Oct 142015
Hello everyone,

I read an article this morning that got my mind chirpin’ a bit. And while I sure hope things get easier for buyers— and I actually do think we have some evidence to hang some hopes on— I also think we have to view anyone’s future predictions with a healthy dose of skepticism. Typically in finance, the predictions of the future are concocted in a test tube in the proverbial academic laboratory where the capricious nature of life is suspended, leaving the predictions to be made in a virtual vacuum. So, if we look at the future in this way, sure, interesting predictions can be made. But real life is not in a vacuum, and all sorts of events occurring outside that vacuum can change the outcomes predicted.

Those of us who follow finance are aware that there has been talk all year from the highest level of the Federal Reserve Bank that they will increase the federal funds rate, ultimately leading to higher retail mortgage rates. It keeps getting postponed, of course, and the ebb and flow of investment money shifting between the stock market and the bond market in reaction to the predicted moves of the Fed is the most prominent driver of swings in the rates for mortgage loans we’ve seen for at least the last year. Ironically, when the Fed hints it will postpone a rate increase, investor money flows toward the stock market— and away from the bond market— which actually has the short term effect of raising retail mortgage interest rates. Go figure, the Fed says it will keep rates steady and immediately retail mortgage rates increase!

Excerpt from MarketWatch.com article I read this morning:

Could home buyers in San Francisco Bay Area catch a break soon?

Looking in the rear view mirror … this summer San Francisco Bay Area home prices neared their pre-recession all-time highs as sales soared, according to a recent report by Core Logic. Most Bay Area counties saw jaw-dropping double-digit gains in sales prices. With housing near job centers becoming less affordable, buyers began spilling over into more affordable inland counties. Napa, Contra Costa and Solano counties, posted whopping 31%, 19% and 18% year-over-year increases in homes sold, according to Andrew LePage, research analyst with Core Logic.

Will it last? There’s little debate that for the time being the San Francisco Bay Area housing market will remain strong. However, looking into a crystal ball … seasoned agents believe the period of double-digit appreciation is about to end. Since 2012/2013 low inventory and high demand helped drive up prices in most of the nine Bay Area counties. Home-price appreciation has outpaced income growth to the point that we are beginning to see a tipping point. Inventory is slowly increasing and indications are the playing field is beginning to change.

Many believe the San Francisco Bay Area housing market is approaching a healthy leveling off phase. I see this as especially good news for buyers exhausted from trying to compete for a home. The slowdown will begin to create opportunities for them to obtain homes that were too difficult and expensive to buy in the past. The time is coming where buyers will once again get the opportunity to purchase a home the old fashioned way — by negotiating with the seller.


I really think considering the prospect of rates increasing is as pertinent to the premonition of a “break” for home buyers as any other factor. The very purpose of increasing rates is to slow inflation, and generally it works. Chances are it will work in the bay area too, whenever it happens. And that increase, strangely enough, should actually be a break for homebuyers. While “low inventory, low unemployment, and a strong business climate” all certainly have a significant impact on inflation, demonstrably so has the thus-far-persistent specter of low interest rates. It’s had a huge impact on home sales in our area and will most likely continue to do so for the foreseeable future.

And then there are these trends we can track:


* Anecdotally, we can attest to as much as 20-30% over-bidding in Oakland over the last year.


*Anecdotally, loan demand has been strong all year from our vantage point.


*Anecdotally, we can attest that cash buyers have a sweet-spot price they won’t surpass, and if they don’t get that they’re out!

And these, from just the past couple months:

Jumbo Standards Are Loosening

So while inventory and low unemployment and a strong business climate all carry a lot of weight, it’s important for us to consider a few other factors driving demand. Read what you wish from these graphs, as they are records of the past and not necessarily indicators for the future. But if the Fed does increase rates to slow inflation within the coming year (in an election year, no less!), will the loosening of credit guidelines ultimately make it a wash, keeping demand as strong as ever?

My real answer is I don’t know. Higher rates can, and eventually will, trump looser credit guidelines. But after reading the article in MarketWatch I couldn’t help but think to myself how its author should have given more weight to the prospect of how lending affects our housing market. The truth is right now is a pretty amazing time to get financing for a home purchase. When I first became licensed in the loan business in 1999 the conforming rate for a 30 year fixed mortgage was generally around 8%. Today it’s about half that. Yes, it’s competitive to purchase, but at least here in Oakland the demand has dramatically lifted the renovation investments in many neighborhoods, revitalizing deeper and deeper into parts of the city that haven’t seen that upward lift in decades. Opportunities to buy well below the regional median price are still out there, in increasingly renovated neighborhoods. And then obviously, considering what $1M buys in San Francisco and the peninsula these days, if you’re looking in that range you definitely want to give Oakland a look for its proximity, its style, and its value. Check out this documentary at TrailheadOakland.org for just one of the latest indicators of the inherent value Oakland offers.

Hope you’ll think about that when you cast your mind’s eye to the future. Life is capricious, and the predictions of the future may be right or they may be wrong. We don’t know what’s coming down the pike, truthfully. But what we do know is what we have RIGHT NOW is a strong market for lending. Low rates and a loosening of guidelines in certain circumstances are definitely having an impact, and all these factors could actually be an opportunity for you.

Please don’t hesitate to keep in touch with us— our senior loan officer Heidi is at loansbyheidi@gmail.com or 510-205-1077— if you’re giving consideration to home financing. We’re watching closely and we’re happy to tell you what the market has to offer you, for both loans and for real estate opportunities locally.

And just one more graphic as food for thought:

Federal Funds Target Rate Since 1980: