🏡 Insider Report - Wed, Jan 26
🏡 Insider Report - Wed, Jan 26
How do the increased mortgage rates impact your monthly payments and home buying strategy
TRENDS
Market Movement
With just 15 listings posted in the past day, the daily number of new homes has remained almost similar over the past month. Case in point, 17 listings were posted at the same time last week, and 12 homes in the week prior to that. Home prices for most counties are on the rise, with the exception of San Mateo, Alameda, and Santa Clara counties.
MARKET UPDATES
Quick Clicks
Price drops (401 today in the Bay):
47 price drops in Contra Costa County, 113 in San Francisco, 75 in Alameda County, and others.
Last week in the Bay Area:
Most expensive home listed: 1 Sutherland Drive, Atherton for $16,450,000
Cheapest home listed: 1468 Grand Avenue #1, San Leandro for $119,950
Oldest home listed: 1019 Guerrero Street, San Francisco built in 1880
Home with the most beds: 201 East Buena Vista Avenue, San Francisco with 7 bedrooms
Home with the most baths: 1567 Arbor Avenue, Los Altos with 7 bathrooms
OUTSIDE INSIDER
😍 A private oasis and an entertainer’s delight - this is it!
Built on 2.75 private acres, this mid-century modern estate designed by the famed architect Gardner Dailey, is a work of art. The home also has the biggest lot among 125 homes for sale in this zip code.
You truly are not prepared for what all it has to offer.
26 Sea View Avenue, Piedmont is on the market for $19,850,000...
Highlights: A formal living room, exceptionally designed kitchen and family room that open onto a deck, wide hallways, doors, and windows that open into gardens seamlessly blending the indoors and outdoors, a primary suite with walk-in-closets and luxurious bathroom, and a first-floor guest apartment that offers the perfect space for multi-generational living.
The sprawling gardens with mature trees and landscaped grounds also feature amenities like a pool and spa with a cabana, a tennis court, a home gym, and multiple terraces overlooking the surrounding nature.
Check out the complete listing here.
GET SMARTER
Loan-to-Value
The loan-to-value (LTV) ratio is a number used by mortgage lenders to understand the risk associated with a mortgage. It typically measures the relationship between the loan amount and the assessed value of the property and helps determine the minimum downpayment required on a home to ensure that the lender extends credit.
To calculate the LTV, simply divide the loan amount by the property value and multiply by 100 to get a percentage amount. For instance, if the assessed value of the home is 500,000 and you are getting a loan amount of 450,000, the LTV would be = (450,000/500,000)*100 = 90%.
Mortgage lenders usually offer a loan at the lowest possible interest rate when the LTV ratio is 80% or less i.e. when the borrower is paying a 20% downpayment on the property. However, some programs allow low-income borrowers to get a mortgage for an LTV as high as 97% with the addition of mortgage insurance on the total amount.
MARKET WATCH
Hottest market of the week - Mountain View, CA
Our hottest market this week is Mountain View, with sales volume up by 64% this week! Average days on market were 135 days this month, up from 96 days last month and 64 days last year. The median sale price this week of $1.37m is close to the bottom of the range since the start of November, and lower than the last monthly high of $1.8m in March 2021; at $989, the price per square foot is also lower than the last monthly high of $1131 in July 2021. The number of new homes coming on the market each month in Mountain View decreased by 81.55%, while the number of homes sold each month increased by 53.85% over the past 12 months. Popular home searches include an open floor plan, updated kitchen, and big yard.
HOME ADDICTION
Mortgage Update: What’s happening in 2022?
Based on Freddie Mac’s Primary Mortgage Market Survey, the 30-Yr. mortgage rate rose for the 3rd straight week ending 1/20/22, to start the year, to 3.56%, up 45bps from 3.11% on 12/31/21.
Why are rates increasing?
Remember this note about what high inflation means for the housing market? “Inflation shows up in the housing market in the form of higher rates on loans, higher costs for construction labor and materials, higher rents, and higher home prices.” When Presidents comment on the economy, it can often signal big shifts in policy; in this case, Biden’s speech about inflation on November 10th signaled a new attitude and tolerance for higher rates to combat inflation. Again on January 19th, he reiterated the need for the Fed to withdraw the extraordinary monetary stimulus that had been used to offset the impact of pandemic shutdowns.
The Fed has already begun the process of tapering its purchases of both Treasuries and mortgage bonds. That process is expected to be completed by March, at which point the Fed is likely to implement its first interest rate increase since December 2018.
The Fed’s actions have caused the increase in mortgage rates so far this year. However, it is important to realize that:
The Fed only directly controls very short-term interest rates, not long-term treasury or mortgage rates, and
There is not a clear relationship historically showing that reduced bond purchases by the Fed or increased Fed Funds rates lead to higher long-term interest rates (for instance, since long-term interest rates take into account long-term inflation expectations, higher short-term rates can reduce inflation expectations to the point where long-term interest rates actually fall, and can even be lower than short-term rates, which is called inversion).
It is unlikely mortgage rates will fall much from here without a sharp reduction in inflation; this level of mortgage rates is likely to stay with us throughout this year.
How do increased rates translate to monthly payments?
Rates are now above average 2020-2021 levels, but below-average levels from every other year going back to 2012. We are sitting at the midpoint of 2019-2020 levels, which means that for an 80% LTV loan on a $500k home, the monthly P&I payment would be $1,810, up from an average of $1,677 in 2021 based on the 2.96% average rates that year.
How does this impact your home buying strategy?
Mortgage rates increases are a headwind against the types of extreme home price gains we saw in 2021. A wise reaction to higher mortgage rates is to assume that home price gains will be more subdued going forward and you should be more selective in your home search; with less FOMO driving the market, buyers will not be penalized for being more patient than they have in the past 1-2 years. A 20% annual gain in home prices gives you an escape path if you think you made a mistake in your recent home purchase; a 5% annual gain provides far less cushion if this occurs. This is a time to use more data and a more thoughtful organized approach in your home search. We are here to help!
INSIDER INSIGHT
👀 Santa Clara County: Market update
Let’s check in again with how a couple of markets in Santa Clara County have been doing. Let’s start with San Rafael.
The median days on market (DOM) for homes in Palo Alto, 149.5 days, is 12 greater than that of Santa Clara County as a whole (at 137.5 days). The median price per square foot fell by $570.67 while the median sale price dropped by $444,532 last week. Overall inventory shrunk in December as the number of new listings rose only slightly, but not enough to offset the greater number of homes sold.
meanwhile had a median DOM of 153 days. Inventory continued to shrink in December as the number of new listings fell for the third month in a row while the number of homes sold stayed flat. Looking at the median price per square foot, that rose by $314.86 while the median sale price dropped by $298826.12 last week.
GET IN TOUCH
Have a Great Day
Want to talk to someone about data on homes or have suggestions for this email? Great, our data science team is starved for human contact. Ping us at data-team@zerodown.com.