Friday, February 2, 2018

Stop What You're Doing. Watch the Mortgage Interest Rates.

People ask me all the time where mortgage interest rates are and where they'll be next month. 

I always tell them the honest truth, that interest rates will do one of three things:  go up, go down, or stay where they are. 

Interest rates have stayed where they were a couple of weeks ago for years.  Never breaking lower than 3.5% and bumping barely above the 4.0% mark for 30-year loans has been a constant for years now.  Tough recessions will do that.  The Fed has stayed relatively constant most of that time.

But look again.  Interest rates are up, and going higher.  Suddenly.  Significantly.

Freddie Mac (quasi-governmental secondary market buyer of mortgages since it was created in 1971) has been reporting on mortgage activity weekly for decades.  It surveys mortgages from across the country for the prior week, compiles the data and reports publicly on Thursday mornings.  Yesterday was Thursday, but not the vanilla ice cream kind of Thursday to which we've become accustomed.  30-year rates went to 4.22% for the common cost of 1/2 point. 

If you watch the economy, that should shake your foundation.  But there's more.  Reviewing the data right now today, it didn't stop at 4.22%.  Right now, you'll commonly see 4.50% for the same cost.

That means that mortgage interest rates increased over the past week or ten days 1/2 percentage point.  Compared to then, for every $100,000 you borrow at the end of this week, you'll pay $30 more in your monthly payment.  If you borrow $500,000, that's $150 more.  Every month for as long as you owe the money.  It adds up.  That's not whoop-out money. 

What caused it?  Many things, but note the jobs report this week.  200,000 new jobs.  Nice.  But the big news was that average wages increased significantly.  That's what the Fed has been watching for months. 

Watch the Fed.  Watch the jobs reports.  Watch the interest rates.  Call me if you want to buy a home this year.  Looks like this month might be a whole lot better than three or four months from now.

I'm always here for you.

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

Tuesday, January 9, 2018

The simplicity around interest rates. Two entertaining facts.

As a professional real estate broker who's been in the business of finding people their homes and real estate investments for quite a lot longer than 30 years, people ask me all the time where interest rates are going.  They intend to wait until they're lower before they buy.

Lower.  Than the current 4.00%. 

Let's have some fun with this.  Just two facts for your entertainment. 

1.  The first home I sold in 1984 was to a veteran in Bremerton, WA with a VA loan.  The interest rate on that loan was 18.50%.  Go ahead, laugh.  I'm not kidding.  18.50%.

2.  When the Bank of the United States was created by Alexander Hamilton in 1791, creating for the first time in this country a relatively stable marketplace for mortgage money, interest rates hovered around 7.00%.  Think about it.  The risk of borrowing money in a brand new country with a brand new financial system, no standing army, 97% farmers and the individual states still wanting to print their own money because they didn't trust the country to last.  7.00%. 

How bad do you believe the economy has to get to drive rates lower than 4.00%?

Truth is, the current market is solid and improving.  The Federal Reserve has publicly stated that it intends to raise rates three times in the coming year.  If you're waiting for interest rates to go down, better have a bag lunch.  You may be in line for some time. 

Call me with your questions anytime.  I'd love to talk.

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

Monday, January 8, 2018

The Fed cannot just raise interest rates. Here's what really happens.

The Federal Reserve has a duty to the American people to keep inflation under check.  To do that, one of the few tools in its box is to raise the interest rates that banks pay on overnight loans from other big banks. 

Hold on, though.  It can't do that.  This is a free market. 

People think that the Fed just raises interest rates.  We don't think anything of it because that's how the press reports it.  We all think it must just make the decision at its monthly meeting on where rates should be, higher or lower or stay the same, post the new rate on it's website, and everybody has to charge that rate until further notice. 

That is not at all what happens.  This truly is a free market, and interest rates are part of that.

Here's how it works.  If the Fed sees that inflation is becoming or might become a problem because the economy is heating up (meaning we're buying more and corporations are manufacturing and shipping more, and perhaps hiring more people, and maybe even building more factories, etc.), it decides to slow that economy to avoid significant increases in consumer prices.  (After all, that's what inflation is.)  Those corporations borrow money to build those additional factories and hire more people, so they're very sensitive to increases in the costs to make those goods.  The public also decides to buy those products partly on the costs, and if the cost is getting too expensive, the goods stay on the shelves, and therefore the corporations slow production. 

The Fed knows that those companies will slow down a bit if the cost of borrowing money increases, so it does what it can to make that money more expensive.  It does that by deciding to sell less money (Treasuries), which are sold on the auction block on a very scheduled basis.  When there are fewer Treasuries to buy, the price at auction will increase, thereby increasing the cost of money.

Since the Fed has been doing this for the entirety of its existence since 1913, it has a lot of data about how much these decisions will impact those interest rates, and it's gotten very good at it.  It knows from experience how much to restrict the amount of money on the block to effect a 1/4% change.

That said, when you hear that the Fed has raised interest rates 1/4%, that means it has decided to sell a specific amount less than it has been, and the result it intends will be that the banks will pay about 1/4% more.  It may end up being a little less or a bit more, but it will be close.

That's called free market.  So when you hear that the Fed has raised interest rates, don't believe it.  It's actually decided to sell less money, hoping that the effect will be an increase in rates.

Just a fact that you can now use at the next dinner gathering.  We should all be as well educated about these things as we can be.

Meanwhile, if you're thinking about selling your home this year and moving into the home you really want, call me.  We should get together and talk.

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

Friday, January 5, 2018

Before you buy that car, check on your Sales Tax Rate

We all pay taxes, and with the new tax law that was just signed by the President, everybody is talking about them.  Income taxes, state income taxes, estate taxes, capital gains taxes, the new tax brackets, etc.  How will it all affect me?

But everyone ignores another tax that seriously impacts your buying power.  Have you considered comparing your sales taxes to what others in your geography pay?

Sales taxes are levied based on what your immediate community's needs are.  You pay sales taxes when you buy something (hence, the "sales" in sales taxes).  You don't notice it because it's just always there.  A very few dollars when you buy a couple gallons of paint for the living room don't bother you.

But you may visit the hardware store all the time.  It can dribble in over the course of the year, and you don't even think about it.  Sometimes, though, it really hits you.  Have you bought a car lately?  The sales tax on that one purchase isn't just whoop-out money.

So how much do you pay?  It depends on where exactly you live and shop.  If your hardware store is in Boulder, you'll pay Boulder sales taxes.  If you buy somewhere else, you pay the taxes required in that community.

For some larger purchases, the taxes are levied based on where you live.  Car dealerships, for instance, will ask you for your home address so that it can levy the taxes required in your community.  Living in Niwot or unincorporated Boulder County can be a wonderful benefit.

Take a look at the following chart.  Look under the Total Rate near the far right to see what you'll pay.

Now you know what I mean when I say living in Niwot or unincorporated Boulder County is wonderful.  Certainly, you'll never sell your existing home and move just to get a better sales tax rate, but you might appreciate more how the local communities manage their needs.

If you're looking to move at any time this year, call me.  I'd love to sit with you and answer all your questions to help you prepare.

Enjoy the day,

Mike Moger
WK Real Estate
303.541.1920 office
303.859.4467 mobile

Thursday, September 28, 2017

Interest Rates Update

Welcome to Thursday, 28 September 2017. 

It being Thursday, it's time to update you on what market rates were for mortgage loans over the past week in the US of A.

Every week on Thursdays, Freddie Mac compiles the stats for what mortgage activity happened over the past week, and reports what the average interest rate was and what costs the borrowers paid for that money, as follow:

30-year mortgages over the past week averaged 3.83%, and for that money, borrowers paid 0.6% in fees.  That means that, for every $100,000 borrowed, people paid in points and fees a total of $600, and the monthly payment over the next 30 years will be $467.67.

15-year mortgages for the lender are less risky, so the interest rate is lower, this past week averaging 3.13%.  Cost for that money was 0.5%.  For every $100,000 borrowed, people paid in points and fees a total of $500, and the monthly payment over the coming 15 years will be $731.20.

5/1 ARMs are different.  Adjustable Rate Mortgages are fixed for the first five years, then adjust to the marketplace each year over the final 25 years.  This past week, borrowers of 5/1 ARMs signed at 3.20%, at a cost of 0.50% in costs.  In real money terms, that's $500 for each $100,000 borrowed, resulting in a monthly payment of $432.47.  Again, that payment is fixed for the first five years before an adjustment.

Not bad, considering that when the Bank of the United States was created in 1791, interest rates were about 7.00%.  I'm happy .

Call me as you need.  I"m always here for you if you're thinking about buying or selling your home or real estate investments.

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

Wednesday, May 3, 2017

Property Tax Bill is in the Mail. Better Sit Down Before You Open It.

As an owner of real estate in Colorado, you’re about to receive in the mail your assessment from the County Assessor, which is of course used to determine your property taxes for the year.  Please sit down before you open that one.  The increase in value might surprise you – and cost you.  Then call me.

First, some history to make homeowners feel a whole lot better.

I had a wonderful thing happen this past year with a client.  He found out that a home in Colorado was going to cost him much less than he expected.

We were talking about property taxes.  Moving from New Jersey, where property taxes are very high, he wanted to know what the cost was going to be when he bought a home here.  It’s always nice to know what you’ll pay for a property before you sign the documents.

The price point he was looking at was around $500,000 and he was ready to pay all cash.  The monthly costs of owning a home outside of paying a mortgage was concerning him.  After all, he would still pay for homeowner’s insurance, HOA fees, upkeep and property taxes.

I looked up a number of homes in the areas he was looking and showed him on my computer that the taxes would be about $4000, maybe $4500, depending on exactly which community he was considering.

“So about $50K a year,” he said.  “That’s higher than I thought, but I guess it is what it is.”

I had the pleasure of telling him that he misunderstood.  The $4500 tax amount I gave him was for the year, not one month.  You should have seen his face.  I could sell that picture on eBay.

His taxes on his $350,000 home in Jew Jersey were $28,000 a year.

Property taxes in Colorado are lower than many places in the country for a reason.  It all goes back to 1982 with the passing of the Gallagher Amendment to the State Constitution.

Combined with the Tabor Amendment, here’s how it all works today.

Governments have to budget.  They need a certain amount of money to do what governments do.  If there isn’t enough money, they have to cut costs, because the public has to approve new expenditures.  It’s why we vote during the election cycles to increase the number of mils for education, capital expenditures like building new buildings, etc., fire department expenses, transportation issues and road maintenance costs.  Cities get some money, counties get some money, and the list goes on.

Property taxes in great part pay for those costs.  If you didn’t pay property taxes, firemen and teachers wouldn’t get paid.  New schools would never get built.  It’s important, and we all want them to have money.  Just not unlimited amounts of money.  We as citizens can support the bonds that raise that money -- which we have to pay back over time -- or vote them down.

The County Assessor is tasked with deciding the market value of the real property in the county according to the rules set down by Gallagher.  The market value may be determined in a limited number of ways, again only according to the rules in Gallagher.  Each property of the same zoning designation is assessed by the same rules, with the goal of determining the fair market value.  Those values are then handed off to the County Treasurer.

At this point, the county is divided into three separate worlds – residential, agricultural and commercial.  Residential is where people live.  Commercial covers retail stores, industrial and office properties.  Every property is zoned in one of the three.  Agriculture is mostly the rural areas of actively producing farm properties.  Most important are the former two.   I’ll ignore ag for now.

The intent of Gallagher was to maintain and eventually reduce the tax burden of residential property owners.  Following is the tax collection structure that was created.

Commercial property is taxed on 28% of the actual property value.  If a building is assessed at $1,000,000, the owner is taxed on $280,000 of that value.  Multiply the number of mils that the voters have approved, and you have the yearly taxes that will be billed the property owner by the Treasurer.

Residential simply pays for the remainder of what’s needed to meet the budgets.  If 1/3 of the tax monies are covered by commercial, residential needs only cover the remaining 2/3.  Whatever commercial covers, residential must cover the remainder.

What’s happened in Colorado since 1982?  Cities have grown in numbers not seen in our history.  There are so many, many more homes out there now that all together help share the burden of that remainder, that the obligation of each homeowner has been reduced significantly.

The result today is that a $1,000,000 home is taxed on only about $75,000 of its market value.

Not possible, but true.  That $1,000,000 office building pays taxes on $280,000 of its value.  A $1,000,000 apartment building next door pays taxes only on $75,000 of its value.  It’s the law.

As you drive around town through the commercial areas, you might think to quietly thank the owners of those buildings.  They’re tax bills are almost four times what you pay on your home, dollar for dollar in value.  Thanks to Gallagher, that’s tax money you as a homeowner don’t have to pay.

Finally, know that you have the opportunity to challenge that valuation.  It has to be done a specific way, using comparable sales from a specific period of time and within defined parameters.  Feel free to call me if you choose to challenge.  I’ll send you the comparable sales that may help lower that tax bill.

Again, call me as you need.  I’m always here for you.

Enjoy the day,
303.541.1920 office

Wednesday, April 26, 2017

Madonna can help sell your home

I love Madonna.  Kind of.  A bit racy for my tastes, but I think she’s very talented.  And she taught me a valuable lesson about selling homes very early in my career.

Jim Bryan was one of my first bosses in the real estate sales business.  I was only a couple weeks on the job when he told me to get in the car.  He wanted to show me something important.

He drove to a neighborhood about five years old with a couple of homes for sale, and told me he wanted my opinion on the values.  No problem.  I knew the area well.

We walked into the first home and he told me to walk around and let me know what I thought.  The entry was nice.  You could see past the moss rock fireplace through the living and dining areas to the wall of glass in the back.  From the deck, you looked over a quiet ravine with a creek below.  The kitchen was modern, with stone counters and raised panel beech cabinets and all white appliances.

When I walked upstairs, Jim was in the first bedroom, staring at a poster on the wall.

“Who’s this?” he asked.

I had no idea.  A huge stage with a rock band had a tiny little lady you could barely see in the middle of it all.  She was obviously belting out a song and wasn’t wearing much.  In the bottom right corner, I read “Madonna”.

“Oh, this is Madonna,” I said.  “She’s the phenomenal new talent in the rock world.  Very big deal.”

Jim just looked and said, ”I think people should wear more clothes in public.”

When I finished walking through the home, he asked me what I thought of the asking price.  It was on the market for $84,900.

I knew this was a test, so considered my answer carefully.  “I think that’s fair.  This neighborhood will support that price,” I said.

Next house was three doors down on the same side of the street.  “Let’s take a look at this one,” Jim said.

When we walked in, I knew it was the same floor plan, same size, same builder built in the same year.  Nice rock fireplace, glass wall leading to the deck overlooking the ravine.  Cabinets were raised panel.  Nice appliances.

I found Jim upstairs in the first bedroom.  Amazingly, he was staring at the exact same poster of Madonna on the same wall of the same room.  These neighbors must have been good friends.

But it was different.  This poster was matted, under glass and framed.  The walls were painted a cream color.  I started looking differently at the whole house.  The furniture was leather.  The rugs on the hardwood floors were beautiful Persian-style rugs with colorful patterns.  All of the walls were painted in warm colors, and the rest of the art was actually art.  Real oil or watercolor framed in beautiful wooden frames.  Bookcases were stacked neatly, cut flowers in every room.  Even the dining table was set for a dinner party of eight, with cloth napkins and wine glasses.

“So this one’s asking $89,900,” Jim said.  “What do you think of that asking price?”

Again, I knew this was a test.  After some thought, I avoided the inevitable trap and told him, “You don’t get the furnishings with the house.  It’s the same house as the one down the street for $5000 less.  I don’t see it at $89,900.”

“Which one will sell first?” he asked.

“You don’t get the furniture.  The one for $84,900 will sell first.”

“But which one will sell first?” he asked.

“The one down the block.”

“But which one will sell first?” he asked.  I got it.

“This one, obviously,” I said.  “It’s a much nicer home.”

“Exactly,” he said.  “Let’s watch over the coming weeks and see.”

Jim was right.  The home that was staged beautifully sold three days later for almost full asking price.  The other was on the market for two months longer, and sold for less than the $84,900 they were asking.

It didn’t make sense.  The houses were identical, but one sold for significantly more money in much less time.

Statistics show that a buyer will make up his or her mind on whether or not to buy a home within 18-20 seconds after walking through the front door.  A home either feels wonderful or not.  It’s either home or not.  The rest of the tour is commonly just verifying that there really are bedrooms and bathrooms.

Staging a home is critical in any marketplace.  Sometimes remodeling or refurbishing a whole home, although perhaps expensive, is worth it on the bottom line.  Sometimes it’s not.  But always, cleaning and staging a home is critical.  It is always worth every dime and every hour spent on it.

If you’re thinking about selling your home or investment property in the coming year, it’s time to call me.  I’m happy to walk through with you and talk about what we might do to make those first seconds count.  Fact is, even Madonna, presented well, can help.

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