Friday, March 17, 2017

The Fed Raised Interest Rates. What Really Happened?

Breaking News:  The Federal Reserve Board today (15 March 2017) raised interest rates .25%, the second time in three months.  Further, it hinted that it would raise rates twice more in this calendar year.

Great.  What just happened?

Most people, not being wonky economists, think that the Board of Governors (of the Federal Reserve Board, not your state government) voted to raise interest rates on all loans that banks give, and that they decided on what those interest rates will be.  The overnight rate has been at .50% for a few short months, and the Fed raised it to .75%.
That would be wrong.  It’s so much more entertaining.  Our economy is a Keynesian economy. What that means mostly is that it’s a free market enterprise.  The market conditions will determine what costs are.

Think about it.  If you own your home and now want to sell, your broker will show you market conditions and past sales to help you determine for how much you can sell that home.  You can’t just throw a price out there and expect buyers to pay you what you want.  That would be foolish.

The Fed has to follow the same rules.  It cannot just decide what interest rates will be, change the number on it’s website, and that’s what people now have to pay.  Those people will pay what they are willing, and en mass, their actions will determine what that rate will be.

When the Fed “raises interest rates”, it simply means that it will change the way it’s done business in the immediate past.  The Fed decides how much money it will sell each month, and it does that in an auction.  If it floods the market with a massive amount of money, banks (the buyers of that money) will be able to buy it at a better (lower) price.  If it offers less money than usual, the buyers will have to bid higher or lose to another bidder.  It’s no different than a farm auction, except that the bankers are all wearing suits and it all happens with computers now.

In short, the Fed doesn’t “raise interest rates”.  It decides how much money it will sell in the coming weeks, and in so doing, will help guide the market to what it thinks the value of that money might be.

Having done this for a very long time, the Fed knows approximately how much less money it needs to offer in the auction in order to move prices up approximately .25%.  In reality, it has to wait and see what it gets.  The real overnight rate will probably end up somewhere between .75% and 1.00%.

The overnight rate is the lowest rate in the country.  Every night after the banks close, bank computers borrow and lend to each other in order to be certain that no bank is out of line with federal regulations, that they all have enough money to conduct business the following day, etc.  Some banks will have more than they need, so they lend to others until the next night, when it all happens again.  That .75% is the interest rate that one bank pays another for that overnight money.

Other interest rates (car loans, mortgages, business loans, etc.) will be determined by what the market is doing, along with what the banks had to pay for the money it will lend.  Mortgage interest rates will probably go up over time, but mortgages are some of the longest term debt in the country.  Rates won’t automatically increase .25% tomorrow morning.

Other shorter term money will.  Look to the interest banks will charge you on your credit cards to increase pretty quickly, along with 60-90 day loans.  Interest on auto loans will increase right behind them, as most are 3-5 year terms, but far short of the average mortgage.

I picture the Federal Reserve as a choreographer.  And everyone knows that the most beautiful choreography will be upstaged every time by a single dancer falling headlong into the orchestra pit.  It has to make the decision, and watch it all play out, just like the general public.

If you’re looking to sell your home or investment property, now might be a good time, before those interest rates start moving up.  Call me anytime.  I’m always here for you.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile

Wednesday, March 8, 2017

Money is important. Learn it all. I'll help.

A receptionist at the office many years ago asked for a favor.  One of her professors at CU had told her that her generation was the most ignorant when it came to general knowledge, and she was mad about it.  She asked me to ask her a question every day when I came in, so that over an extended period of time, she’d know more than others in her age group.

All of our receptionists took advantage of our exercise and had some fun with it.  I was quite surprised when not one of them could name all four Beatles (first and last names), and disturbed when half couldn’t name the last two vice presidents of the United States.

Fact is, knowledge is a good thing.  Everyone should have the basics.  You can get by without knowing who is in what rock group, but the VP of the US is actually important.  

Critically important, though, is money.  How does it work?  What's the difference between a stock and a bond?  What's an annuity?  Is the value of your home increasing, decreasing or not moving at all?  What affects that value?  What’s happening in your neighborhood that might affect that value?  If I add a family room to my home, will I get my money back when I sell?  How about a pool?  What does it cost to sell?  Where are interest rates today, and why is that important?  Are insurance costs stable?  Will my lender suddenly require flood insurance for my neighborhood?  What’s a FICO score, and what happens to it if I buy a car?  How did that huge recession mess happen back in 2008?  Why is it true that lower income people actually pay more (quite a lot more) for goods and services in this country than their wealthier neighbors for the same stuff?

I asked someone recently how much additional money someone would have to make to pay off a $30,000 debt in one year.  The answer is not $30,000.  It’s not even $30,000 plus the interest you have to pay for that year.  It’s much higher.  Because we pay income taxes (both federal and state income taxes in most states), you actually have to make enough to pay all of the taxes on that additional income first, and have the $30,000 plus interest left over.  Unless all of that debt and interest is tax deductible, you have to budget a much higher income – somewhere in the $35,000 to $40,000 range for most people -- in order to have enough.

Money is important.  We need it to buy homes and everything else, and how you manage your money matters.  General knowledge about money is Step One.  So I’m making a commitment to you.

In the coming weeks and months, I’m going to send you tidbits of information – important information -- about money, business, your home, taxes, investments, retirement and a host of things that will directly affect you.  No Beatles questions.  I’ll even skip the one about the VP.  Only the actually important ones that have to do with your money.

I’ll also give you the answers.

I used to be certified as a CFP (Certified Financial Planner).  I know the difference between a stock and a bond, and what makes them increase or decrease in value.  Academically, it fascinates me.  But practically, I benefit from it all.  As a REALTOR, I know that you will benefit also from the common sense common knowledge that I’ll give you in the business world.  Nothing confusing or complicated.   Entertainingly written.   Just the facts.  I’ll have a graph or two.  Nothing political for one side or the other.

And if you’re planning a move in the coming year, we should talk.   If you know people planning to move in the coming year, I’d love to talk to them as well.

Call me.  I’m always here for you.

Enjoy the day,

303.541.1920 office
303.859.4467 mobile

Monday, December 12, 2016

Colorado is the state to beat -- again!!

Everybody loves a winner.  It's even better when we get paid for it.

One of the significant data reports that I follow is the quarterly home price index that's put out by (Federal Housing Finance Administration).  It has the housing price stats for all of the country back to 1991 and this agency puts out a wonderful report four times every year.

One of the data streams is how much average housing costs have increased or decreased on average in each state -- for the quarter, for the year, for the past five years, and all the way back to 1991.  I know, I'm a data geek, but when the numbers are this good, it's a lot of fun.

Colorado once again this quarter (2016 3Q) showed in the top four of the fifty-one states (FHFA considers Washington, DC as a 51st state).  The highest increase in the country over the past year has been Florida, followed by Washington state, Oregon and Colorado in that order.  All of them increased between 10-11% over the past twelve months.

But there's more.  Not only does Colorado consistently perform well in home appreciation on the yearly front, but in the long term.  (This is so much fun.)

Since 1991, only one "state" has outperformed Colorado.  Our home values on average have increased 296.37% over that 25 years, better than almost everyone.  Only DC is better at 376.18%.

If you own a home in Colorado -- and especially if you've owned a home for a long time in Colorado -- you've done well on the investment side.  Nicely planned and executed.  You're a winner living amongst winners.

If you're thinking about a move sometime this year, call me.  It's time we should talk.

Enjoy the day,
Mike Moger
WK Real Estate
303.859.4467 mobile
303.541.1920 office

Thursday, September 22, 2016

I'm back.

I’m back.  I know I've not written a blog for a few short months, and I never let that kind of time go by without getting you an update on the real estate market or a bit of information about managing money, or whatever.  But I’ve been away.  At home.

Truth be told, I had a heart situation and had open-heart triple-bypass surgery.  When that happens to you, the doctors and all the wonderful medical people around them tell you to take some time to lay back, take long walks and heal.  I did.  And now I’m back.

The nice thing about it is that I’m refreshed, newly energized about life and ready to go conquer the world.  The great people at WK Real Estate were fantastic about taking care of my clients and friends in their home and investment needs while I was away, but now I can’t wait to see you again.

I’ve been doing a lot of thinking on those long walks.  Money is so important.  Not compared to so many other things in life, but it’s the thing we don’t talk much about.  We don’t share our income and expense data, our budgets or what’s in our investment portfolios with even our closest friends.  Studies have shown that money is the most common subject about which we lie.  We talk openly about our spouses and kids, our vacations and plans for what we’ll do in our retirement years, the books we read and movies we see, and the things we’ve done in our lives.  Not money.  Money and how we manage it is a very private thing.

So I write these posts, because if we don’t talk about money, we don’t learn about money.  A good friend recently asked me about budgeting.  He’d read an article and thought it might be a great idea.  To me, it’s the very first thing we ought to have learned about money as we grew up.  To me, everybody should actively budget.  To me, it’s common sense.  People just don’t know much about it.

So in the coming weeks and months, I'll be writing these posts again.  Read them, pass them on to your kids and neighbors, call me if you have a name and address you’d like me to add to my mailing list.  Call me with ideas and questions.

This first new post, as I commonly do, let me throw out an idea.

If you own stocks or bonds, mutual funds or even a checking or savings account at a bank, you receive a statement on a regular schedule.  It shows you how much money you have in the account or have invested, the activity in the account, how much interest, capital gains or equity you’ve earned, and more.  You get this monthly, quarterly, or certainly yearly.  It’s important, because you should always know how much you have, whether or not that money is making you more money, slowly dribbling away your hard-earned investments, or crashing.  It shows you how much you have invested in equities, debentures or cash or cash equivalents.  If you understand what you’re reading, it can tell you when it’s time to adjust your asset allocation before the next technical correction, to help you manage the risk of investing where you have.  From it, you plan your retirement.

Statistically, owning a home is the biggest investment most people make.  People have more money tied up in their homes than in anything else in their portfolios.  Yet they don’t get a statement, other than the county assessor sending them a computer valuation for property tax purposes.  I honor tremendously the great work that goes into that valuation, but honestly, it doesn’t truly tell you what’s happened in the market or what your home is actually worth on the market.

So I think people should get a statement on their home.  I think people should get a statement on their investment real estate.  In fact, it’s so important that I think a good, professional person in the real estate industry should sit with them yearly and discuss what’s happened in the markets – nationally, state-wide and locally, and even into the immediate neighborhood in which they live or invest.  I think they should know what their homes and investments are worth.  From there, they can envision their long-term plans as they move from one phase of their lives to the next.  In that meeting, they can ask all the questions they have about real estate.

I’m ready.  If your property is in Colorado, I’d love to be that professional person to show you that statement, and do that on a yearly basis for you.  I think it’s important.  Let’s call it the yearly real estate review.

In this post, I invite you to call me to set a time.  That sit-down meeting at my office or in your home will take about ½ hour of your time.  ½ hour per year.

I love these long walks.  Walking allows me to heal.  It allows me to put things in perspective.  It allows me to set some goals.  It allows me to make some adjustments in my life that might better serve you.  Sometimes ultimately, it allows you to be better informed.

Call me.  We’ll set a time.  I’m very much looking forward to it.  I'm always here for you.

Enjoy the day,

303.541.1920 office
303.859.4467 mobile

Saturday, July 9, 2016

Mary Sells Her Home

The “M” word.  Let’s talk about money.

Yes, I know that money is critically important to you.  We all need it to pay our bills.  Sellers have the right to claim for themselves the equity that they’ve built into their real estate holdings.  Buyers have the right too to get the best they can and save some money by getting a better deal.  It’s called negotiating.  It’s what we do at the table.  It's what I've been doing for more than thirty years.

But I have to tell you something that’s going to sound a little strange, and some people are going to throw it away as a passing comment, but it’s true that money is sometimes not the most important big thing at the table.

There’s a tale I’ll tell that happened to me many years ago when I was selling real estate in Port Orchard, WA.  Lois and I had bought our first home.  It wasn’t a great neighborhood.  The home was only 420 square feet.  Just down the road from us was a wonderful older couple I’ll call Mary and Jack.  Unfortunately, Jack passed away, and Mary came to me and told me that she needed to sell her home.  She needed to move down to California to be closer to the kids.  She needed all the money she could get from the home, but it was free and clear of any debts and she thought she could make it all happen with those funds.

I told Mary that we’d get as much as we could for her and make it all happen as quickly as we could so she could move down south.

We listed the home for $37,500.  (Like I said, this was many years ago.)  The home was only about 600 square feet and wasn’t built just absolutely square to the arithmetic standards of today.

I put an ad in the local paper, which is what real estate brokers did as our primary tool for finding buyers back then, and I got two calls on the first day.  I showed the property at 11:00 in the morning to an investor, a lady who owned a number of very inexpensive properties in town.  Mary happened to be there and the investor turned to her and said that she’d have to do some painting.  Mary just nodded.  “And it looks like there’s a roof leak over in the corner there.”  Mary nodded.

The investor then asked Mary outright.  “Will you take less?”

Mary did exactly what I’d told her to do.  She looked this lady square in the face and said very politely, “You’re going to have to talk to my real estate broker about that.”

We left with the investor telling me that she’d think about it and get back to me Monday.

At 2pm that same day, a young couple came to my office.  They were going to have a baby and wanted to go out into the world and buy their first home with about $2000 they’d inherited recently.

I drove them over there.  Mary was gardening in the back yard.  This young couple was just giddy.  They were open with their plans.  

“We can put the baby over in this corner.”  (Again, this was a very small home.) 

“Oh look, Honey, there’s a roof leak.”

“I can fix that, no problem.  I’ve got a ladder.”

When they saw Mary in the back yard, we had a very short conversation.  Basically what it amounted to was “You have a wonderful home.  We really hope to buy it today.”

Back at the office, we talked about money with a lender and all they could do was $34,000, so I wrote the offer.  They really wanted this home.

I called the investor and told her that we had a written offer on the home.  She hated the competition, but really wanted it.  I wrote the offer for her at full price, all cash, and close in two weeks.

There it was.  That evening, I sat with Mary at her kitchen table with two written offers.  I went through them in detail.  She quietly stared at those two documents for some time, and finally asked, “Do I have to take the higher offer?”

“No, not at all.  You can take the higher offer, you can take the lower offer, you can counter one of the offers.  You can do anything you want because you’re the seller and this is the United States of America.  Right now, you’re in control here.”

She smiled.  “I loved those two kids.  I thought that investor lady was rude.  Jack built me this home when we got married many years ago.  I raised my two boys here.  They went to college.  I don’t want her to have this house.  I want those two young people to have it.  They were so nice.  Can I do that?”

I told her that absolutely she could.  She didn’t have to look at the money as the driving force.  She could take less for the home if money was secondary to things that were more important to her.  Even though the money was less, she could choose to sell her home to that couple if she didn't want to sell to a person who was rude to her.
Mary signed that offer and we closed that transaction.  That young couple bought their first home.  It surprised me at the time, but the fact is that we play with the numbers all the time.  I play with them when I value the home before I list it, and I play with the numbers at the listing table.  We play with them when we get written offers, and again if we need after an inspection or low appraisal.  We sometimes even play with the numbers at the closing table.

But we never play with the people.  That is critically important.  Know that money – the numbers – are not always the biggest thing at the table.  That is a lesson to learn.  It is a fact to know.  People sell their real estate.  People buy homes.  Always.

If this is the year that maybe you’ll sell or buy a home or investment, call me.  I’m always here for you.

303.541.1920 office
303.859.4467 mobile   

Tuesday, May 17, 2016

Why in the World Would I Sell Now?

A client asked me yesterday why in the world he would choose to sell now, right when values are increasing.  Wouldn't it be smarter to hold for a while longer and sell at the top of the market?

He's right.  It's always better to sell at the apex point in the marketplace, when values are higher than they've ever been, and perhaps will ever be.  It's a wonderful thought.

There is that one glaring problem, though, so I asked him outright.  "Could you tell me please exactly when that highest point in the market will be, so that I can call all of my clients and get their properties on the market just then?"

Let's look at some facts.  I always like the facts.

We don't know when the market will change, or exactly when it will peak.  We do know three things.

Firstly, we've had a wonderful run in the past couple of years on our real estate values.  Most people don't know how good it's been, so let's take a look at the numbers.  I always like looking at the numbers.

Following is a chart showing the increase in median sales prices for single family homes in the city of Boulder by month over the past three years, as compared to the median selling prices of homes in the greater marketplace and specifically in Longmont.

The blue and yellow lines are the home values based on median sales prices for the entire MLS area (mostly everything in the NE quadrant of the state north of Denver) and the city of Longmont, respectively.  Adding some detail, we see that the median sales price for homes overall increased over the past one year 10.2%.  Longmont increased about double that at 20.2%.  Very impressive.  

The red line is the city of Boulder.  Ya.  The numbers show a 38.8% increase in median sales price over the past year, now at $760,504.

Before you call your boss to quit your job, I have to warn you not to assume that your home today is worth more than 1/3 higher than last year.  That wonderful 38+ number probably means that more of the more expensive homes are now selling.  It is not necessarily the actual increase in the value of your home.  

Sorry.  Anybody can lie with carefully choreographed statistics.  So secondly, take a look at this other bit of data.

In calendar year 2015, if your home is the average home in Boulder, it increased in value a more modest 13.52%.  Very nice.  Very nice indeed.  But look more closely.

Since 1979, home values in Boulder have done very well.  Some years, we've done very, very well.  But we've not done better than 14.61% in any given year.  In fact, 2015 was the second best year in the past almost 40 years. During that almost 40 years, we've had very good times and some very bad times.  We've lived through and recovered from multiple recessions, lived through technology booms and busts, more than one or two oil and gas booms and busts, and seen about every kind of marketplace you can imagine short of a total collapse of the US markets, and that was even close in 2008.  Our population alone in Colorado increased 1,000,000 people over the past 13 years.

And 2015 was the second best year for home values.  I don't want to be the braggart in the soup line, but you have to wonder how much better it can get.

Finally, one more graph.  This one shows the number of months of inventory we have available for buyers in this current marketplace.

No matter where you are in the marketplace, there's about one month's worth of inventory available.

Explanation.  If no one else decided to sell a home, so no new listings were taken, with the current number of buyers looking to buy now, we would completely run out of available homes to see in one month.  There would be nothing whatsoever for sale.  Nothing to buy at any price.

REALTORS have traditionally thought of 5-6 months of inventory on the market at any given time as healthy.  The buyers and sellers negotiate for the selling price and terms on even ground.  More than 6 months inventory is a buyer's market.  Fewer than 5 months inventory is a seller's market.

I've sold real estate full time for a living for more than 30 years.  I've never seen this.

That's a good reason why you're seeing 38+% increase in median selling prices, and an increase in home values in excess of 13%.  That's why you may want to sell now.  

If you're thinking that sometime in the coming few short years you were planning to sell your home, think about it.  Living in a rental for a short time may be worth the inconvenience.

Call me anytime.  I'm always here for you.

Enjoy the day,
303.541.1920 office
303.859.4467 mobile 


Friday, May 6, 2016

The weekly update from Freddie Mac is a bit better than last week.

Every Thursday throughout the year, as it has since 1991, Freddie Mac publishes its report on what borrowers paid for average mortgage interest rates throughout the country over the prior week.  Today's average covers Monday through Friday of this past week, and includes both 30-year and 15-year loan numbers, as well as 5/1 ARMS.

The Numbers:

This past week, the average borrower on a 30-year fixed rate qualifying loan got a 3.61% annual rate of interest, and paid 0.6% as a fee for that rate.  For that same loan over 15 years, the average fee was the same for a rate at 2.86%.  Those numbers are minimally better than one week ago.

So what does that mean for you?  Had you secured a mortgage on your home this past week, amortizing it over the next 30 years, you'd have paid $600 as a fee for every $100,000 you borrowed.  Your 3.61% rate on that loan would have resulted in a monthly payment of $455.21 for every $100,000 you borrowed.  (A savings of about $3 over one week ago)

Doing the math, if you borrowed $300,000 against your home, you'd have paid $1800 as a fee at closing to get a monthly payment of $1365.62 a month for the next 360 months.

If you chose the 15-year option, the fee this week would have been considerably less at 0.50%.  That means you would have paid only $500 for every $100,000 you borrowed.  In addition, the interest rate would still have been less at 2.86%.  For every $100,000 you borrowed, your monthly payment would be $683.87 for 180 months.  Doing the arithmetic, a $300,000 loan amount would result in a payment of $2051.61, a monthly savings of just better than $4.00 over a week ago.

When I began selling real estate in the early 1980's, interest rates were around 18%.  Your payment for that same 30-year loan at $300,000 would have been $4521.26.

Amazing.  Been thinking about buying a home?  The timing on mortgage interest rates is right.

Call me as you need.  I'm always here for you.

Enjoy the day,
Mike Moger
WK Real Estate
303.541.1920 office
303.859.4467 mobile