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LifeSource Mortgage Blog

September Market Update

Shannon Gray - Saturday, September 22, 2018

As is common for this time of year, the amount of homes for sale has increased and demand has decreased. In Orange County we have seen a 23% increase in inventory since this past Spring. There are presently 7,070 homes for sale as compared to 5,730 in May. Before you start thinking the bottom is going to drop out, keep in mind the historical average is 8,000. It is taking 98 days for a home to go in to escrow. We have moved from a hot seller’s market to a balanced market. (When the expected market time is between 90-120 days, we are considered to be in a balanced market where it doesn’t favor buyers or sellers.)

While there has been a recent shift in the market, most economists are not predicting price declines in California. Residents are feeling more confident about their jobs, which is needed to make a large purchase such as a home. In fact, California had a year-over-year 3.4% change in per capita income, which was the strongest in the nation.

There is presently more competition for homes under $1,000,000 in Orange County, as compared to the luxury market. This theme will likely continue, as there is a lack of new home construction for this price point. The Federal Reserve Bank of Kansas City said the nation is at its lowest level of new homes constructed per household in 60 years of record keeping. This is especially true for “entry level” homes due to builders focusing on luxury homes. The entry level home is less profitable due to higher costs for lots, labor, lumber and development costs. Another reason for the lack of entry level homes is because homeowners are not trading up as frequently as in years past. Many people have interest rates at historic lows and are reluctant to give up their low rates and payments. This has caused the lower end of the market to see more competition and rise faster than the upper end. The recent market shift is showing signs of affordability reaching a point where rapid appreciation can no longer be sustained due to rising interest rates and prices. A moderation of house prices is more likely than a steep decline at this point in time, as we continue to experience a balanced market, but move toward a buyer’s market.

Rising Rates and Home Values Part 2

Shannon Gray - Thursday, June 28, 2018



As Charles Dickens famously wrote, “It was the best of times. It was the worst of times.” If you are a homeowner today, "the best of times" rings true since your home has probably appreciated in value and you most likely have a fantastic interest rate at an historic low. If you are looking to buy a home, however, (especially in the entry level and/or mid-tier level), maybe "the worst of times" fits your situation. Home prices continue to shoot up, along with mortgage interest rates. The task of finding a suitable home with limited inventory is challenging.


So will the market continue to appreciate? Will we see price declines or at least see the price appreciation slow or stop? Apparently not anytime soon according to the predictor of the last Housing Crash, Christopher Thornberg, who does not anticipate price declines unless there is a recession.There has been a slight shift in the market, though. While CoreLogic reported the number of sales in Southern California were 3.4% lower than a year ago due to decreased supply, we have seen supply increasing the last few months. Orange County real estate economist, Steven Thomas, shows the slight market change in his most recent report. The active listing inventory in Orange County is up 3% as compared to this time last year and demand is 8% lower than last year. Perhaps the decreased affordability is putting some fatigue on buyers.


What about the climb in mortgage interest rates and their impact on the real estate market? Mortgage interest rates are close to their highest level in seven years. Rates have risen more than .5% since the beginning of the year and Freddie Mac’s economists and analysts predict they will increase another .5% by the end of the year. In their June Outlook, mortgage rates were predicted to average 4.9% by the fourth quarter of this year and 5.4% by the fourth quarter of 2019. Monthly mortgage payments are up nearly 13% from a year ago due to an increase in home prices and higher interest rates, according to Realtor.com. Wage growth is not keeping up with these increases, but decreased affordability has yet to have a meaningful impact on the real estate market. On a national level, Freddie Mac is predicting 5.1% appreciation for 2018. Arch Mortgage Insurance who analyzes market conditions throughout the nation projects only an 8% chance of home prices declining in Orange County over the next 2 years, and they rank Los Angeles and the Inland Empire at an even lower chance of 2%. 



Even with rising interest rates, a challenging real estate market and a slightly shifting market, it still looks to be a relatively safe time to buy. Contact me to get started today!



Rising Rates and Home Values

Shannon Gray - Thursday, February 22, 2018

Now that mortgage interest rates have climbed to their highest levels in 4 years, you may ask, “Will rates continue to climb? And what impact will that have on the housing market?” Most economists and experts believe mortgage interest rates will most likely continue to slowly increase. If the economy remains healthy and inflation doesn’t rise too rapidly, housing values will remain solid and we should expect modest appreciation.


Mortgage interest rates have risen sharply since the beginning of the year. Rates were trending slightly below 4% for the latter half of 2017. The past 7 weeks we have seen rates increase nearly .5%, which is a significant move in a short period of time. Why the rapid rise in rates? Concerns about inflation have developed after reports showing higher than expected inflation, along with a concern that wage inflation might finally be developing. (During inflationary times, rates climb.) With the economy doing well and showing signs of inflation some economists expect interest rates to continue to climb throughout the year. Some experts project it will eventually surpass 5% in the near future. 

A recent forecast published by Freddie Mac indicated that mortgage interest rates are anticipated to average 4.5% this year and 5.1% in 2019. The Mortgage Bankers association predicts rates will rise to 4.6% this year, the National Association of Realtors expects rates of 4.5% by the end of 2018, and Realtor.com estimates rates will average 4.6% and rise to 5% by the end of the year. We are already experiencing rates in the mid-4% range so it appears the market moved more quickly than many of these predictions.


Will potential homebuyers change their plans with higher mortgage interest rates? Redfin recently conducted a survey that showed, “only 6% of homebuyers said they would cancel their plans if mortgage rates surpassed 5%.” A healthy job market and confidence in the economy has a larger impact on the housing market than interest rates and their impact on affordability. John Burns Real Estate Consulting, LLC, a housing advisory company, conducted a study in 2016 on previous impacts of a 1% + rise in mortgage interest rates on the housing market over the last 42 years. Their study found that interest rates had a modest impact on the volume of housing sales and, somewhat surprisingly, prices continued to appreciate in most cases. This held true as long as the economy was performing well. If the economy was in a recession and there was a significant rise in interest rates, housing was hit hard in terms of decreased sales volume and a drop in home prices. Their conclusion was “the health of the economy has far more impact on the housing market than changes in interest rates.” Despite higher rates, Freddie Mac, too, anticipates home prices to continue to appreciate, although at a slightly slower pace than we have experienced recently.


Have the increase in mortgage interest rates had an impact on the Orange County Real Estate market? No! Multiple offers in Southern California are commonplace, especially in entry level or “moderately” priced homes. Expected market time in Orange County, according to Steven Thomas, a local real estate economist, is less than 60 days! Assuming home prices and mortgage interest rates continue to rise, eventually there will be an impact on the market due to decreased affordability. However, given current market conditions, we have not reached that point yet and don’t appear to be too close.

2018 Orange County Loan Limits

Shannon Gray - Thursday, December 07, 2017



Fannie Mae and Freddie Mac announced they will be raising their loan limits for 2018. Typically, loan limits are raised when median home prices are increasing, which was obviously the case in 2017. The limit is increasing from $424,100 to $453,100 for a one-unit property in many areas of the country. In high cost areas, such as Los Angeles and Orange Counties the high balance loan limits are being raised to $679,650. This is welcome news as conforming loans often have better rates, smaller down payment requirements and more lenient guidelines as compared to Jumbo or Non-Conforming loans.


Flex-Term Refinancing

Shannon Gray - Monday, September 25, 2017



A common argument against refinancing a mortgage is that it seems like a backward movement, as the clock is “restarted” with a new 30, 20 or 15 year loan. But there’s a way to move forward by refinancing into a new loan without restarting the term. We call this our Flex Term Refinancing program. This can help manage both budget and timeline, potentially producing savings of hundreds each month and thousands over the life of the loan.


It works like this: a 30 year fixed rate loan was $407,500 a few years ago at 4.75% interest; the monthly principal and interest payment being $2,125.71/month. After 25 payments, the owed amount is $395,055.05 with 335 months remaining. With a Flex-Term Refinance at today’s rates, a new 3.75% loan can be acquired and structured so that the existing term stays the same at 335 months. Assuming the same balance of $395,055 is financed, the new monthly payment becomes $1,899.19/month. Not only do you reap a savings of $226 per month, but your initial loan term remains unchanged.


Whether you want your loan term to stay where you are at presently or if you would like further monthly savings and options by starting a new term, we have the loan product for you to keep moving forward.


7 Steps to Buying a Short-Term Rental/Vacation Home

Shannon Gray - Wednesday, July 26, 2017


Recently my wife and I purchased a short-term rental/vacation home. Through that experience I came up with 7 steps to assist those considering purchasing a short-term rental/vacation home.


1. Determine where you love you to visit and where there are opportunities for short term vacation home rentals.


2. Figure out your financing.


a. Down Payment: How much will you need to put down? Are you going to use savings for the down payment, will you sell stock or will you take equity out of another property you own?

b. Monthly Payment: What will your monthly payment be including property taxes, insurance and HOA?


3. Ascertain the present demand for vacation rentals: Is it a destination where people want to visit? Are there vacation properties there already? Is there an overabundance of vacation rentals? Does the city regulate and/or allow short term rentals?


a. How much can you charge? What type of occupancy can you expect? Meaning, how many days of the month can you reasonably expect your home to be rented? What is the total estimated gross revenue?


4. Determine the costs in addition to your housing payments. Some of these may include transient taxes, cleaning service, utilities, cable, cleaning supplies, toilet paper, coffee, etc.


5. Now crunch the numbers. Take your estimated monthly revenue and subtract your housing payment and non-housing related expenses. Your estimated positive or negative cash flow will help determine if this investment is a worthy risk for you.


6. Find your dream home with an experienced Realtor’s help. They should also be able to assist you with determining reasonable estimates for the demand of the property as well as the costs. If the property you are purchasing isn’t already a vacation home you will need to buy furniture and appliances to make your property a “home.”


7. Okay, you closed on your property. Set up listings on AirBNB, VRBO and possibly Flip Key. You’ll want great pictures and good description of the area and your property.


To dive a little deeper and obtain further info, including the pre-approval process, please reach out to us today.


Change is in the Air

Shannon Gray - Monday, July 18, 2016


Repair. Improve. Upgrade.


Have you noticed? Construction crews seem to be everywhere lately. With real estate values up and the economy performing relatively well, many homeowners are looking to spruce up their homes, rather than selling and buying another home. Steven Thomas, a California Real Estate Broker who follows Orange County real estate trends, states that the average selling turnover rate for an Orange County home is 23 years!! He attributes this to a variety of factors including low ownership rate among millennials and a lack of new construction due to limited vacant land.


Also, many homeowners choose to make home improvements rather than deal with the sale of their current home and finding another to their liking. However minor, many updates can still hurt the pocketbook. Don’t have the cash to pay for them? With rates still at extremely low levels, you may elect to take a little equity out of your home via a cash out refinance and reinvest the extra proceeds into improvements to your home. Not only will you get to enjoy such improvements, but will typically see the value of your property increase as well.



Piggyback Mortgage

Shannon Gray - Wednesday, June 22, 2016

Piggyback Mortgage


Are you looking to purchase or refinance a home and would like to finance more than 80% of the value of the property? More options are becoming available. In addition to loans with Private Mortgage Insurance (PMI) or Lender Paid Mortgage Insurance (LPMI), some borrowers now have the option of adding a piggyback 2nd mortgage to avoid PMI. This option is often referred to as an 80/10/10. Let’s say you’re purchasing a home for $500,000 and you have $50,000 (10%) for a down payment. In this scenario you would finance $400,000 on a 1st mortgage, $50,000 on a piggyback 2nd or Home Equity Line of Credit and put 10% down. The Home Equity Line of Credit offers flexibility that traditional closed end mortgages do not. Like a credit card, you only pay interest on the money that is outstanding on a Home Equity Line of Credit. If nothing is owed, no interest is due. If $25,000 is owed on a $50,000 line, you will pay interest on $25,000 and still have another $25,000 available to you during the draw period. Draw periods are typically 10 years with another 20 years to pay off any balance due after the end of the draw period. The interest rate is adjustable so you need to be aware of the risks that come with it. If used properly, this financing method is an excellent tool for many to achieve their real estate and financial goals.

Will Mortgage Interest Rates Increase?

Shannon Gray - Wednesday, June 22, 2016

The Federal Reserve members are showing strong indications that they will begin to raise the Federal Funds Rate in December, which has held the effective rate at zero for seven years.


Many people are confused as to the Fed’s impact on mortgage interest rates. While the Federal Reserve members do influence mortgage rates, most mortgage programs and rates, such as the 30 year fixed, are not directly tied to the Fed’s decisions on the Fed Funds Rate. Market forces and other factors such as inflation and economic data impact long-term mortgage rates. With positive economic news regarding the labor market and a few signs of mild inflation, mortgage interest rates have begun to slowly rise. The Federal Reserve will move to slowly increase the Federal Funds rate which, again, does have an effect on mortgage rates, but there is not a direct correlation.


If you have an adjustable rate mortgage you should be aware of the impact of the Federal Funds Rate on your mortgage interest rate and payment. This is especially true with a Home Equity Line of Credit where the interest rate is tied to the Prime Rate. As the Fed’s begin to raise rates, these loans will increase in lock-step with the Fed Funds Rate. Another common index used for adjustable rate mortgages, LIBOR, while not in lock-step with the Fed Funds Rate, usually tracks the Fed’s movement. Homeowners with these types of loans can expect their payments to increase in 2016.

While most economists predict mortgage interest rates will increase from our record low levels, fixed rate mortgages will not move in lock-step with the Fed’s movements and barring any unexpected news, the rise in mortgage rates should be gradual. It’s a good time to contact me to review your current situation to make sure you are in the best loan for your situation.



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