IPO and SFO

Sounds a bit like a robust airport code, or two of them at least.  Although the city may have to ultimately build another airport if this accelerated wealth trajectory continues, as things are already 10x more crowded (and pricier) for just about any place or thing.  Waitlists at restaurants, traffic, longer lines everyone – it’s only going to continue.

Lots of talk about the big year of IPO’s hitting the San Francisco market this year – Uber, Lyft, Slack, Airbnb, Pinterest and Postmates all are due to splash the public markets. There is no question there will be impacts, socially and financially, to the city and its surrounding areas.  Just how much of an impact and whether all of it will be good/bad is where you get some different opinions.    Even on the conservative scale, there will be hundreds of millions of dollars flooding into the city and with that will be many more millionaires.  Most of them very young (under the age of 40) and many will be ready throw money around like a Biggie music video.

Food and beverage industry certainly stands to make out well, right?  Yes, of course.  Retail, in general, should continue to thrive here in the city, as well, with people ramping up shopping habits for luxury items like watches and shoes, to revamping their entire wardrobe of casual-but-overpriced-clothing (the new “suit” in the tech industry).  What about real estate?  Surely it floods the market with more buyers and frothy-mouthed sellers, right?  Most likely, in both cases.

Already there are plenty of sellers that have pulled unique properties off the market that maybe had a tougher time selling, with visions of selling them to a millennial that doesn’t mind that the home is not suited for a family, etc.  Some pulled them in hopes of bringing a higher offer price out of would-be buyers if they simply stay patient for another year.  As for buyers, they will be flush with cash and naive (in a good way) to real estate leverage and simply pay what they need to in order to get the place they want.   This equation means a real estate market that goes from being strong to even stronger.  Like, “steroids” stronger.

It is no forgone conclusion, though that every IPO hits it out of the park and has a subsequent ripple effect of economic and real estate euphoria.  Remember SNAP and Groupon?  Both hyped as public splashes that would go down in history, but they ended up doing so for the wrong reasons, with ultimately neither having any major impactful touch on the markets.    As well, one must consider the lock-up periods that shareholders of these companies are attached to.  With many of them for nearly half of a year, it comes down to the company continuing to post positive news, growth, and (dare I say it??) a PROFIT.  So, while going public is a great thing and is to be celebrated in the free market and for its ingenuity, it is not always a sure bet that it pans out.

Let’s watch and see this year, but there is no question that the market (real estate) is going to benefit, regardless of what happens.  It will just be a question of how much.

 

To figure out what you need to do as a potential buyer to get your piece of this market, get in touch with me to talk about what steps you should take.

Email me for more information.

Should I put down 20% when I buy in SF? Do I HAVE to?

Like I always say….it all comes down to strategy. The answer is not so simple, as it would be to say….people from your parents’ generation or even others that have been conditioned to thinking: YES, you must put down 20%, it’s the only responsible way here in San Francisco. While they have a point, it’s not the only one and depending on your own individual situation, it may not be the right path as a first time homebuyer.

Plenty of pros and cons of putting down that much, just from a pure surface level analysis here in the Bay Area. Putting down 20% assures you of avoiding PMI on your loan, securing a better interest rate (unless it’s a condo, then the sweet spot is 25% down), ending up with lower monthly payments and (finally), it improves your chances of overall loan approval in the end.

Some quick downsides can be (for starters) that 20% down is a SHIT TON of money!! With higher price points here in the Bay Area, that is no chump change that most first time buyers just have laying around in their liquid accounts. Putting down that much money also will almost assuredly deplete your cash reserves, which can leave you in pinch if you ran into an emergency, lost your job, needed to fix something expensive on your property, etc. Most important, I feel, is that there can be a better return on your money elsewhere as opposed to sinking it all into a home.

If you’re a first time homebuyer here in San Francisco with a lot of money saved up in the bank, for example, but you have relatively low annual income, making the biggest down payment possible COULD be sensible for the reasons (PROS) I stated above. Or, maybe your situation is reversed. Maybe you may have a good household income but very little saved in the bank. In this instance, it may be best to use a lower down payment strategy while planning to allow the market to appreciate and make up the difference for you into the near future. In strong markets like San Francisco and the Bay Area, in general, even with modest appreciation rates you can be looking at making up 5-10% equity by way of appreciation in just a matter of a few years. In some rare cases, in as little as 1 year.

One thing is true for everyone, though — you shouldn’t think it’s “conservative” to make a large down payment on a home in/around San Francisco. Similarly, you shouldn’t think it’s “risky” to make a small down payment. In fact, I strongly feel that the opposite is true when it comes to real state and financing here in the Bay Area for first time homebuyers. About the riskiest thing you can do when you’re buying a new home is to make the largest down payment you can. It’s conservative to borrow more, and we’ll talk about it below.

These last few years, I have sat down with many aspiring first time buyer and in most all cases, we have come to the decision to put down 10%, 15% on homes and keep some cash back on hand, leave it invested and earning more, or not have to borrower from family to round out the full would-be 20% down payment. While the reasons for going down this pathway may have been different for all of them, the end game was the same – they were all left in a better position for it, despite its incongruence with conventional wisdom.

There are tax advantages, as well, to looking into lower down payment scenarios and allowing the market to help make up the difference for you here in San Francisco. I love chatting about this very topic, so reach out anytime you would like to learn more and strategize on how it might make sense for you, too!
Email me for more information.

Post Mid-Term Update

Some nervous jitters were becoming prevalent in the housing market here in the Bay Area leading up to the election in attempts to sort out the possibilities.  The 3 scenarios at the Federal level all had different potential outcomes in terms of market reaction – specifically mortgage rates.
The end result of a split Congress appears to had already been priced into the market and mortgage rates.  After trending up for weeks leading up the election, they have been flattening as of late.  Certainly lots to attribute to the volatility, but to keeps things simple – chalk it up to lower oil prices, subdued wage growth, and a roller coaster in the stock market precipitated on tech and trade anxiety.   With inflation remaining tame at the moment, it appears that a Fed Funds rate increase next month is no longer the sure shot bet that it once was a few weeks ago.  Chairman Powell’s comments this week were not direct in either direction, but left many feeling that the rate increase next month is no longer a guaranteed lock.  The administration has been very vocal in public comments and interviews that the Fed should not raise rates and has criticized the board by saying they are threatening to derail the economy by raising them.   Although most of the Bay Area and San Francisco is immune to such hiccups and typically ignores this rhetoric, the reasoning behind all of this is actually simple.
Recessions have historically been caused by one of two events.  An economic shock, like we had during the dot.com 90’s and also the housing market crash in the mid 2000s.  The other event that causes them has been by the Fed raising rates to a point where the economy tips backwards, essentially “cradling the baby so much and so forcefully that they ultimately cause harm.”  With little consensus on what the potential “shock” could be and where it would come form (industry, sector, etc.), there is more chatter that the Fed could ultimately “raise “ us to a point of real slow down.  Of course the administration is weary of this because of re-election motivation, so that makes sense when you hear them blasting the Fed for even contemplating more raises.
What does that mean here in San Francsico?  At the moment, inventory remains tight and prices are still high.  Although leveling in some areas and neighborhoods, there is still loads of capital flying out of banks and accounts towards real estate.  Despite rates having trended up to a point where they are nearly 1 full point higher than they were exactly a year ago, homebuyers are taking advantage of market anxiety about the future and getting more offers accepted while not having to overpay.  Bottom line, it remains a great time to get into the market, despite your credit or down payment situation here in the Bay Area.  Waiting certainly is not a bad thing, but if you are motivated and ready to make the jump, your timing is still great.  Email me to discuss options and strategy anytime!

Should I Borrow Against My 401K to Buy in SF?

Borrowing Against Your 401K to Buy in SF…..Good or Bad Idea?

With home prices continuing to creep up throughout the Bay Area, many first time buyers look to borrow from their 401K accounts in order to come up with the necessary down payment.  Depending on your situation (financially and with your employer), this can be good or bad.  Here are some of the good reasons.

First-time homebuyers indicate that “saving for a down payment” is often the number one obstacle to homeownership.  Although some Bay Area households (single and joint) manage to put money aside each month into savings, with each passing year, and as home values climb, the required down payment size grows, not to mention closing costs.  This is one reason why SF buyers sometimes borrow from a 401(k) retirement plan.

When you borrow from your 401(k), you can get the money you want for a home in as little as a week and with nothing more than a phone call or visit to your HR department.   Plus, as you “pay yourself back”, you earn interest on your loan, which can make the 401(k) withdrawal seem like a good deal.  Depending on the amount you borrow and how quickly you intend to pay it back, borrowing (in this scenario) can be a decent plan to help get you “in” the market and into a home.  With appreciation rates where they are, the market can help make up some equity for you that you can later decide to pull out (to pay back your 401K loan), re-invest, leave alone, etc.

How does it work?  When you invest in a retirement program, such as 401(k), there’s no rule to prevent you from withdrawing your money before you actually retire.  You may have a life emergency, for example, which demands the use of your retirement monies; or, you may need the money to make court-ordered payments.  These types of withdrawals are known as hardship withdrawals, and they come with a 10 percent tax penalty.
 

There’s also a provision which allows withdrawals to help with the purchase of a home. Rather than taking a hardship withdrawal, you can actually borrow from your 401(k) account with a promise to pay it back.  Arranging for this can be quick. With just a phone call and some written notes to your plan’s administrator, money to purchase a home be wired to you in as little as a week.

However, just because you can borrow from your 401(k) to purchase a home, that doesn’t mean that you should.  There are some pitfalls when you borrow from a 401(k) to purchase a home which could raise your total loan costs to a figure much higher than what you borrow.

As one example, during the period your 401(k) loan is outstanding, you’re typically prevented from making full contributions to your existing retirement plan.  This means that you could forgo up to 5 years of retirement fund contributions, which could make a significant impact on you later in life.  And, to compound matters, if your employer is one that matches 401(k) contributions, you miss out on those contributions to your retirement plan as well.  However, the biggest risk of borrowing against your 401(k) is one of the unforeseen circumstances.

Should you borrow against your 401(k) and then leave the company for any reason — including being let go — you will have just 60 days to repay the entire remaining balance of your 401(k) loan.  If you’re unable to make that repayment, the remaining balance is considered a taxable withdrawal and is, therefore, subject to a 10 percent tax.

Ultimately, borrowing from a 401(k) loan can be a legitimate long-term risk here in San Francisco, but if timed properly and handled responsibly, it can work to your advantage.    Email me anytime (email link) to learn if its the right move for you.  Borrowing Against Your 401K to Buy in SF…..Good or Bad Idea?

With home prices continuing to creep up throughout the Bay Area, many first time buyers look to borrow from their 401K accounts in order to come up with the necessary down payment.  Depending on your situation (financially and with your employer), this can be good or bad.  Here are some of the good reasons.

First-time homebuyers indicate that “saving for a down payment” is often the number one obstacle to homeownership.  Although some Bay Area households (single and joint) manage to put money aside each month into savings, with each passing year, and as home values climb, the required down payment size grows, not to mention closing costs.  This is one reason why SF buyers sometimes borrow from a 401(k) retirement plan.

When you borrow from your 401(k), you can get the money you want for a home in as little as a week and with nothing more than a phone call or visit to your HR department.   Plus, as you “pay yourself back”, you earn interest on your loan, which can make the 401(k) withdrawal seem like a good deal.  Depending on the amount you borrow and how quickly you intend to pay it back, borrowing (in this scenario) can be a decent plan to help get you “in” the market and into a home.  With appreciation rates where they are, the market can help make up some equity for you that you can later decide to pull out (to pay back your 401K loan), re-invest, leave alone, etc.

How does it work?    When you invest in a retirement program, such as 401(k), there’s no rule to prevent you from withdrawing your money before you actually retire.  You may have a life emergency, for example, which demands the use of your retirement monies; or, you may need the money to make court-ordered payments.  These types of withdrawals are known as hardship withdrawals, and they come with a 10 percent tax penalty.
 

There’s also a provision which allows withdrawals to help with the purchase of a home. Rather than taking a hardship withdrawal, you can actually borrow from your 401(k) account with a promise to pay it back.  Arranging for this can be quick. With just a phone call and some written notes to your plan’s administrator, money to purchase a home be wired to you in as little as a week.

However, just because you can borrow from your 401(k) to purchase a home, that doesn’t mean that you should.  There are some pitfalls when you borrow from a 401(k) to purchase a home which could raise your total loan costs to a figure much higher than what you borrow.

As one example, during the period your 401(k) loan is outstanding, you’re typically prevented from making full contributions to your existing retirement plan.  This means that you could forgo up to 5 years of retirement fund contributions, which could make a significant impact on you later in life.  And, to compound matters, if your employer is one that matches 401(k) contributions, you miss out on those contributions to your retirement plan as well.  However, the biggest risk of borrowing against your 401(k) is one of the unforeseen circumstances.

Should you borrow against your 401(k) and then leave the company for any reason — including being let go — you will have just 60 days to repay the entire remaining balance of your 401(k) loan.  If you’re unable to make that repayment, the remaining balance is considered a taxable withdrawal and is, therefore, subject to a 10 percent tax.

Ultimately, borrowing from a 401(k) loan can be a legitimate long-term risk here in San Francisco, but if timed properly and handled responsibly, it can work to your advantage.   Email me anytime to learn if its the right move for you.

20% Down is NOT Always Required to Buy a Home

You know….you don’t HAVE to put down 20% to buy a place.

In a market where prices, salaries, bonuses and the number of people circling on the few available properties are all HIGH, its easy to get caught up in the old myth that you MUST put down 20% to buy a home in San Francisco.   It has actually stopped many would-be buyers from owning a home, an is a concept/mindset from generations ago.  Many experts, including parents and financial advisors, have stated you must put down 20% in order to have skin in the game and really be serious about buying.  In fact, making a large down payment on a home can sometimes put your money more at risk than making a significantly lower down payment.
There are some obvious loan products in the market that allows for lower down payment, including FHA and USDA loans. down payment assistance programs and also piggy back loans (splitting the balance into 2 mortgages).  While these may not always be optimal on San Francisco properties, there are surrounding markets in the Bay Area that have a better climate of properties that match with such loans.  However, in the city or outside it, there are 3 and 5% down loan options (conventional loan programs) that can make a lot of sense and have attractive financing caveats.
Recently, I was working with a buyer that had struck out on 2 previous offers where he was intending to put down 20%.  In a strong market like the one we are in here in the Bay Area, faster appreciation rates can be put to work for you and allow for a lower down payment but also a higher potential sales price point, thus making you more competitive.  In the case of my buyer, we looked at a solid 15% down payment program with no PMI and still very good interest rates.    This allowed him to come in at a higher price point and finally win his offer.  6 months later, due to appreciation, we are refinancing him as if he had put down 20% in the first place into a more traditional product.  He got in, rode some appreciation from the Bay Area market, and let the market make up the difference for him in short time.
In most all cases, there are no differences in costs between loans with less than 20% down and those with.  Underwriting guidelines can vary, of course, so its important to be fully pre-underwritten in advance of making any offers with this strategy.  Ultimately, it can be to your advantage to look at putting down less than 20%.
  • You leave more cash available to yourself, in the event of something unforeseen or to perhaps make some initial improvements/enhancements to the home right away.
  • You are able to buy sooner.  Don’t let the market get away from you, just get IN.
  • You can invest cash elsewhere, where it can actually earn you a better return.
There is the “PMI” argument, on the other side.  This is an insurance you will have to pay for not putting down 20% in the first place.  Despite all its negative appearance, PMI is actually a good investment.  Over the last 5 years, PMI has yielded a 520 percent return to homebuyers that took it on.  On average, a buyer taking on PMI (for the short run) has paid out pennies in comparison to what they have netted back in appreciation from a hot real estate market.  Definitely some food for thought for Bay Area buyers as we rethink the entire mindset of how much should we be putting down when buying a home.
For more info and scenarios on putting down less than 20%, please email me here.

Finalizing An Offer For Your SF Home

There are a lot of voices out there, some online and others actually telling consumers – that you can buy a home in San Francisco or Marin without an agent helping you.  That it’s easy to do on your own, you can use the Internet to guide you, or even a realtor syndicate like an online brokerage to handle.  Some stretches of research can surely be handled on your own, especially in the initial stages of seeking out a home.  In fact, doing your own homework is recommended, such as learning about neighborhoods, schools and amenities that are in proximity, etc.  But when it’s time to be serious and actually land the home you want, there is no replacement for a good agent representing you.  Many buyers are averse to using an agent to buy home because they are hearing/reading it can be done without one.  While that may be true, unless you have a real estate or legal background, there are surely areas where the counsel and advice from an experienced agent is going to prove invaluable.  Others try to acquire property on their own because they feel that an agent offers no real value to them.  Like with anything when it comes to offering a service, there are average professionals and there are exceptional ones.  A great real estate agent will provide insight and value to you well beyond the transaction, and in most all cases (as a buyer) they cost you absolutely nothing to use.  Their compensation is paid by the selling party.

 

There are three requirements when you buy a home:

  1. An offer and acceptance
  2. Purchase agreement (in writing)
  3. Consideration (or, money being exchanged for the property)

 

These items are walked through or executed with the help of a good agent.

 

When you’re ready to pull the trigger on a home, you need to make an offer.  Your agent will help put this together and present it in the best possible way that will make you look strong as a buyer.  That is where I come in to help, which is ensuring that your approval is in place and well documented for your offer.  (Click here to get pre-approved and underwritten).  Once accepted, you and the seller will then sign a ratified agreement or contract, thus finalizing your offer and making it legally enforceable in San Francisco or whichever city in the Bay Area you purchase in.  While oral offers can be made, they are difficult to enforce and prove, and most selling agents in San Francisco will not accept them.

 

The purchase agreement in San Francisco is also referred to as a real estate contract.  This is the official agreement between you (the buyer) and the seller to conduct the real estate transaction.  This agreement spells out terms that both sides have agreed to, including:

  • Price
  • Closing Date
  • Key deadlines in the contract period for appraisal, offer expiration and closing
  • Deposit (or Earnest Money)
  • Details about who pays for what, adjusting utilities, property taxes and other fees.

 

Lastly, in San Francisco, is the “consideration.”  This refers to the actual item of value that each party brings to the transaction.  For the seller, this means the real property or house/condo itself.  For the buyer, it means the purchase price being paid.  This could come in the form of cash, proceeds of the loan, or even other real property.

 

Again, in the Bay Area (which includes San Francisco of course, a well as the East Bay, Marin, South Bay) the use of a good and reliable realtor will prove to be a strong resource for you in in guiding you through the offer process and ensuring that your interests are protected during the course of the transaction.  For help on connecting with an exceptional agent or to get pre-approved, please email me here.

 

Fed Rate Hike & What it Means to SF Buyers/Homeowners

Last week, the Federal Reserve Bank’s Open Market Committee (FOMC) met and as expected, the Fed raised its target short-term interest rate by .25 percent to a range of  1.75 to 2 percent.  However, that information was already priced into current mortgage rates, because investors and lenders had long been anticipating this move. The Fed under former Chair Janet Yellen indicated that it expected to raise rates three times in 2018. Last week’s increase was the second this year, so this was planned and completely expected.  Leading up to and during the meeting, mortgage rates were flat because of the expectation that was built in.   But when some surprise language came in late in the meeting’s wrap up, rates suddenly took off.  The Fed announcement indicated that it will raise interest rates two more time this year. That came as a surprise to many. But according to The Wall Street Journal earlier this year, 31 percent of investors were operating under the assumption that there would be a fourth increase in 2018.  An additional 8 percent believed that there would be five increases in 2018.

The reason for all this?  The Federal Open Market Committee (FOMC) indicated that economic activity increased “at a solid rate.” This was a more hawkish tone than their their May statement, when they called the economic improvement “moderate.”  During the meeting, Fed officials said they expect the economy to grow at a 2.8 percent rate this year, up from a 2.7 percent forecast in March. The FOMC now expects the unemployment rate to drop to 3.6 percent by the end of 2018, down from a forecast of 3.8 percent in March. All of this continued economic strengthening caused the Fed to project an additional rate increase for 2018. FOMC members also raised their headline inflation rate forecast for the year to 2.1 percent from 1.9 percent.

Today’s increase was the second this year and the seventh since the end of the Great Recession. The last time rates topped 2 percent was in 2008, at the start of the Great Recession.  While the 4th increase isn’t guaranteed, there are some wild cards in all of this that will have bearing on whether or not it actually does come to fruition.  One of those wild card is the effect of the Trump tax cuts. Intended to stimulate the economy, they could end up causing it to overheat, fuel inflation, and actually diminish buying power.  Rates (increasing them) is how the government counters inflation.  Tricky formula, but one that is necessary to maintain a strong economy here in the US and most specifically the Bay Area.

On the other hand, the less aggressive FOMC members still believe in more modest hikes, or even holding today’s rate indefinitely. It really depends on what happens in global politics and the economy over the next month.  So what does this all mean to a San Francisco home owner looking to refinance or a renter looking to finally buy in the Bay Area?  If you are presently in a fixed rate mortgage, you are in great shape.  That doesn’t mean you are in trouble if you have an ARM, necessarily. If rates continue to rise, your buying power goes down as a homebuyer.  Refinance opportunities to lower your rate and payment if you are already fixed also will decrease sharply.  I had mentioned in a previous blog post that Bay Area homeowners sitting on all of the equity that has been accumulated these last few years have different motivations for refinancing now, and not all are rate driven in this decision.

If you have an adjustable rate loan (ARM), you’ll need to get out your loan documents and do some calculating. When will it reset if rates are 1 percent, 2 percent, or 3 percent higher than they are now? Your loan should have caps that limit how much your mortgage rate can increase at any one reset or over its life. Would that rate be affordable? Email Me anytime to evaluate your options and see what is coming down the road for you in terms of a future adjustment on your current loan.

Alternatively, did you get that loan while planning to sell your home before rate resets became a possibility? How is that timeline looking now? If you planned to sell this year but are now looking at three more years, consider a 3/1 ARM refinance before rates go higher.  If you expect to be in your home indefinitely and have an ARM resetting soon, you have a couple of options. Accelerate your repayment so that there will be a lower balance to worry about when your rate rises, refinance to a new ARM now while rates are relatively affordable, refinance to a 15-year fixed loan (the rate should be about the same s the 5/1 ARM), or bite the bullet and refinance to a 30-year fixed loan while rates are still under 5 percent.

When it comes to HELOC’s, these rates are impacted immediately by way the Fed’s raising of rates.  If you have a HELOC and are noticing the increasing payments, considering combining it with your first mortgage via a refinance that fixes the payments for a more secure period of time.  In the Bay Area, 1 out of every 5 homes has a HELOC attached to it for a variety of reasons.
We will track the FED and their intention to raise rates a possible 4th time this year and how that will impact Bay Area real estate and people looking to break into the market.   Email Me anytime to discuss rates or loan strategy.

 

Cash Out Refis Becoming a Hot Topic Again in SF

In the Bay Area, cash out refinancing is once again becoming a common conversation at the real estate table.  What is it, exactly?   It’s a way to exchange your home value for cash, without selling it.  Over time, your property increases in value, which increases your equity position.  Couple this with paying down the principal balance over time, and you start to really come into equity.  Cash-out refinancing is the process of getting money/cash for that equity you have.  With home prices in the Bay Area spiking the way they have, this means that there are plenty of opportunities to do such a refinance.   The amount of home equity borrowers now have at their disposal has reached an all time high in the Bay Area, surpassing pre-crash levels.  Nearly 80% of San Francisco and surrounding market homeowners have tappable equity and I see this is as a possible cash injection that could further fuel a hot macro-economy.

Cash-Out refinancing is different from the other 2 types of mortgages.  Rate/Term refinances simply lower your rate with a loan amount similar to the closing balance of the old loan, and leaves you with a lower payment.  A limited cash-out refinance allows you to wrap in your closing costs into the new mortgage so that the new balance is slightly higher than the closing balance of the old loan.  When doing a cash out refinance, you get a larger loan that pays off your old loan and its closing costs, and leaves you with some cash back (pending qualification and loan guidelines).

Borrowing against your home, especially here in the Bay Area, remains one of the cheapest sources of money available.  The financing is considered less “risky” and the interest is cheap when compared with other avenues of borrowing cash – unsecured credit, cash advances, private loans, personal loan/line of credit from bank, etc.  The reason is that your home is what is securing the loan.  From a lenders standpoint, this makes the loan far less risky and therefore can be done with much lower interest rates than other avenues, as well as less costly.  Cash out refinancing is generally far less expensive than selling your home to get money.

How much cash/equity you can take out will ultimately depend on the loan program and the valuation of your Bay Area home.  The new total loan won’t normally exceed 80% of the property valuation in most conventional and JUMBO loans.  For FHA, it can go up to 85% and VA loans can go up to 100%.  Before going down that road, however, you should ask yourself:

  • How long do I intend to stay in this home?
  • How will this refinance affect my monthly payments?
  • Is this the best use of my equity? 

In terms of what to do with the equity, Cash out refinances can help improve cash flow by paying off other debts with higher interest rates or payments. They also can be good sources of funding for education for a household’s children.  Essentially, the money can be used for almost anything, including home improvements, investments, medical bills.  Some of those home improvements can actually increase the value of your home, adding more equity back into the house.  If you don’t plan to stay in your home very long, or you can’t improve on the terms of your current mortgage with a new home loan, it might be cheaper and smarter to wait until you sell to get your cash.  To incur costs when you will actually be selling and potentially dumping your mortgage anyways in the near-to-immediate future makes no sense.  In such cases, its best to just wait before paying off such debt balannces.

What about a HELOC, some people ask me these days.  Thanks to the new tax bill, a HELOC is now the same as a large credit card because the interest is no longer tax deductible.  At one point, this was the main caveat to taking out a line of credit against a home.  However, with this shift in tax law, it now makes more sense to do a cash out refinance to access equity and still leave yourself in a good position (tax wise) as opposed to getting a HELOC.

To learn about how much equity you are sitting on and how it may be better put to sensible use, contact me at arjun@lendclear.com.

Stock Market Jitters & How it Impacts SF Real Estate

The sky is falling!  Well, maybe not quite, but there has definitely been some buzz about the roller coaster this week that is the stock market.  The Dow fell more than 1800 points over two sessions (Friday and Monday).  The 4.6% tanking on Monday, alone, was the biggest since 2011’s Euro debt crisis and is rippling through all of the International markets at this point.  More importantly for you (as a consumer), was the impact to mortgage rates, which shot up to near 3 year highs and could very well continue the trajectory. As for the impact to the San Francisco area housing market?  Tough to say in a singular response, but first, we should review what exactly is causing the sell off in stocks.
First reason is that the stock market is likely just doing what is has been long expected to do – pull back or correct itself.  Stocks have been rising in a straight line UP since November 2016, which can often be dangerous.  The pace and intensity at which the market has been driving had many analysts predicting that the market was in line for 5-10% pullback.  Like the old saying, “what goes up must come down,” but that may not be the worst thing in the economy.  Cheaper stocks means they are more affordable and attractive to investors, more so now because companies are in healthy shape at this time, by and large.
Second reason is that there is wide concern that the Fed will raise rates more.  Stocks have been spiking since the election because the economy is in overall strong health.  Unemployment is at historic lows and hiring is opening up.  This leaves companies having to pay workers more so they can retain them, but also attract new ones.  Ultimately that causes companies to raise prices in some shape or form to afford the swell in payroll and that is what is defined as INFLATION.  To combat inflation, the central bank (or FED) will raise rates, which leads to the third reason for the stock market jitters.
When the FED raises rates, the cost to borrow money increases, which means that companies pay more for their loans.  At the end of the day, this cuts into corporate profits and that can scare investors into thinking that companies are not as healthy as they had presented themselves to be.  More expensive loans also mean that homeowners and aspiring home buyers pay more for mortgages.   Mortgage rates are affected by the bond market and mortgage backed securities.  US Treasury bond yields have been so low, in large part, because the central bank was purchasing so many of them to keep rates low during the economic recovery and through.  As well, stocks were offering a much more attractive return, despite being higher-risk investments.  So there wasn’t much appeal in the safe-haven of bonds as of late because of the tear that the stock market had been on.

Impact on Local Real Estate

Knowing these catalysts to the stock market sell off, what is the impact on real estate here at home in the Bay Area?  More expensive mortgages could certainly affect affordability and buying power, but the middle ground is that this could temper demand and cause price increases to slow. How much remains unknown and time will tell since we are so early in this new reality of slightly higher rates, but at the end of the day, purchasing a home or taking out a mortgage are personal decisions and the macro market caveats discussed here don’t always rank high for a person when deciding what to about moving their family, settling down, or upgrading their living space.   To check your affordability or pre-qualify for a mortgage in this market, email me at arjun@lendclear.com.
More to come in the following weeks of the first quarter of 2018……

San Francisco Homeowners Using Equity Differently This Time Around

Home equity is hitting historic highs, thanks to a red-hot Bay Area market.  As a result, which is no surprise – more people are now starting to tap that cash to spend on a variety of things.  Some of it is eerily similar to the last housing run-up in the early and mid 2000’s.  Others, though, are being a bit wiser with it by trying to make their homes even more valuable.

Renovation spending is soaring, and 80 percent of borrowers taking out home equity lines of credit say they would consider using that money to renovate their home or condo.  Remodel and home addition permits at the planning department for not only San Francsico, but surrounding cities is through the roof.  Materials are also being purchased with greater intensity at retailers like Home Depot and Lowes.    Remodeling spending topped $152 billion in 2017, and renovations for owner-occupied single-family homes will increase 4.9 percent in 2018 over 2017, according to the NAHB. That does not include remodeling done by investors looking to flip or rent properties, both of which are increasing as well.

An older housing stock – like the that one that exists here in San Francisco – combined with not enough new homes being built, means more people will choose to renovate.

Homeowners are also using home equity cash for education expenses and to pay down other debt in order to lower monthly payments, but there is a new and increasingly popular use: taking the cash out to make more cash.  Homeowners here are growing more and more confident in the overall markets and this is stimulating intrigue to get money working in other areas outside of the home itself.  With rates being as low as they have been, people feel they can truly generate a return on their money at a rate greater than the cost of borrowing it.  Investment opportunities such as cryptocurrency trading are quickly becoming big dinner conversations

Similar to the last housing price/equity run up from years ago, there is now a strong confidence among borrowers that home values will continue to rise, making it less likely that borrowing against their homes even more will not end up putting them underwater on their mortgages in the future.  For some that means investing in the stock market. For others it is buying more real estate. Rental demand is still very high, especially for single-family homes, and a new breed of rental management and investment company is making it much easier to become a landlord.

Of course, there is a sizable amount of equity being put towards material expenditures such as cars, boats, and other luxury items.  This time around, however, more people are mindful of where the money will actually add value or help create more growth.  The upcoming 1st and 2nd quarters of this new year will be a strong indicator of whether equity in homes will continue to be a driver of added investment in the overall economy.  More to follow on this and if you want to get a quote on accessing your home/condo’s equity, please email me at arjun@lendclear.com or call at (415)  360-0050.