent.  Today the California homeownership rate is 54.5 percent.  How big of a difference is this?  Since 2007 California has added a net of 500,000 renter households while losing a net of 233,000 homeowners.  Yet the market continues to boom in the face of a declining homeownership rate.  As we look at the market today we start seeing a slowdown in the speed in which flips are being accepted and inventory is rising.  With higher interest rates and the fall season just before us, will the market thaw or continue to accelerate?

Taking account
It might be useful to take into account what has occurred in the last few years in regards to the status of occupied-housing in California:

California has added a significant number of renters over this period.  Many of these people lost their homes via foreclosure and simply shifted to renting their place of occupancy.  What is interesting is the number of renters being added has only increased.  The above data is from the Census ACS that came out in September of 2012 (the full 2012 data should be out in fall of 2013).  The above figures were calculated when California had a 55.3 homeownership rate (the latest figure is 54.5 percent):

One of the big reasons for this shift has certainly come from investors purchasing homes for rent.  In more typical markets, a home is sold and then another one is usually bought (two transactions are generated).  In the recent market with many foreclosures, you had someone losing their home and then someone buying it from the bank (which was a one-and-done transaction if it then became a rental).  This was likely the case in many areas including the Sacramento area and also the Inland Empire.  I know of a few people that bought in Los Angeles and Orange County for these purposes but their rental yields were extremely low.
This trend to a lower homeownership rate is not only specific to California.  It is a nationwide trend:

The homeownership rate today is back to where it was in the mid-1990s or if you go further back, to what it was in the late 1970s.  In California home prices are in a manic like acceleration upwards.  The median home price in the state is up a record 28.5 percent over the year:
Median price:
May 2012             $274,000
May 2013:           $352,000
Home prices went up by $78,000 across the state while incomes look like this:

To put it another way, a California family would do better by simply sitting in their home generating “equity” instead of working.  This is starting to sound very familiar since many of the ancillary businesses are now starting to rev up and once again have become very real estate dependent.  For example, banks are living high on the hog with low rates and a continual stream of refinances.  Fees and leverage allowed for record profits once again.  We are even seeing a few of our favorite loans cropping up once again as well.
Yet the change in California is symbolic of a bigger trend nationwide.  Fewer and fewer people will be able to live what they think of as a middle class lifestyle in more expensive regions.  And the legions of poor are also growing.  In 2008, California had 2,220,127 people of food assistance.  Today it is closer to 4,000,000 (a jump of 80 percent in roughly four years).  This is in the same state that saw an overall median price jump of 28.5 percent.
The unsold inventory index is down to around 2.9 months which indicates tight conditions for anyone looking to buy.  While the talk is heating up, the facts show that hundreds of thousands of Californians have now become renters versus homeowners.  A few open houses seemed a bit calmer this month but only by a little.
What are you seeing in your local real estate market?