Understanding Prepayment Penalties

There’s a strong tendency to want to pay off your mortgage as quickly as possible. There’s also a strong reason for lenders to not want you to do that — they get less money because you aren’t paying as much in interest. Because of this, they frequently use prepayment penalties. This is an extra fee for paying off your mortgage too quickly or before the term of the loan ends. If you’re simply paying the minimum amount anyway, this won’t affect you, but if you think you may want to pay off your loan early, you’ll want to know your options.

Different states have different laws regarding prepayment penalties, and some don’t allow them at all. In states where they are allowed, they come in two types: hard prepayment penalties, which are fixed fees regardless of the reason for prepayment and that are usually a percentage of the loan amount, and soft prepayment penalties, which are only charged if the borrower pays a large amount in a short time period. Even in states that allow prepayment penalties, not all loans will have them, and you may be able to negotiate with your lender for their removal. When shopping for loans, make sure to read all the terms of the agreement, and talk to a legal professional if there’s anything you don’t understand or want to learn how to negotiate.

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Factors In Determining Your Maximum Loan Amount

You might think lenders would need to do a bunch of fancy calculations to determine how much money you can borrow. There are certainly several factors that go into the final calculation, but if you want a rough estimate, it’s actually relatively simple. Lenders tend to use one of two formulas, either mortgage payment as a percentage of gross monthly income, or debt to income ratio.

Both of these factors involve your gross monthly income — that is, the amount you were paid before deductions from social security and taxes and before making any payments or contributing to savings. Where they differ is what your gross monthly income is compared against. The first method calculates what your monthly mortgage payment would be based on actual interest rate and ensures that it doesn’t exceed 28% of your gross monthly income. The debt to income ratio method compares your gross monthly income against your debts, such as credit card debt and other loans. These existing debts plus your new loan payments should not exceed 36% of your gross monthly income. Both these methods do require knowing the interest rate, which is determined by several factors, but if you know about where interest rates are, you can make an educated guess.

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2023 South Bay Real Estate: Fail

By every measure South Bay real estate failed last year. The volume was down from the prior year in every residential area, the median price fell from 2022 heights everywhere, and the double whammy of crashing sales and falling prices brought the total revenue down from 2022. Judging from early reports the same is true across most of the state.

Part of the story doesn’t read so poorly though. As we look back across the year, the second of half of 2023 was far better than the first half of the year. This in two respects: first, the month-over-month statistics for sales volume have improved. The median price is still falling, but that’s to be expected if we’re going to see a sales volume increase concurrent with continued high interest rates. The market is going to demand that some of the “overly enthusiastic” price increases come back down.

Second, the year-over-year decline in median price is slowing—not reversing—slowing. Roughly speaking, the number of homes sold for less than 2022 prices improved from 83% in the first half of the year to 45% in the second half of 2023. That signifies an approaching balance in the market. Buyers are still holding back, but some sellers are coming forth to meet them.

2024 South Bay Real Estate: Better Days Ahead

We expect to see continued slippage in the median price, accompanied by increased sales volume. The Los Angeles South Bay is somewhat insulated from the vagaries of national and international events, but 2024 is facing an active political climate. The continuing wars around the planet would be enough to rattle economic markets here. This year sellers and buyers also have to factor in a contentious national election.

While the Federal Reserve System is officially apolitical, history has shown a tendency for improved economic conditions during election years. The final quarter of 2023 saw a softening of the wild swings in home sales volume and pricing. With less than 10 months until the presidential elections we anticipate continued easing of interest rates and increased sales activity. Median prices have fallen by about 2% across the South Bay in 2023 and probably won’t drop a lot more in 2024.

Sales volume fell by 15% across the South Bay in 2023. Nearly all of that drop was in the first half of the year. The new year is expected to be positive with growth in sales across the board.

Beach: Strong Sales On Weak Prices

Comparing December to November, the number of homes sold at the Beach was up 13%. That increase in sales is on top of a 9% increase in November, a dramatic turnaround from the 27% drop in October. On the other hand, the month to month median price fell 5% in December.

December of 2023 was similarly mixed when compared to December of 2022. Year over year saw sales volume increase a staggering 39%. Looking back shows December of last year as the absolute slowest month of the year for home sales at the Beach. The median price plummeting by 10% certainly helped generate those December 2023 sales.

Year to date numbers, comparing all 12 months, showed the number of home sales off by 11%. At the same time the median price was down 4% for the year. Much of the annual decline in sales volume occurred in the first half of 2023, when monthly drops of 25%-35% put the brakes on prices. Beach area median prices have taken steep falls since February 2023. It may take a couple more months before the first stimulating news on the interest rate front, but it would appear we’re looking at the “bottom of the market” now. Regardless of whether you’re a buyer or a seller, this is time to reassess your options.

Harbor: Positive Across the Board

December versus November of 2023 saw sales volume go up 1%. During that time the median price went up 2%. Harbor area homes sales dropped precipitously through the third quarter when they suddenly found strength and were positve in the single digits for the last quarter. Monthly declines in median price have been the order until the final quarter when median prices appear to have leveled out.

Looking from the annual perspective, home sales in December 2023 were up 3% over the last month of 2022. Using the same comparison, median prices were up 13%. This suggests the Harbor area may already be seeing improved stability.

Summarizing 2022 versus 2023 for the Harbor area, overall home sales volume dropped 17% for the year. Looking from a longer term perspective, sales have fallen 26% from the ‘pre-Covid benchmark year’ of 2019. From 2022 to 2023 the median price fell 2%. Again over the longer term, median prices in the Harbor area are up 31% over 2019.

Hill: Median Price Down – Sales Up

December home sales increased on the Hill by 9% over November levels. For the same mnthly period, median prices were down 9%. This pattern is expected to shift over the first quarter of 2024 as prices stabilize and interest rates decline to allow more potential purchasers to enter the market.

Compared to December of 2022, December 2023 came in with sales of 22% more homes and a median price increase of 5%. A solid year over year growth for the Hill.

Taking a step back and looking at the full year, sales volume fell 17% from 2022. At the same time, median price fell only 1%.

Inland: Sales and Prices Still Sliding

The last month of the year brought no relief for the Inland area. The number of homes sold continued to decline with sales down 2% compared to November. The median price was down for the second month, this time 5% for the month.

Looking at the same month last year, gives year over year sales volume down 2%,and a median price that’s down 2%. The final quarter of the year has been a rough adjustment period for the Inland area.

In the broader year over year view, the Inland area again fell, with sales volume down 11%. Median price was flat for the period with a tendency toward negative. It’s a transitional period which should resolve into a firmer picture by the spring of the year.

Beach=Manhattan Beach, Hermosa Beach, Redondo Beach, El Segundo
Harbor=Carson, Long Beach, San Pedro, Wilmington, Harbor City
PV Hill=Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates
Inland=Torrance, Lomita, Gardena

Photo by frank mckenna on Unsplash

South Bay Home Sales Improve!

Every month we compare the level of home sales from the preceding month to the same month of the preceding year. For example, November of 2023 is compared to November of 2022 to determine whether the number of homes being sold is growing or shrinking. The year over year number of homes sold across the South Bay has been shrinking every month since October of 2021–until now. November of 2023 marked the first time since October of 2021 where the number of homes sold increased over the same month in the prior year.

Lest we become overly enthusiastic, we need to remember that at this time last year successful sales figures were plummeting, Closed escrows were shrinking at up to 50% below the prior year in fall of 2022. So a positive value could only mean we’re bouncing along the bottom.

Also on the positive side, there is some improvement in median price which has been shrinking most of this year. At least as of November, it’s looking like “scattered improvement” in the South Bay real estate market.

Beach: Home Sales Pull Out of Dive

After two successive months of declining sales volume and falling median prices November real estate activity brought positive news to the Beach Cities. Last month saw a 9% jump in sales volume over October, and a 4% increase in the median price. The number of homes sold climbed from 79 last month to 86 in November. Concurrently, the median price gained nearly $70K.

The downside was a 3% drop of the median price versus November of 2022. The sold median for last November was $1.700M compared to $1.656M this year. The year over year sales volume gained 8% with 86 sales versus last years 80 transactions.

Year to date remains in red ink with sales down 14% January through November. For the same time period, the median price has fallen by 2%.

Harbor: Volume and Prices Turn Upward

Compared to November of 2022, both sales volume and median price climbed by 7% last month. This is the second month of solid upward figures for residential home sales in the Harbor area. Sales figures for the area have been in red ink since the beginning of the year, so these are welcome statistics for home owners wishing to sell.

On a monthly basis, the number of homes sold in the Harbor area fell by 6%, dropping from 267 in October to 252 in November. despite a median price increase of 1%.

Looking at the longer term, median price for the first 11 months of the year has fallen from $756K in 2022 to $740K, for a decline of 2% in the year to date median price. Sales volume for the same 11 months went from 3,770 in 2022 to 3,076 this year, a decrease of 18%.

Hill: Sales Volume Down, Prices Up

Comparing November of 2023 to November from last year shows a 10% drop in sales from 51 units in 2022 to 46 units this year. Despite the decline in number of sales, the median price for November climbed 19%, going from $1.77M in 2022 to $1.94M this year.

Monthly changes to the median price are much smaller and have been getting smaller as the year progresses. The November decrease was 1%, having dropped from $1.96M to $1.94M. The median price has varied monthly throughout the year. It ranged from a high of $2.3M in May of this year and fell as low as $1.6M in February. Year to date the median for the Hill is up 1% from 2022.

After having risen in September by 14% and in October by 13%, the number of homes sold on the Hill fell by 27% in November. Of course, part of the decline is seasonal. However, month to month sales volume for the first 11 months of 2023 was off by 19% in Palos Verdes with a similar drop of 16% overall for the South Bay.

Inland: Median Price Up from 2022

November 2023 was a good month for the Inland area compared to the same month last year. The number of homes sold climbed 11%, from 96 sold last year to 107 this year. Median price turned upward by 6%, ending the month at $851K, changed from $800K in 2022.

Compared to October of this year, Inland homes sales fell 8%, dropping from 116 homes to 107. That rate of change was slightly higher than the 6% drop across the South Bay. Median prices fell 7% for the month.

Year to date, the Inland area sales volume is off by 12% while the median price is up 1% from the same period in 2022.

Beach=Manhattan Beach, Hermosa Beach, Redondo Beach, El Segundo
Harbor=Carson, Long Beach, San Pedro, Wilmington, Harbor City
PV Hill=Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates
Inland=Torrance, Lomita, Gardena

Photo by Andrew Sterling on Unsplash

Permanent Versus Temporary Mortgage Buydowns

A mortgage buydown is an option to pay an extra upfront fee to reduce your mortgage interest rate. They come in two types: permanent or temporary. Permanent mortgage buydowns last for the entire length of the loan, resulting in decreased interest expenses at the cost of an upfront fee. Temporary buydowns last for a specified length of time, and typically are gradually phased out over the course of the buydown period. However, it’s possible for the upfront fee of a temporary buydown to exceed the interest reduction.

The decision of whether to take a permanent buydown or no buydown is relatively simple and only depends on whether you think you can afford the upfront payment. The decision of whether to take a temporary buydown or not is more complex. At first glance, those with a higher upfront fee than interest reduction can seem like a scam — paying more now in order to pay more over the course of the loan? Seems like a terrible idea. And it would be, if it were you as the buyer paying the upfront payment. However, with temporary buydowns, unlike with permanent buydowns, it’s most often something that the buyer requests that the seller pay for as part of the negotiation process. This way, the buyer gets to pay less in mortgage interest for a short time, and the seller pays extra to guarantee that the sale goes through. And if the upfront fee is less than the interest reduction, the buyer also has the option to pay for a temporary buydown themselves if the seller doesn’t want to.

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Paying Off Your Mortgage Early Isn’t Always The Best Idea

It can be very attractive to pay off your mortgage early. The reason for this is both financial and psychological. Paying down the principle means you’ll be paying less total over the duration of the loan than if you simply made the minimum payments, since interest is based on the principle, not the original loan amount. It will also give you some peace of mind to know that you no longer have any mortgage payments. But those aren’t the only factors at play, and depending on your financial situation, it may actually be better to keep making steady minimum payments.

Of course, if you can barely afford the minimum payments in your budget as-is, the decision is made for you. However, there could be reasons for someone who can afford to put a bit more towards payments to instead hold onto it. One reason is that mortgage interest payments are tax deductible. You may be paying more in mortgage payments, but paying less in taxes. Whether or not this is in your favor in your specific situation is a question for a tax professional. Another is the effects of inflation: as prices and therefore the cost of living continue to increase over time, as long as you make only minimum payments, the total amount you will have owed by the end of your mortgage doesn’t change at all. That means the amounts for payments made towards the end of the loan’s life tend to have lower value in terms of purchasing power, and may be less of an economic burden than other payments you may need to make.

The latter reason doesn’t mean much if you aren’t spending the money on something else, but there’s a good chance you should be. Savings funds, such as retirement funds, and investments both require money to be put into them to gain a profit later. If you don’t have money to invest, you won’t get any in return. Even holding onto the money can be useful, in case it’s needed for emergencies, or a very good investment opportunity crops up.

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Palos Verdes Homes Top the South Bay Market

Home sales on the Palos Verdes Peninsula chalked up an impressive set of statistics in October. Comparing the October 2023 sales to October of last year showed a stunning 26% increase in sales volume beside an equally impressive 11% increase in median price. At the opposite end of the spectrum the Beach Cities October sales volume fell 19% from 2022, while the median price dropped 14%.

Elsewhere across the Los Angeles South Bay volume and prices were mixed with the general trend leaning toward decreased number of homes sold and prices struggling to stay level with last month while often slipping below.

Year To Date Sales Continue to Drop

In between the highs and the lows real estate activity in the South Bay has been mixed for the months of August through October. While many commentators are cautiously hopeful, it must be noted that year to date comparisons continue to show significant declines in the number of homes sold, with an average drop of 18% from 2022 for the first 10 months of the year. Likewise, median prices are falling for the January through October time frame. For example, median prices on the Hill were up in October, but have fallen 4% year to date compared to last year. Similarly the Beach area median is down 3% and the Harbor area is off 2%.

Sales volume is clearly down. By this time in 2022 sales were at 6700 units versus 5500 this year. Many buyers have been “priced out of the market” and many sellers are resisting the idea of “prices going backward.” The result has been a lot of deals not being made.

Year to date, the deals that have been consummated are still generally at median prices above last year, however the most recent three months have shown at least half of sold homes required price reductions to make the sale. With winter setting in, we expect continued reductions in both the volume of sales and in the prices of sold homes.

Home Sales at the Beach Hit a Wall

Throughout the year real estate in the Beach Cities has maintained spotty growth. Sometimes median prices improved, sometimes sales volume. But, October brought a wall of red ink for the Beach. Month over month sales volume plummeted by 27%, while the median price dropped 5% from September when it was flat at $1.7M.

Year over year transaction volume dropped 19% from September of 2022. The median price fell 14% for the same period.

Looking at the year to date statistics showed more declines with sales volume for the first 10 months of 2023 coming in 16% below that of 2022. At the same time, the median price was off by 3%.

In prior downturns the Beach area has been among the last to respond to market negativity and one of the first to recover. If the pattern repeats, sales at the Beach will continue to show predominately negative numbers for the late fall and winter months. Most chroniclers project a return to positive market conditions in late 2025 or early 2026 in general.

Harbor Volume and Prices Turn Upward

Home sales in the Harbor area moved from all negative last month to mostly positive this month. Sales volume on a monthly basis jumped from 24% down in September to a 7% increase in October. Similarly, the month to month median price went from -1% to +1% in October.

Annually, the number of homes sold in the Harbor area increased by 6%, a significant change from having fallen 26% in September. The median price came in at $750K, up by 7%.

That’s only the second time this year the Harbor area median price has come up into the positive range when compared to 2022. Overall, the year to date median sits at $739K, 2% below last year’s number of $756K. Sales volume for the Harbor is off 20% year to date. The number of homes sold for the first 10 months is 2824, compared to 3535 in 2022.

Palos Verdes Homes Star in October Sales

Home sales on the Hill came in at 63 homes sold with a median price of just under $2M. Month over month that represented a 13% growth in sales volume and no measurable change in the median price.

On an annual basis October sales were up 26% over the same month in 2022. This year’s median price was up by 11% over last October.

While these numbers reflect impressive growth it’s important to remember that the number of transactions on the Palos Verdes peninsula is quite small, which results in some dramatic percentile shifts. For example, the annual percentage of change in the median price so far this year has ranged from a low of -29% to a high of 17%. By comparison, the Harbor area where monthly transactions number in the hundreds, has an annual range from a low of -11% to a high of 7%.

On a year to date basis, the Hill showed a more common face with the January through October sales volume down by 20% from 2022. During the same time frame median prices fell by 4%.

Inland Area Sales Volume Down, Prices Up

In a surprising turn of events, the Inland area has shown an increased median price for both the monthly and for the annual sales figures. The median price came in at $917K this October, which was 2% above the September median. On an annual basis, the median was up by 7% over the $860K of October 2022.

With 116 units sold for the month of October this year, the sales volume was 11% lower than it was this September. The monthly decline was even greater than the drop of 9% for the year over year comparison to last October.

Year to date, the Inland area has outperformed the balance of the South Bay on median price and on sales volume. For January through October there is no discernible change to the median price from 2022 to 2023. In the same time frame the sales dropped by 14%, the smallest decline of the local areas.

Beach=Manhattan Beach, Hermosa Beach, Redondo Beach, El Segundo
Harbor=Carson, Long Beach, San Pedro, Wilmington, Harbor City
PV Hill=Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates
Inland=Torrance, Lomita, Gardena

Photo by Julianne Takes Photos on Unsplash

Over A Third Of Homebuyers Paying Cash

In September, the share of homebuyers paying all cash was 34.1%. This is the highest it has been since the beginning of 2014, and an increase of 4.6% from September 2022. However, this doesn’t mean homes are more affordable; in fact, it’s the opposite.

While it’s true that a significantly higher share of buyers are paying all cash, there are much fewer sales overall. Total sales decreased by 23% over the past year. Compare this to a decrease of only 11% for all cash sales. Cash sales aren’t going up, rather sales overall are going down, and cash buyers are less affected.

The reason for this is high interest rates, since cash buyers don’t care what the interest rate is for a mortgage loan they aren’t getting. Interest rates fluctuate up and down on a daily basis, but rarely change by much at a time. But in this case, they hit a two decade high in September at 7.2 and then continued an upward trend into October, almost reaching 8%. As of last week, they had started to drop back down. Despite this decrease, with how erratic rates can be, that isn’t a sure sign that rates are now trending downward.

Photo by Andres Siimon on Unsplash

More: https://www.redfin.com/news/all-cash-homebuyers-september-2023/

South Bay Real Estate Struggles to Stay Afloat

The summer selling period for real estate in the South Bay showed mixed results for August and September. July was down across the board, but both the volume of sales and the median price was able to rebound in some areas. Notably, the Beach Cities come out of the third quarter with median prices up by 2% over last August, and up by 3% over September of 2022. That growth wasn’t enough to make up for earlier this year when median prices were down by as much as 17% in year over year sales.

Year To Date Prices Down Across the South Bay

Comparing the first nine months of 2022 to the same period in 2023 shows median prices at the Beach down 2%, the Harbor down 2%, the Hill down 8% and the Inland area down 1%. Similarly, the number of homes sold dropped at the Beach by 15%, the Harbor by 22%, the Hill by 23% and the Inland area by 14%. On average across the South Bay sales volume was off by 20%.

To some extent this validates the supply versus demand theory. With interest rates above 7%, many potential sellers (who are simultaneously buyers elsewhere) have simply changed their plans. They’ll wait for interest rates to abate before trying to move. The California Association of Realtors reports that the number of homes sold across the State has fallen for 27 consecutive months. Locally, a couple of neighborhoods have shown year over year improvement a couple of times, but overall, the last time sales volume was positive across the South Bay was September of 2021, 24 months ago.

Because there are so few homes available for buyers in a must move situation, those buyers are forced to buy despite high interest rates and despite elevated prices. Mortgage interest rates are currently testing the 8% number, and are expected to stay there into 2024. Most forecasts expect the number of sales to drop even further, possibly offset by an increase in renters and a corresponding increase in rental prices.

Things don’t happen very fast in the real estate market. We mentioned earlier that sales have been declining here for 24 months already. But, prices are still up and interest rates are still climbing. Currently, we expect to see a shift in the pattern this winter. As time goes on, more and more sellers will surrender to the inevitable and lower their asking price. Coupled with an increasing number of short sales and foreclosures, that will create the key metric the Federal Reserve is looking for to quell inflation. Most pundits are suggesting 2025-2026 for the bottom of the current down-trend and the beginning of a recovery.

A Home or a House?

Are you buying a home? Are you looking for a neighborhood that matches your personality? Are you looking for schools for your children? And nearby businesses for your family needs? That’s a home. If you’re looking at the appreciation rate for the zip code and how much you can leverage, that’s a house. The difference becomes important when the real estate market is rocky. When you’re buying a home, you’re looking at time over generations. Percentages on a loan mean little then because the property can be refinanced many times before it belongs to the family.

Are you looking for a house? Are you measuring the appreciation and the cost to income ratio? Are you looking for a distress sale and a rock-bottom price. Now is the time to put your cash away. Make no mistake—cash will be required! That’s not to say you can’t finance part of your investment, but count on having “skin in the game.” Your lender will require it. Over the next twelve months, accumulate as much cash as possible, and make your broker your best friend. You want a constant finger on where good deals are happening and you want to be one of the first on the scene. The “bottom of the market” is a hypothetical point. Your best deal can be anywhere in the area and any time in the downturn. It just has to meet your investment requirements!

Beach Cities Holding Strong Over 2022

The median price of homes sold in the Beach Cities was flat for August and September, following a 2% drop in July. Coming in at just under $1.7M the month over month price has been mostly down for the first three quarters of the year. Following a similar pattern, the month to month sales volume has fallen after a strong start in early spring.

In year to year comparison, both August and September have shown a modest improvement over the same months last year. Median prices were up 2% in August and 3% in September. This improvement comes on the tail of four straight month of declining median prices. Supporting the growth in median price, sales volume was up 23% in August and 20% in September. The positive numbers at the Beach are a welcome respite following 21 months of falling volume.

Looking at year to date 2023 versus 2022, median prices are down 2% and sales volume is down 15%.

Harbor Volume and Prices Slipping

September found home sales in the Harbor area fell in all measures. On a month to month basis, sales volume dropped 24%. At the same time, median prices fell 1% below the August median.

Year over year showed the number of homes sold down by 26% and the median price down by 3% from September of last year.

Year to date for the first three quarters of 2023 sales volume was off by 22% while median prices dropped 2%.

This is a pattern we expect to see repeated again and again during the coming two years. First the sales volume declines steeply, and median prices begin a downward trend. Then as the sales volume continues to decline, sellers begin to panic and the few active buyers tighten up on the terms of their offers. The cycle typically continues until falling commodity prices and weak employment numbers convince the Federal Reserve inflation is under control. Then it will start lowering the interest rate and allow markets to float free again.

Palos Verdes Transactions Volatile

The PV Peninsula came through September with positive numbers for the month, though the annual and year to date numbers suffered some slippage. Sales volume for September came in 14% above August and the median price was a respectable 15% above the prior month.

Compared to September of last year, home sales on the Hill fell by 7%. That decline was countered by a 5% increase in median price over the same month in 2022.

Like the rest of the South Bay, PV suffered downturns in the year to date statistics. The first three quarters of 2023 ended with a 23% downward slide in home sales volume, accompanied by an 8% fall in median price.

Inland Area Sales Volume Mixed, Prices Up

The Inland area performed surprisingly well in September. Home sales in the Inland area typically mirror those in the Harbor area. Last month brought a surprise when the median price climbed 6% above August. This positive note came despite a 12% drop in sales volume.

September of 2023 compared to September of 2022 brought even more surprise with a 5% increase in median price as well as a 17% jump in sales volume.

Year to date activity for the first nine months of 2023 compared to the same time frame in 2022 fell in line with the rest of the South Bay, Sales volume fell by 14% and median price by 1%.

Beach=Manhattan Beach, Hermosa Beach, Redondo Beach, El Segundo
Harbor=Carson, Long Beach, San Pedro, Wilmington, Harbor City
PV Hill=Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills, Rolling Hills Estates
Inland=Torrance, Lomita, Gardena

Photo by Oliver Cole on Unsplash

Late Payments Can Be Worse Than You May Think

It’s very common to submit late payments, for any of various types of bills or loans, including mortgage loans. Sometimes people just forget to pay. Sometimes they’re waiting for their next paycheck. Maybe some bills are more lenient on late payments than others, so they’re prioritized lower in the budget.

Whatever the reason, most people assume the only downside to a late payment is an extra fee. That’s not the case. The occasional late payment won’t have any impact, but repeated late payments do show up on your credit report. This will reduce your credit score and make it more difficult to qualify for a loan. If possible, you should make sure to pay bills on time, even for small things like phone bills.

Photo by Ricardo Díaz on Unsplash

Local Real Estate Meets the Inflation Fight

In August the South Bay real estate market showed some slowing of what has seemed a continuing slide into negative numbers. Closed transactions showed a partial recovery from the July report of declining sales and declining values, across both the past month and the past year.

August showed positive growth over July in sales volume except for transactions on PV Hill. Median prices compared to July were down except at the Harbor.

Annual statistics were similarly mixed with notable increases in sales at the Beach and Inland areas. Median prices compared to August of last year with modest increases in the Beach Cities and Harbor Area.

Beach Cities Show Strength in August

Sales volume at the Beach seemed surprisingly strong, however a look back in history reveals weaker than normal sales in July of this year and August of last year. The 127 units closed in August was much more in line with expectations, than the 91 sold in July or the 103 sold in August of 2022. Sales in a normal year would come in at about 125-135 units, showing that the Beach Cities are currently close to a normal number of transactions for the month.

Median prices came in negative compared to July, though less than a 1% drop. Last year’s weak sales led to an increase of 2% in median price this August, despite an overall downtrend for the year. Hypothetically, assuming the Federal Reserve policy of 2% growth, median price at the Beach should have been about $1.62M in August. As the market stabilizes from the pandemic, the median has steadily dropped from a high of $1.76M in April to the August actual of $1.67M..

Year to date transactions showed a continuing decline in sales volume (-19%) and median price (-4%) versus 2022. Likewise, sales volume was off 31% compared to the baseline year 2019. Median price is still coming in positive compared to the baseline, up 28% from 2019.

August Harbor Area Sales Climb

Looking at August versus July of this year shows Harbor area sales volume up a healthy 22%. While the month over month numbers are positive, sales are off 8% compared to the same month last year. For perspective, note that in 2019, the last normal year of business, there were 436 homes sold compared to 328 this August. Using that reference point, monthly sales are off by 25%.

Median price for last month was $751K, up 1% from July and up 4% over August of last year. Going back to 2019, the median was $575K, giving the current median price an increase of 32% over our baseline year. At the same time, the high median for this year was in June at $772K, and the lowest was $675K in February.

Year to date, the number of homes sold at the Harbor is down 22% from last year and likewise 22% from 2019.That decline in sales volume is driven by the increased median price which is up 32% compared to the first eight months of 2019. Being generally an entry level market, the Harbor area has shown a drop in sales every month of this year. Likewise, the year over year median price has dropped every month until August.

Palos Verdes Volume and Prices Drop

Sales and median prices were mixed everywhere in South Bay except for the PV Hill. All the statistics for August went down on the Hill. Month over month saw a drop in sales of 2% and decline in median price of 6%. Both are modest changes by comparison to most of the South Bay, but are indicative of the direction of the market in general.

Looking at August of last year compared to August of 2023 shows a dramatic decline of 36% in sales volume. Closed escrows dropped from 77 units last year to 49 this year. Annually, median prices dropped 6%, the largest drop of the four areas.

It’s important to note that in 2019, which being the most recent ‘normal’ year of business, August saw 90 units sold on the Palos Verdes peninsula. Monthly sales volume has dropped off by nearly 50% from the reference year.

Year to date through August shows sales volume down 25% from last year, with median prices falling by 10% over the eight month period. Comparing to 2019 year to date volume is off 21%, while median price comes in at 32% above the 2019 figure.

The disparity created during the pandemic is gradually leveling out as the year goes on. Palos Verdes median prices have fallen six out of eight months this year. The same has been true of the balance of homes sold in the South Bay.

Sales Up, Prices Down for Inland Area

From July to August transactions in the Inland area climbed 15%. Simultaneously, median prices fell by 2% for the month. January kicked off the year with a 16% increase in the median price. February saw that pricing promptly reverse and fall 14%. Since then sales volume has gradually dropped each month and median prices have shifted into a pattern of decline.

Year over year pricing numbers are nearly identical with a 15% jump in median price for January, followed by dropping prices every month since. Similarly, most of 2023 has seen falling sales for homes in the Inland area. So far, August has been the only month with growth in closed transactions.

Year to date statistics compared to 2022 have been much the same with the number of homes sold dropping by 17% and the median price down 2%. In keeping with the rest of the South Bay, comparisons to 2019 reflect sales falling 18% while the median price remains 32% above what it was before the pandemic.

Where Is the Real Estate Market Going?

The number of homes being sold has consistently fallen this year. Likewise, the median price of sold homes has generally been falling since the beginning of the year. The driver behind this has clearly been mortgage interest rates rising from under 3% to over 7% in a matter of months. The Federal Reserve managers have been very upfront about continuing these rates into the foreseeable future.

Most estimates state that about one third of potential buyers can no longer afford to continue with their purchase plans. We see a continued decline in the median price, as sellers find it impossible to sell at the price points reached during the pandemic. When ‘’time on market’ increases without a sale, sellers who ‘must sell’ will gradually lower prices.

Polls are showing those who aren’t compelled to sell are finding it hard to let go of mortgage interest rates below 5%. This reluctance, combined with the sliding median prices, will contribute to more stagnation in the market.

Photo by Carl Clark

What Is An Insurance Binder?

When applying for a mortgage loan, your lender may ask you for an insurance binder. In that event, you’re going to need to know what it is, and how to acquire it. An insurance binder is a temporary proof of insurance. If your loan is being insured, you’ll need to ask the company insuring it to provide an insurance binder before the loan can be approved. This temporary proof of insurance exists because the official proof of insurance probably won’t come until after the deadline for loan approval has passed.

Mortgage loans aren’t the only situation in which you may need an insurance binder. You may also need proof of insurance to buy a car, start a business, or rent property. Some of these may involve loans as well, but even if they don’t, it’s still possible you need to be insured for other reasons. The insurance binder in these situations is exactly the same thing — temporary proof of insurance before the official proof of insurance arrives.

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Market Stalled By High Interest Rates

As of August 2023, interest rates are somewhere around 7%, possibly higher. While this isn’t astronomically high — they have historically been over 10% — it’s too high for current homeowners to want to exchange their homes. This is because 92% of current homeowners with a mortgage have an interest rate below 6%. Almost a quarter even have locked in an interest rate below 3%.

High home prices are actually somewhat helping current homeowners, since the price boost increases their equity. Prices have increased 14% in the past two years, which results in approximately $86,000 in equity over that time period. However, this may not be enough to offset the increased mortgage costs, especially for those with very low interest rates. Assuming a mortgage of $500,000 and a current interest rate of 3%, a new purchase with the same loan amount would result in a $1,200 increase in mortgage payments per month.

Normally, when demand is low like this, supply is high. This isn’t the case right now. Previously, we would have been able to blame declining construction due to increased construction costs. That’s no longer the case, though, as construction has largely, though not completely, recovered. It may even be simple lack of demand that is the final obstacle to a full recovery for construction. To see the real problem, remember which group we’re talking about — current homeowners. These are the same people who would be selling to buy a new home. If they’re not willing to buy in the current mortgage climate, they’re not selling either.

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More: https://journal.firsttuesday.us/todays-homeowners-are-stuck-on-yesterdays-rates/91951/

Price Declines Forecast Through 2025

Median Home Prices Falling

Year to date through July, the gross revenue for South Bay is a mere 3% above that of 2019. At the same time, sales volume, the number of homes sold, is 23% below the sales of 2019. By most standards, 2019 was the pinnacle of real estate business prior to the turbulent years of the Covid pandemic.

Many sources compare current business to that of the pandemic years, partially because it’s easy and partially because the “numbers look better.“ Undeniably, the statistics do look more favorable, however, this analysis takes comparisons beyond the normal “last month” and “same month last year” to include 2023 versus 2019. This allows our readers to see 2023 in a historical context and to more readily recognize the unfolding recession.

While median prices are still above those of 2019 right now, we project the median prices will also drop below the 2019 level before this recession ends. On a month to month basis, prices are falling approximately half the time. On a year to year basis, 2023 prices have dropped below 2022 medians 82% of the time. Median prices for June and July of 2023 fell below 2022 in all four areas both months. Buyers and sellers should anticipate the bottom of the recession in late 2024, or possibly 2025. Normal growth should return in 2026.

The July report from the Federal Reserve Bank (Fed) notes that inflation is expected to continue above the target of 2% through 2025. Accordingly, the Fed efforts to “restrain” the economy (meaning increase interest rates) will continue into 2025. The report indicates that while housing costs are slowing, they continue to increase at inflationary levels, necessitating further reduction.

In the meantime, buyers who are financially able should plan to acquire desirable properties at substantially better prices than will be available after recovery begins. Sellers who anticipate a need to sell before the economic turn-around, should look toward selling sooner rather than later, to minimize the impact of the down-trending market.

Beach Cities Summer Market Fizzles

From June to July the number of homes sold in the Beach Cities fell 27% and those sold for a median price of 2% less. Some of the decline in sales is attributable to fewer homes available, as sellers hold properties off the market in hopes of improving conditions. Even more is a result of buyers who have lost significant purchasing power as mortgage interest rates have rocketed to over 7%.

Compared to July of 2022, the number of homes sold this July dropped 22% with a decline in median price of 4%. This set of statistics is somewhat deceptive in that last July the real estate market was still in the early stages of the downturn. As the current year progresses, year over year figures will demonstrate the slide more clearly.

Comparing the first seven months of 2023 to both 2022 and 2019 (the most recent year of business not impacted by the pandemic) shows the drift of sales and prices. The number of homes sold fell 24% from 2022 (802 homes) to 2023 (607 homes), while it was down 35% from 2019 (930 homes). The Fed dropped mortgage interest rates to essentially zero during the pandemic to keep the general economy afloat, which resulted in rapid price escalation which ultimately made purchasing a home unaffordable for about 25% of potential buyers. Then to control the resulting inflation, the interest rates jumped up around the 7% mark, which further slowed the real estate market by “pricing out” another 10-15% of buyers. With fewer buyers and stagnating prices, sellers are reacting by pulling property off the market and delaying planned sales.

Median prices fell 4% from 2022 and are still 28% above the median price of Beach Cities homes in 2019.

Harbor Area Sales Volume Plummets

Sales volume in the Harbor area has held up better than the Beach, possibly because median price has taken a greater hit. On a monthly basis, 24% fewer homes were sold (269 in July versus 353 in June). Comparing July of 2023 to July of last year, only 18% fewer closed escrow (269 versus 329).

Generally being an entry level market, the Harbor area tends to react faster to changes in market condition. More upscale neighborhoods frequently “stick to the price” for a longer period of time when markets are declining. Month to month median price dropped 4% in July to $565K. For July of 2022 versus July of 2023, the median fell 5%, from $780K to $740K.

Year to date through July, sales volume was off 24% from last year. Median price was down 4% when compared to the same period in 2022. Looking back to 2019, the number of homes sold during the first seven months of 2023 dropped by 21%. Median price for the same time frame shows up at 32% higher than 2019. Given the median price dropped 4% over the past month (from $772K to $740K), it’s reasonable to project the Harbor area median will end the year near $600K, as it was in 2019.

PV Hill Shows Volatility

Month over month, the number of homes sold on the PV Hill fell from 79 units in June to 50 in July, a decline of 37%. At the same time, the median price dropped 10%, ending the month at $1.8M. This despite a high sale of $12.5M, up from the high of $10M in June.

Year to year, July volume dropped 6% from 53 units in 2022, while median price plummeted 18%, from last year’s $2.2M. Palos Verdes is a unique community with large homes on large lots, many of them highly custom. Combined with the small overall number of homes, these properties truly need to be assessed on an individual basis for realistic projections.

Comparing cumulative sales data for January through July, volume is down 23% and median price is down 17% versus last year. Going back to the stable year of 2019, the number of sales is down 16% while the median is up 34%.

Interestingly, if the Fed’s annual 2% inflation target is added to the years between 2019 and 2023, the median on the Hill would be $1.5M today, instead of $1.8M. Under those circumstances, it would only take a decline of $300K to erase all gain from the past three years. Not a comforting thought for anyone who purchased recently.

Inland Cities Most Stable

The Inland area typifies a classic “middle of the road” performance in the real estate world. Generally the homes are everyday family properties, the sales trends are at the middle of the current South Bay market, and everything seems to happen with minimum drama. So there is little surprise at the minimalist 19% decline in monthly sales volume, the lowest of the South Bay. Likewise there is no shock the Inland cities came in with the lowest monthly price decline, a mere 1% below June.

Similarly, the annual sales volume showed July of 2023 only 14% below last July and the median price just 1% below the same month a year ago.

Year to date for the first seven months of 2023 compared to 2022 looks much the same. The number of homes sold dropped by 22%, 799 in 2023 versus 1021 last year. The median price fell 2% to $868K from $883K. Looking back to the 2019 sales volume for the same time period, the Inland area is off by 18% for the current year. Much like the rest of the South Bay, the median price in 2023 ($868K) remains above that of 2019 ($662K) by 31%.

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Major Finance Changes Could Disrupt Closing Process

You might think that once you’ve qualified for a mortgage loan, it’s locked in and you’re free to take on debt without affecting the home purchase. This is not the case. Lenders continue to look at your debt until the purchase is finalized, and taking on additional debt could increase your interest rate, or potentially even disqualify you from the loan.

You certainly don’t want to take additional loans during this process. This includes personal loans and lines of credit. Both can affect your credit score as well as your debt-to-income ratio, both of which lenders look at. Large purchases are also not advisable, especially if they’re paid in installments. This includes vehicles such as cars or boats, and may also include furniture or large appliances. Lenders also look for consistent employment. Even if you’re getting a pay increase by switching jobs, you probably shouldn’t do it just before finalizing a mortgage. At best, it delays the process, and getting paperwork in on time is very important, even if you’ve already locked in the rate.

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More: https://finance.yahoo.com/news/not-closing-house-131044960.html

Commonly Believed Myths About Mortgages

There are many barriers to homeownership. Many of them are economic, and unfortunately no small percentage of them are the result of discrimination. But one very frequent barrier to homeownership is lack of understanding of the process. Plenty of people who can afford to buy don’t think they can, or don’t think they should, because of misconceptions about mortgages.

One myth that, despite repeated attempts by experts to clarify it, continues to plague prospective homebuyers is the 20% down payment requirement. There is actually no such requirement — it’s a suggestion. It’s a rather economically sound suggestion in many cases, but that doesn’t mean you can’t buy with a lower down payment. The reason it’s so heavily suggested is that not only does a higher down payment translate to reduced loan value and potentially a lower interest rate, but it also avoids private mortgage insurance (PMI). PMI is an additional cost that you won’t incur if your down payment is at least 20%. So a minimum of 20% down payment significantly reduces your overall monthly cost. These high monthly costs are perhaps what’s leading people to believe that renting is cheaper than buying. It can be, in the short term, but almost never is in the long term. But the reason it can be cheaper in the short term is not high mortgage costs; it’s actually the upfront cost of buying a home. Monthly rents usually go up at the same time house prices do, and are often fairly close to monthly mortgage payments. Moreover, buying a home builds equity and allows for resale, while there is no return on investment for renting. Another misperception that leads people to think they can’t get a mortgage is credit requirements. Lenders do look at your credit, but it doesn’t need to be perfect. Most people do not have perfect credit. As long as the lender believes you could reasonably pay back the mortgage, you can qualify with a credit rating as low as 500, though you may only qualify for mortgages with higher interest rates.

The misunderstanding doesn’t stop with whether or not one can qualify for a mortgage. Even once a prospective homebuyer gets to the stage of choosing a mortgage option, there is some confusion about which mortgage options are the best for you. Many people categorically refuse adjustable-rate mortgages (ARMs) and always pick the loan with the lowest interest rate. Neither of these are necessarily the right idea. Fixed-rate mortgages (FRMs) definitely offer stability and can be excellent for people who plan to keep their new home for a while or who are uncertain about their future. On the other hand, ARMs typically have a lower initial interest rate than FRMs. This means they can be more financially sound for people who don’t plan to own the home very long, or who are better positioned to take risks. A low interest rate is obviously a good thing, but it’s far from the only cost associated with getting a loan. If you need to pay PMI, that’s also a factor. But even if you don’t, there will always be closing costs, property taxes, homeowner’s insurance, and maintenance costs. Some of these depend on the price of the home, but some depend on the lender, so be sure to get a breakdown of all the costs before committing to a loan.

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More: https://www.cbsnews.com/news/mortgage-myths-busted-what-to-know-now/

2023 Home Sales Volume Below Pre-Covid Levels!

The number of homes sold in the Los Angeles South Bay during the first six months of 2023 is the lowest sales volume for a first half in the past five years. Fewer homes have been sold since the new year than sold during the same period of the worst year of the pandemic.

The first half of 2023 has ended with 24% fewer sales than the same period in 2022, which was itself down 15% from 2021. The peak of the market was early 2021, when interest rates were among the lowest in history, exploding the number of potential buyers. The lowest sales volume was during 2020 when 3311 homes were sold, which was still greater than the 3221 sold the beginning of this year.

Median Price Begins Downturn

Coming right on the heels of the sales volume collapse is a drop in the median price. Prices today are down from where they were in 2022, which was the peak of the recent market. The chart below reflects the median price for the first and second quarters of the past five years. Typically, the first quarter is the slowest, with the number of sales increasing through the second quarter and then slowing again for the third and fourth quarters. Here the growth from Q1 to Q2 shows and we can see the change from year to year.

As always, bear in mind that the Palos Verdes Hill offers a comparatively small sample size, so a couple of significant sales can shift the plot lines dramatically on a chart. The chart above shows one such anomaly where PV the median price actually declines in the second quarter.

Looking across the years from 2019 all four areas show the same upward movement in median price until the second quarter of 2022. Then, comparing it to the second quarter of 2023, we can see the trend shifting downward. For example, the Beach Cities median fell from $1.82M in the second quarter of 2022 to $1.72M in the second quarter of 2023. The weakness in median prices is driven by increasingly steeper mortgage interest rates. Barring a change in market dynamics, anticipate this line turning into a steeper downslope for residential prices starting in winter of 2023/24.

When Is the Bottom?

The market is clearly taking a downward turn. Sales volume is off, median prices are turning down. Sellers are not putting properties on the market. Buyers aren’t buying. The few forecasters willing to make a guess this early are saying real estate won’t come back until 2025, possibly 2026. For those who are “waiting for the bottom of the market,” remember that by the time you read it in the headlines—you’re too late—the bottom is gone.

Beach Cities Sales Dropping Fast

Median prices at the Beach have fallen 5% from last June, coming in this year at $1.72M, an even $100,000 below June of 2022. Year to year sales for June are down 7% from last year, at 124 units compared to 133 in June of 2022.

Month over month statistics have been highly volatile since the beginnning of 2023. Interest rates and prices have changed erratically, making short term forecasts nearly impossible. Month to month sales volume has bounced in a range from 2% to 45%. In just six months, monthly median prices in the Beach Cities have ranged between -18% and 26%.

Year to date sales volume at the Beach is down 25% from last year and is off a full 35% from 2019.

The year to date median is down 3% compared to 2022, though it is still 32% above the median in 2019.

Despite market conditions, homes in the Beach Cities remain highly desirable. For June, 78% of sales transactions closed within 30 days of listing and sold for 2.61 % above asking price. Beach homes also offer a great deal of diversity. June sales showed a 19 million dollar range between the low sale at just over $500K and the high sale at $19.5M.

Harbor Area Home Sales and Prices Down

Year to year-same month sales in the Harbor area have been negative since the first of the year. Prices were still holding up in June of last year, but sales volume had been dropping through all of May and June. As a result, the number of homes sold dropped a mere 1% coming into June of 2023. That looks good until compared with the year to date decline of 24%.

Market conditions in the Harbor last year gradually changed from joy for rock bottom interest rates at the beginning of the year to caution as sales tapered off and sales figures stated taking a hit. Median prices for June of the current year have fallen 7% from the June 2022 median of $830K.

Until now, the Harbor area has shown mixed results in the month over month statistics. For June compared to May sales volume was up by 5% (353 versus 337), while median price was up 7% ($772K versus $720K). Like the Beach Cities, the Harbor Area is following a more normal upward swing from the winter doldrums into the spring selling season.

That upward swing is not expected to go very high or last very long. At 1710 homes sold, year to date sales volume from January through June is down 24% versus 2259 sold in 2022. Sales volume is likewise down 17% from 2071 during the same six months in 2019. The variance in monthly sales is expected to drop into the single digits starting in July.

Median prices are down 4% compared to 2022 though still up 33% versus 2019. (Note: Using The Federal Reserve’s “target inflation rate”of 2% annually would have put the Harbor area median price increase at a little over 8%. That implies an “excess growth” of about 25% in median price during the pandemic buying splurge. Much of that difference, if not all of it, is expected to disappear over the next 18 to 24 months.)

June sales detail shows 77% of sales closing escrow within 30 days. Buyers were still bidding up, with the sales price exceeding the list price by 2.61%. The highest sale recorded in June for the Harbor was $4.25M; while the lowest was $527.5K.

PV Peninsula Volume and Prices Mixed

Palos Verdes, contrasting May versus June of 2023 shows a 22% increase in the number of homes sold for a monthly total of 79. At the same time, the median price dropped by 13%, falling to $2M even. Expectations for month over month statistics include fewer sales and more aggressive price reductions as 2023 wears on. The summer and fall months are projected to have weaker home sales, both in volume and pricing, as interest rates increase and buyers and sellers who “must move” run out of options.

Year over year same month sales, showed a volume growth of 1% (one sale), accompanied by a 14% drop in median price from $2.3M. That 1% increase is the first time in 2023 that any of the areas has shown positive growth in the number of homes sold. As such, and knowing that the PV Hill is considerably smaller that the other areas we measure, readers are cautioned about the wide swings in PV statistics.

Sales volume for the first six months of 2023 is down 26% compared to 2022 (326 homes in 2023 versus 438 in 2022. Similarly, sales are down 9% from 2019 when sales of 358 homes were recorded. Median prices of $1.8M for the same period are down 13% from 2022 prices of $2.1M and up 36% from $1.3M in 2019.

Market time has remained good, with 75% of sales closing withing 30 days. Sellers have enjoyed selling prices 2.3% higher than asking prices, a trend expected to disappear before the end of summer. Once again showing the range of homes available in the South Bay, the high sale in PV was $10M while the low was $610K.

Inland Area Makes Strong Showing

Sales volume of 161 homes in the Inland Area for June was up 33% over sales of 121 in May. With 33% more activity came a 1% reduction in median price, which fell to $875K after reaching $880K in May.

Comparing June of this year to June of last year showed a volume decrease of 3% from 166 in 2022. Likewise, this June showed a median price decrease of 3% from last year’s $905K.

Year to date volume for the first six months was down 68%, for 669 units sold, versus 869 in 2022. Going back to 2019, the most recent “normal business year,” sales volume was down 21% from 799 sold in 2019.

Median price of Inland area homes for the same six month period showed at $863K, down 3% from $887K in 2022; and up 32% from $652K in 2019.
Days on market remained under 30 for 82% of the Inland area homes sold in June. Buyers offered 2.6% above asking price. The high market sale was $2.2M while the low was $390K.

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Getting A Loan With Irregular Income

Freelance workers and some self-employed people typically don’t have a consistent income. This leads some to doubt whether or not they qualify for a mortgage loan. Lenders will never blanket deny everyone with an irregular income, but it certainly could be more difficult to get a loan. As long as your credit history and debt-to-income ratio are good, it shouldn’t be too much of an issue — you simply may need more documentation to prove that you’re good for it. While lenders will always look at recent income, in the case of irregular income, they may also consider whether or not you’re likely to have clients in the near future based on your occupation.

If you get rejected outright, it’s likely that now isn’t a good time for you to buy in the first place. As long as you aren’t getting rejected, the worst case scenario is a non-qualified mortgage loan, or non-QM loan. Non-QM loans don’t meet the Consumer Financial Protection Bureau guidelines that are designed to ensure borrowers are able to repay their loans, and not all lenders offer them. They may be used for self-employed people, people with irregular income, people with low credit scores, or non-traditional types of properties. Because non-QM loans are riskier for the lender, they do have a drawback for the borrower. They typically have higher interest rates, larger down payment minimums, and/or shorter repayment periods.

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No More Federal Rate Hikes Expected

The high mortgage interest rates we’ve been experiencing have been the result of benchmark rate increases by the Federal Reserve. The benchmark rate isn’t directly tied to mortgage interest rates, but the benchmark rate does have a strong effect on interest rates. Now, though, no more rate hikes are expected, which should cause interest rates to level off, and then start to decline.

This levelling off followed by a decline is exactly what the Fed was aiming for with the rate hikes. It’s impossible for mortgage rates to drop without the real estate market, and in turn the economy as a whole, taking a hit. By raising rates above what they should be during a period of high prices, what the Fed has done is soften the blow by allowing the decline to be more gradual. Of course, this comes at the cost of significantly decreased affordability for the period of the rate hikes. Once interest rates fall below 6%, which should happen before the end of the year, the market should pick back up again. However, the effect may not be noticed until next year, as the end of the year is not generally a time of heavy market activity.

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More: https://www.realtor.com/news/trends/good-news-for-homebuyers-mortgage-rates-are-poised-to-fall/

Tax Implications Of Assisting Your Kids With Mortgage Payment

Some parents want to help their kids any way they can, including by helping them pay their mortgage. Or perhaps they’ve suggested that their inheritance be used for this purpose. Others want to instill the importance of financial responsibility or independence. Some simply can’t afford to help. But if you do want to help your kids with their mortgage, there is some important tax information you should be aware of.

One very common way for parents to assist their kids is with a financial gift. This isn’t just as simple as giving them money. Financial gifts above a certain amount per year do need to be recorded, and may be subject to a gift tax. In 2023, this amount is anything over $17,000 annually, but this value could change each year. Income tax could come into play if instead of gifting your child money, you provide them with a loan. The interest you receive on the loan must be reported as income and may be subject to income tax, and may also be deductible for your child. Capital gains tax is relevant if your kid inherits a property from you or you gift them a property. In the case of a gift, when your kid sells the home, they will need to pay capital gains tax if the home appreciated in value. In the case of inheritance, the capital gains tax amount is based only on the amount of appreciation and not the total value of the home.

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