Should Your Buyers Increase Their Offer?

Posted: 28 Mar 2013 04:00 AM PDT

Limited inventory and a very strong demand for housing has created an environment where bidding wars are commonplace in today’s real estate market. Homes priced properly are getting multiple offers within a short time of coming to market. This brings about a dilemma for the agent: How should they advise their client who is about to make an offer when other offers will also be presented?
Over the last several years, there wasn’t any pressure on the buyer to adjust their offer for three reasons:

1. There were plenty of homes for sale
2. Prices were falling
3. Mortgage interest rates were falling

They buyer could find another home easily for probably less money and a lower mortgage rate. There was no downside to not ‘upping the ante’. However, in today’s market, things have dramatically changed.

HOUSING INVENTORY

A normal real estate market has between 5-6 months worth of inventory. Over the last several years, the inventory of homes for sale had skyrocketed to 10 months. Most buyers in almost any price range had a multitude of houses to choose from. Today, the national month’s supply of inventory has fallen below five months. In many markets, there is not enough housing inventory to satisfy the current demand.
Conclusion: If the buyer loses the house they are bidding on, there is no guarantee they will find a similar home anytime soon.

HOME PRICES

Becausemof the limited inventory, home prices are again appreciating. The Case Shiller Pricing Index revealed that house prices rose by 6.8% in 2012. Experts are projecting home prices to increase by 5% to 8% in 2013.
Conclusion: If the buyer doesn’t get this house, there is a good likelihood that a similar home will cost more in the future.

MORTGAGE RATES

The ‘cost’ of a home to a buyer is determined by the price of the house and the expense associated with the financing. Mortgage rates are projected to inch up in 2013. In a recent forecast, the Mortgage Bankers Association predicted that rates could climb as high as 4.3% by the end of the year.
Conclusion: If interest rates do inch up, the ‘cost’ of the next home could be impacted significantly.

The KCM Blog - 3 Financial Reasons to Buy a Home NOW! (Part II)

Part II – Interest Rates Are Increasing

A big component in the cost of a home is the mortgage interest rate a purchaser pays. Understanding where rates are headed will help in making a decision whether to buy now or wait.

So, Where Are Rates Headed?

No one can know for sure. The Fed has been artificially holding rates down to stimulate the economy. However, as the economy improves, many experts expect rates to creep up. As an example, HSH Associates, the nation’s largest publisher of mortgage and consumer loan information, recently explained:

“The stronger the economy becomes, the higher rates may grind; the Federal Reserve is keeping them low to goose the economy, but an economy responding to the Fed’s medicine will soon see less of a need for it in order to function. If not otherwise manipulated, higher rates are the natural result of a growing economy, as rising demand for available credit supply and concerns about inflation allow costs to rise.”

The Mortgage Bankers Association (MBA) agrees. They were quoted inHousingWire late last year regarding their thoughts on where rates would be headed in 2013.

“After reaching record lows in 2012, mortgage rates are expected to creep up slowly in 2013, the Mortgage Bankers Association predicted.”

In the MBA’s latest Mortgage Finance Forecast they forecast that the 30 year interest rate will be 4.3% by the end of the year. This represents an increase of almost a full percentage point from the 3.4% rate available at the end of 2012.

For example, we show the impact a one percent increase in rate will have on the monthly principal and interest payment on a $200,000 mortgage.

Freddie Mac’s Weekly Primary Mortgage Market Survey reveals that rates have increased by 2/10ths of a percentage point already this year.

As we mentioned, no one knows for sure where rates will be a year from now. But, many experts think they may be as much as a point higher. Withrising residential real estate prices and the possibility of higher mortgage rates, waiting to buy a home makes no sense in our opinion.

3 Financial Reasons to Buy a Home NOW! (Part I) Posted: 25 Mar 2013 04:00 AM PDT This week, we are going to look at the three financial reasons to buy a home now instead of waiting: prices are rising at an accelerated rate, interest rates are increasing and rents are skyrocketing. – The KCM Crew Part I – Prices Are Rising at an Accelerated Rate The price of a home is the major consideration when deciding whether or not it makes financial sense to purchase a house. Experts are not only projecting that house values will increase in 2013. They are also more optomistic in the level of appreciation they are projecting as the market begins to heat up. Here are some examples: The Home Price Expectation Survey The latest survey of a nationwide panel of 118 economists, real estate experts and investment and market strategists reveals they project home values to end 2013 up an average of 4.6% according to the first quarter. This is after they had projected a 3.1% increase just three months ago. Bank of America In a report titled, Someone Say House Party?, Bank of America analysts revised their projections upward: “Home prices continue to show momentum amid shrinking inventory and record high affordability, prompting us to revise up our original forecast of 4.7% for home prices this year. We now expect national home prices, as defined by the S&P Case Shiller home price index, to increase 8% this year.” Capital Economics According to a report in DSNews, Capital Economics also upgraded their prediction: “Strong demand and tight inventory have brought existing home sales back to ‘normal’ levels, and further gains are possible, according to the latest market report from Capital Economics. Additionally, market conditions may prompt lenders to “loosen the purse strings slightly” and lend a little more freely. These conditions, combined with broader economic indicators, lead Capital Economics to revise its previous forecast of a 5% price gain this year up to 8%.” Morgan Stanley In an article from HousingWire, Morgan Stanley joined the party: “Strong momentum in home prices as well as housing activity gave Morgan Stanley analysts enough confidence toupgrade their home price appreciation projections to roughly 7% (from 5%) for 2013, according to its latest global securitized credit report… “The momentum in most metrics of housing activity is running well ahead of the pace we had expected,” said James Egan, Jose Cambronero and Vishwanath Tirupattur, analysts for Morgan Stanley.”  Not only are prices projected to appreciate. Experts are actually revising their projections upward as demand maintains its momentum. Tomorrow, we will look at increasing interest rates.

California median home price remains strong

California median home price remains strong; buyers confront listings shortage
California’s median home price marked a full year of annual price gains, propelled by strong sales of higher-priced homes in February, while a lack of inventory constrained total home sales for the month, C.A.R. reported.
Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 416,610 units in February, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide.  Sales in February were down 0.9 percent from a revised 420,270 in January and down 5.9 percent from a revised 442,660 in February 2012.  The statewide sales figure represents what would be the total number of homes sold during 2013 if sales maintained the February pace throughout the year.  It is adjusted to account for seasonal factors that typically influence home sales.

The statewide median price of an existing, single-family detached home slipped 1 percent from January’s revised median price of $337,360 to $333,880 in February.  February’s price was up 24.2 percent from a revised $268,810 recorded in February 2012, marking a full year of annual price increases and the eighth consecutive month of double-digit annual gains.  The median sales price is the point at which half of homes sold for more and half sold for less; it is influenced by the types of homes selling as well as a general change in values.

C.A.R. also released benchmark revisions to historic existing single-family home sales. With the new benchmark, the total number of existing single-family homes sold in 2012 was 440,690, a 16.1 percent downward revision from the 525,120 sales previously reported.

Rebenchmarking is an adjustment performed periodically on a series of data to ensure its continued accuracy.  It is necessary to revisit the benchmark regularly, as the underlying assumptions of the data series may change over a period of time.

There's more than one way to hang a shelf Installation tips for 3 unique shelving options

Whether it's a single decorative shelf in the living room or a set of rough shelving in the garage, we all love shelves. We display our prized collections and toss our messy paint cans on them. We'll put them high and low, and just about anywhere space allows.

Shelves offer you a chance to do some practical organizing while at the same time offering opportunities for some fun, elegant, whimsical or eclectic decorating. But above all, the shelves need to stay on the wall and support their intended loads, so today let's take a look at some different types of shelving and shelving supports, and how they're installed.

Tools needed

The tools you'll need for installing shelves are pretty basic -- usually just a cordless screwdriver, a tape measure, a level, and possibly a stud finder. To ensure that the shelf is level, you'll want to use as long a level as possible for the length of the shelf being installed. In other words, don't use a 7-inch torpedo level on a 5-foot shelf.

"Floating" shelves

As their name implies, floating shelves appear to be self-supporting, with no brackets or other supports underneath them. Floating shelves are typically relatively short and decorative, and are ideal for the living room, den, entry or other areas where you want to create a display area, or perhaps install some stereo speakers or other electronics.

Floating shelves are usually solid wood or medium-density fiberboard (MDF), come in different lengths, are painted or stained, and may have a square or routed edge, sometimes with an additional decorative molding underneath. There are both straight and pie-shaped versions for corners. They're installed with the included hardware, which typically fits into a groove in the back of the shelf. A variation of the wooden floating shelf is one made of tempered glass, which fits into a slotted bracket that's attached to the wall.

With any floating shelf, pay careful attention to the load rating, which is the amount of weight that the shelf and the included attachment hardware is rated to hold. Also, be sure that you carefully follow the manufacturer's installation instructions.

Individual shelves on brackets

For a larger or longer shelf installation, use an individual board on brackets. These are ideal for a kid's room, where you want to display trophies and store toys and books, or perhaps in a den, home office or just about any other room. They're also fine in a garage or shop for utility shelving.

For this type of shelf, you need to start with a design concept. Will this be decorative or utilitarian? How long and how deep does the shelf need to be?

From there, a visit to your local home center or hardware store will offer you a number of options for both the shelving board and the brackets. You can opt for a prefinished board in solid lumber, veneered plywood or other materials, melamine or MDF. Or you can buy a piece of raw lumber or sheet goods, and cut your own to whatever length and width you need, then stain or paint it as desired.

The brackets also range from decorative to utilitarian. At the decorative end, you can find beautiful carved and routed brackets, also called corbels, in a variety of sizes and materials. At the utilitarian end are painted and raw metal brackets that offer plenty of strength at a low cost, and are great for shops, garages, and some interior applications where you might be opting for a more commercial or industrial look.

For the greatest strength and load-bearing capacity, the brackets need to be anchored into the wall studs. Some decorative brackets have hidden fastening systems that allow the fasteners to be completely concealed behind the bracket, while others use exposed screws.

Multiple shelves

For closets, garages, home offices or other areas where you need lots of storage, you might be more in the market for a multiple shelf arrangement. There are two basic options for how you can set this up: supported from the back or supported from the sides.

With a set of shelves supported from the back, you're basically doing the same thing as what you do with individual shelves. If you want all the shelves to be in fixed positions, you can simply mount several shelves at different heights on brackets. Some people will make this into a more decorative focal point on a wall by altering the spacing between the shelves, the length of the shelves, or both.

If you want the shelves to be adjustable so that you periodically alter the height between them, then the easiest solution is to install adjustable shelf standards, also called shelf hanging tracks, directly on the wall; again, be sure they're anchored to the studs. Shelf support arms then clip into the tracks, and the shelves rest on the arms.

The other option is to support the shelves from the sides. This involves adding supports on each side, and is most commonly seen in a closet situation.

One of the easiest ways to do this is to use predrilled melamine boards, which are typically available in 8-foot lengths and widths of 12, 16 and 24 inches. The boards are white with one banded edge. Simply install the boards vertically in the closet, then install shelving horizontally between them. Shelf pins fit into the predrilled holes to make installation and adjustment of the shelves a breeze. If you don't like the predrilled option, you can use solid boards and attach shelf standards to them instead.

Melamine and other types of shelving and all of the installation brackets are available at home centers and most hardware stores and lumberyards.

California Home Prices Benefit from Short Inventory, Sales Suffer

BY JANN SWANSON
California Home Prices Benefit from Short Inventory, Sales Suffer

California house prices have now risen on an annual basis for a full year according to the California Association of Realtors® (C.A.R.).  The median price of an existing single family home sold for $333,800 in February, down 1 percent from the January median of $337,360 but an increase of 24.2 percent from February 2012.   In addition to marking a full year of annual price increases, February was the eighth consecutive month with annual increases in double digits.

Sales of existing single-family detached homes in February were at a seasonally adjusted annual rate of 416,610 units in February, down 0.9 percent from January and 5.9 percent from 442.660 sales in February 2012.

C.A.R. said sales are being affected by a lack of inventory.  The February Unsold Inventory Index for existing, single-family detached homes was 3.6 months in February, up from 3.5 months in January, but down from 5.4 months in February 2012.  The index indicates the number of months needed to sell the supply of homes on the market at the current sales rate.  A six- to seven-month supply is considered normal.

Homes sold more quickly in February, with the median number of days it took to sell a single-family home decreasing to 34.2 days in February, down from 36.6 days in January and down from a revised 57.4 days for the same period a year ago.

"The demand for homes remains solid, but a shortage of homes for sale, especially in the lower-priced segments, is negatively impacting housing sales," said C.A.R. President Don Faught.  "Sales of homes priced above $500,000 continue to be strong, posting nearly 31 percent higher than a year ago, while homes priced below $300,000 were down 27 percent from last February due to fewer available homes for sale."

 "With housing inventory dropping nearly 39 percent from a year ago, supply constraints continued to propel strong gains in the median price, but also intensified market competition," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young.  "With an imbalance between supply and demand, home buyers have been fiercely competing with each other.  More than half of home sales are receiving multiple offers, with homes getting an average of four to five offers, and some even more."

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Fed Reports Results of First Dodd-Frank Bank Stress Tests

The Federal Reserve has completed its third round of stress tests of American banks.  The tests originated in 2009 in the midst of the financial crisis but the most recent round was the first of the annual tests now required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The tests are designed to estimate the outcomes that might be experienced by large banks under extremely adverse economic conditions.  The tests are a tool to help bank supervisors measure whether a bank holds sufficient capital reserves to support its activities under such conditions and the results are not forecasts or expected outcomes.

Eighteen bank holding companies (BHCs) were subjected to a severely adverse stress scenario which presumed a peak unemployment rate of 12.1 percent, a drop in equity prices of more than 50 percent, a decline in housing prices of more than 20 percent, and a sharp market shock for the largest trading firms.   Over the nine-quarter planning horizon each BHC maintains its pre-test common stock dividend payments and common stock issuance is limited to that associated with expensed employee compensation.

The results suggest that, over the nine quarters, aggregate losses at the BHCs are suggested to be $462 billion including losses across loan portfolios, securities held in the BHCs' investment portfolios, trading and counterparty credit losses from the global market shock, and other losses.

Projected net revenue before provisions for loan and lease losses (pre-provision net revenue or PPNR) over the nine quarters is $268 billion, which is net of losses related to operational-risk events and mortgage repurchases as well as expenses related to disposition of owned real estate of $101 billion.  Taken together the high projected losses and low projected PPNR results in projected net income before taxes of -$194 billion.

These net income projections resulted in substantial projected declines in regulatory capital ratios for nearly all of the BHCs under the severely adverse scenario.   The aggregate tier 1 common ratio would fall from an actual 11.1 percent in the third quarter of 2012 to a post-stress level of 7.7 percent in the fourth quarter of 2014, including assumed capital actions for the 18 BHCs.

Despite the large hypothetical declines, the aggregate post-stress capital ratio exceeds the actual aggregate tier 1 common ratio for the 18 firms of approximately 5.6 percent at the end of 2008, prior to the first government stress tests conducted in early 2009


"The stress tests are a tool to gauge the resiliency of the financial sector," Federal Reserve Governor Daniel K. Tarullo said. "Significant increases in both the quality and quantity of bank capital during the past four years help ensure that banks can continue to lend to consumers and businesses, even in times of economic difficulty."

Future House Values? Simple as Supply and Demand Posted: 04 Mar 2013 04:09 AM PST For some time now, we have attempted to shed light on the fact that pricing in today’s real estate market, as it is in the markets for every other saleable item, will be determined by the concept of ‘supply and demand’. According to dictionary.com: “The relationship between supply and demand determines the price of a commodity. This relationship is thought to be the driving force in a free market.” In real estate, supply and demand is represented as the current month’s supply of homes for sale (the number of homes for sale divided by the number of homes sold in the previous month). While there is no steadfast rule that will apply to pricing in every category of housing, here is a great guideline: 1-4 months supply creates a sellers’ market where there are not enough homes to satisfy buyer demand. Appreciation is guaranteed. 5-6 months supply creates a balanced market. Historically home values appreciate at a rate a little greater than inflation. 7-8 months supply creates a buyers’ market where the number of homes for sale exceeds the demand. Depreciation follows. What is happening across the country right now? In most parts of the country, home values are rising. This is for two reasons: According to NAR’s latest Existing Homes Sales Report, raw unsold inventory is at the lowest level since December 1999 when there were 1.71 million homes on the market. According to this month’s Pending Sales Report from NAR, houses going into contract reached levels last seen in April 2010 which was the month the Home Buyers’ Tax Credit expired. This has resulted in a 4.2-month supply at the current sales pace which is the lowest housing supply since April 2005 when it was also 4.2 months. Based on the table above, we can see that the supply/demand ratio is leaning toward a sellers’ market where prices will appreciate. That has

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