Can Rates Go Lower? 

I have been watching the 10 YR Treasury drop for the past year to it's current historical lows... indicating our rates "should" be even lower than they are.  Mind you.. this indicator is not a forward indicator but a daily moving target, sometimes erratic in nature.  Having said that, our mortgage rates on average had traveled 180 bps over the 10 YR Treasury.. so as it moved so moved mortgage rates.  To show that in numbers.. the 10 YR Treasury in April 2019 was 2.41 while rates were 4%.  In April 2020 the 10 YR Treasury was .61, while our 30 yr mortgage rates were 3.25%... if they followed the trend, they should have been 2.5%.  This was due to lending and economic risk in addition to lenders setting rates higher in order to slow down the demand for refinance loans. 

​I have also been watching as the FEDs have been buying more mortgaged back securities at lower levels.  They moved from buying the 3% coupon rate to the 2.5% coupon rate to now the UMBS 30 yr 2% coupon rate.  What's next?  a 1.5% coupon?  This will try to drive rates lower as the FED yields it's power over the housing market through the most powerful way it can.. buying mortgage back securities. 

​There are also economic indicators that show signs of where we are headed.  As you know, for the past several years I have been talking about the economic indicators used to forecast an economic recession.. such as manufacturing and shipping declines, unemployment, consumer confidence, and the inversion of the yield curve.  What we did not see coming was a pandemic that created unnatural pressures on lenders and interest rates while trying to solve the issues of joblessness.  

​Then there's the stock market.  There was a time when the stock market and interest rates were closely correlated.  As people feared instability or increased risk in the market, they would move their money to the safety of bonds.  That increase in demand would raise prices (much like the bidding wars in today's housing market).  As prices increase, "yields" .. or our mortgage rates, go down.  As of late, the stock market has been divorced from the economy.  The valuation of stock prices based on a price per earnings basis right now rivals that of the Dot Com bubble.  

While there is no crystal ball.. no telltale for where rates will be in a week, in a month, in a year; there are educated guesses.  Based on another record, one that broke my heart, passing 150,000 deaths in the United States, we know that we have more economic unrest coming BEFORE we get to stability.  This economic unrest will keep the Fed's buying Mortgage Backed Securities and a downward pressure on rates.

​So where will rates go?  They will go up once a viable vaccine is in place and we can all go back to work and our kids can go back to school.  But between now and then, rates have the opportunity still to go lower, providing our buyers greater affordability and a lower monthly payment, and our homeowners the ability payoff higher interest debts, reduce their monthly payment and tighten up their budget.  

BOTTOM LINE: 

This is an incredible time to be advocates for our clients, to be in real estate.  Ultimately, rates shift daily as market news either confirms expectations or surprises the market.  So let's remember, helping our clients enter into homeownership today helps them build security for their financial future.  And right now, more than ever, the home is a safe place, one that should provide joy, peace, and stability.  

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So you want to invest? 

​With so much uncertainty around us; every one of us is seeking security, longevity, stability.  Real estate gives us a secure roof over our heads.  But now, maybe you’re considering expanding homeownership into real estate investing. But how do you know if you’re ready to take that first step.  I want to share five tips that will put you on the path to building wealth through real estate.  

1. Build your credit! There’s no quick fixes when it comes to your credit, which is why planning ahead is key. One of the first steps to qualifying for a loan is pulling your credit and mortgage credit reports have the longest look back. If you’re thinking about purchasing property make sure you keep your accounts open, even if you don’t actively use them. On the accounts you do use, build a long history of paying your bills on time and keeping your balance low.
2. Know your goals. Are you building your portfolio? Focused on retirement? Or creating current cash flow? Depending on your reason you may want a different property, loan product or type of tenant. Set up clear goals to help narrow your search and add clarity to the process.
3. Know your rules. Create guidelines for what type of property you are going to invest in.  There are so many different options that it can be overwhelming. I personally seek out brick side by side quadplexes in North Denver with each unit having a yard that can be afforded by two people working minimum wage jobs. Why? Because Walmart is always hiring! But seriously, even during the worst of COVID they had job openings. Not one of my renters missed a monthly payment this year.  
4. To House Hack or not? That is the question! By living one year in your investment property, you can qualify for lower interest rates and have to put less into a down payment. But are you ready to move? Is your family in a position to do so? For those getting in the game later in life, house hacking may not be the most appealing option. However, if you are in your 20’s or 30’s, this can give you an advantage. It very well might be the key to building your investment empire.
5. Find Your A Team. Now that you have set the stage for success, make sure you have a team of professionals to bring the win home for you. Having a great Realtor will ensure that you find the perfect property at the price you need it at. While a trusted lender will get you qualified for the loan to make ownership possible. Your team should explain each step of the process to you making sure you know exactly what all your options are.

Ready to jump in?

Why I Disagree with Westword and CoreLogic

CoreLogic released a report this week that Westword quoted and everyone is talking about. CoreLogic estimated Denver to lose 10% by Spring of 2021.  Yep, your clients are reading this and questioning if now is the right time to buy.  (P.s. maybe use this article to push your sellers .. we NEED the inventory!)

But back to buyers…

CoreLogic’s report released on July 7^th, highlights data from May showing national appreciation up .7% month over month and 4.8% year over year… this is incredibly strong for May and especially a May inside a pandemic.  For reference, CoreLogic forecasted a 5% year over year gains until the most recent few months. 

Frank Nothaft, Chief Economist for CoreLogic quoted “Pending sales and home purchase loan applications are higher than in May of last year and reflect the buying activity of millennials.  By the end of the summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession.”   Nothaft expects home price growth to stall in June and remain that way throughout the summer predicting a .1% price decrease in June and a year over year decline of 6.6% by May 2021.  This will be the first decline they’ve predicted in 9 years and is predicated on an increase in unemployment rates.

So let’s talk about Denver.  Megan watches a 7 county area and she posted a positive monthly median price change of 2.1% and a year over year median price change of 3.7% in June.  DMARs 11 county area also showed gains of 1.73% month over month and 4.56% year over year for June.. much stronger than CoreLogics estimated .1% loss.  This really isn’t a surprise since historically Colorado runs hotter than national housing numbers.  

Other supporting statistics include: Colorado has seen a net 2.6% population gain year to date… fueling buyer demand.  Our unemployment is lower at 10.2% in May compared to the US at 13.3% (16.3% after adjustments).  Our wage growth prior to COVID was #2 in the nation.   Colorado has the 5^th highest percentage of millennial population.  PLUS.. on the housing side… our June 2020 Pending was 27% higher than 2019 as well as the average for the last 6 years. On the flip side our Active Listings were 33% lower than last year and 43% lower than the last 6 year average. 

Just for fun let’s compare the home value loss we saw in 2008, the bottom of the Great Recession.  Nationally housing lost 18% of their value in 2008.  Comparatively, DMAR stats shows our 11 major counties lost 11.2% in value.  In 2007, 2009 and 2011 we lost only 1 to 3%, as our market stabilized and poised itself for an incredibly strong recovery. 

Back to 2020.. from May to June our MOI was cut in half in every price category for detached homes as buyers turn their focus to more space, additional office space, a backyard, less shared accommodations, etc.  The attached could pull away and its effects on overall appreciation numbers will be felt.  From a lending perspective, attached dwellings receive higher interest rates because they are a riskier product.  They tend to be first to lose value in a down market and last to gain value in an up market.  With the additional pressures of a health pandemic, and the increase in new construction condos recently hitting the market… this is the wild card that I will be keeping an eye on. 

For now, I feel confident that our market will remain strong overall, giving our buyers continued appreciation and a safe place to call home.  Will that appreciation flatten?  It could.  But will they lose 10%?  Outside of the move away from downtown condos… I can’t see that happening.

Want to read the CoreLogic Report, here’s the link:

https://www.corelogic.com/insights-download/home-price-index.aspx

Did you watch the Market Update Megan Aller and I did on Friday?
We dove into this topic as well as Megan’s detailed real estate data and my macroeconomics, helping you be the best advisor you can for your clients.  If you missed it, click the video below to hop over to our private Facebook group.  If your not a member yet, just ask and we’ll make that happen right away!