This was sent to me a from Kelly Dent a lender at Wachovia. Her contact info is below, if you have further questions.
Mortgage Rates
To understand why mortgage rates change we must first ask the more general question, “Why do interest rates change?” It is important to realize that there is not one interest rate, but many interest rates!
Prime rate: The rate offered to a bank’s best customers. Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate). Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years. Treasury Bonds: Long-debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations. Federal Funds Rate: Rates banks charge each other for overnight loans. Federal Discount Rate: Rate New York Fed charges to member banks. Libor: London Interbank Offered Rates. Average London Eurodollar rates. 6 month CD rate: The average rate that you get when you invest in a 6-month CD. 11th District Cost of Funds: Rate determined by averaging a composite of other rates. Fannie Mae-Backed Security rates: Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly. Ginnie Mae-Backed Security rates: Ginnie Mae pools large quantities of mortgages, secures them and sells them as Ginnie Mae-backed securities. The rates on these securities influence mortgage rates on FHA and VA loans.
Interest-rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more buyers, so sellers can command a better price, i.e. higher rates. If the demand for credit reduces, then so do interest rates. This is because there are more sellers than buyers, so buyers can command a lower better price, i.e. lower rates. When the economy is expanding there is a higher demand for credit, so rates move higher, whereas when the economy is slowing the demand for credit decreases and so do interest rates.
This leads to a fundamental concept:
Bad news (i.e. a slowing economy) is good news for interest rates (i.e. lower rates).
Good news (i.e. a growing economy) is bad news for interest rates (i.e. higher rates).
A major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly, the Federal Reserve increases interest rates to slow the economy down and reduce inflation. Inflation results from prices of goods and services increasing. When the economy is strong, there is more demand for goods and services, so the producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.
Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages. The supply/demand equation for mortgage rates may be different from the supply/demand equation for interest rates. This might sometimes result in mortgage rates moving differently from other rates. For example, one lender may be forced to close additional mortgages to meet a commitment they have made. This results in them offering lower rates even though interest rates may have moved up!
There is an inverse relationship between bond prices and bond rates. This can be confusing. When bond prices move up, interest rates move down and vice versa. This is because bonds tend to have a fixed price at maturity––typically $1000. If the price of the bond is currently at $900 and there are 10 years left on the bond and if interest rates start moving higher, the price of the bond starts dropping. The higher interest rates will cause increased accumulation of interest over the next 5 years, such that a lower price (e.g. $880) will result in the same maturity price, i.e. $1000.
Kelly Dent
9717 Landmark Parkway, Suite 101
St. Louis, Mo. 63127
314.729.3904 Direct
314.729.3952 Fax
314.954.7735 Cell
This story was on the Realtor.org website and was a feature on the TODAY show this morning. A woman in California is suing her buyer’s agent for fraud. She claims that he hid the recorded sales of comparable properties that did not support the sales price of the home she bought in 2005. I am curious to know the details and hear the agent’s side of the story. It is very possible that he could have not disclosed all the comps and skewed the data to support a higher offer price, but it seems unlikely. The woman was interviewed on the TODAY show this morning and she said that she believes that she paid between 150,000 and 175,000 more for the property than it was worth. If the agent encouraged the buyers to pay that much more, it would have earned him approximately another $5,000. It doesn’t seem like a 26-year veteran agent accustomed to earning $30,000 commissions would jeopardize his reputation for such a small sum of money. Still….
I have a lot questions.
How many houses did the couple look at before they made an offer on this particular property?
If they looked at only 3 other properties in the area with similar amenities they should have had some idea of price. Did they not look at anything else? And why did they choose that particular home over others (I am assuming that they did tour other homes and chose this one). If they were willing to pay 1.2 million for this particularly home, it must have stood out among the others for some reason.
The comps that were allegedly hidden, what condition were they in?
Even in a subdivision of track homes, built in the same year by the same contractors, prices can vary drastically. Generally builders offer a base product and during the selection period people can easily increase the base cost by $50,000. The Park East Tower in the CWE offers a good example. The floor plans are identical as you move up the building. In this CMA (comparative market analysis) unit numbers ending in 05 are exactly the same floor plan with the same square footage and number of beds and baths. What differs are the appliances, counter tops, cabinets, lighting fixtures, etc. Click here and notice the difference in prices. Some of the price differences can be attributed to placement in the building. Typically units on the higher floors sell for more money. But in this case whoever bought on the 13th floor paid more than the person who bought on the 16th floor. That difference in price is due to the upgrades inside the unit. The same is probably true of those properties that were 175K less. Even though those homes were on the same street with the same number of beds and baths, the interiors were probably drastically different.
Was there an agent representing the seller? If so what comps did that agent use to help set the price?
Again I am only speculating, but I think there was probably another agent involved in the transaction–the agent who represented the seller. In that case, the agent representing the seller usually advises the seller on the list price. The seller makes the ultimate decision on what price they want to ask. Generally that price is set after the seller and the agent review the comparable properties that have sold in the area within the last 6 months. In addition to reviewing the SOLD comps, the seller’s agent and the seller tour other ACTIVE properties to scope out the competition and see how the subject house compares. The gist of this is that listing prices rarely fall out of the sky. Listing prices are based on comps. A listing price doesn’t represent the actual VALUE, it is just a reflection of what the seller feels his home worth based on the data from other properties that have sold in the neighborhood. VALUE is not established until the seller and buyer negotiate it. VALUE is established when someone agrees to pay that amount.
Which brings me to the questions of liability.
The agent was the expert in the situation. He was the one with the access to all the information which he should have shared with them. Did he hide the comps with lower prices or did he not include them because they weren’t truly comps? In either case, the client makes the decision. The client signs the contract stating they he/she is willing and able to pay the offer price. The client should be directing the agent’s actions and not the other way around. It is possible that the agent knowingly misled the client and directed her to pay more for the property but without all the information it is difficult to make a judgment.
What is my response when clients ask me how much they should offer on a particular home?
Not every buyer asks me what they should offer. But many do, and I rarely answer the question directly. I joke at first and tell them that it doesn’t matter what I would offer since I won’t ever pay a mortgage payment for them. Then we review the comps and we talk about the other houses that we have seen. I ask them why they prefer this particular house to the house around the corner that we saw earlier. We talk about the similarities and the differences and often attach a value to those similarities and differences. By the time my clients decide they have found the home that they want, they have usually seen 15 (or more, rarely less) other homes. Sometimes we go back for a second look at the homes that have made their top three. But I try to avoid telling them exactly what to offer. It all depends though. In an ideal situation I advise my clients to make a good enough offer to get a counter-offer. In other situations, if I know we are competing with other ready buyers, I advise my clients to make their best offer. I encourage my clients to make their own decisions.
I will end with one more question…Likely the client deferred to the agent and asked what she should offer. In that case, if the agent told her to offer 1.2 million and she was willing to pay 1.2 million to buy the house of her choosing, is the agent liable if the property can only re-sell for 1 million? What is the client’s responsibility?
This article was on the Business Journal website this morning. Apparently Bank of America will purchase Countrywide for “roughly 31 percent of the company’s common stock book value.” Since the announcement Bank of America’s stock has dropped nearly 1%. Probably in anticipation of the upcoming hurdles given the current condition of the housing and mortgage markets.However, the article states, as a long term investment Bank of America just bought a lot of assets for a very discounted price. Bank of America will operate its new acquisition under the Countrywide brand but will no longer be offering subprime mortgages.
On January 3, 2008 the Urban Affairs Committee hosted its first meeting of 2008. Our guest speaker was Irving Blue the Executive Director from the FPSE Community Development Corporation. He had a great presentation complete with a maps of the neighborhood, renderings of a new pedestrian friendly Manchester and information on several new construction developments.
At the corner of Taylor and Chouteau, there will be a 200 unit market rate rental development. At the intersection of Newstead and Chouteau, Saaman Corporation will be developing 28 market rate town homes starting in the 200′s. Forest Park Southeast Development Corporation will be developing nine-high density town homes. The footprints of each town home will only be 15 feet wide but each will have three stories.
The neighborhood recently received a 2 million dollar grant to upgrade infrastructure on Manchester to create a more pedestrian friendly environment. There is an additional $500,000 to improve the street scape between Oakland and Manchester. And there will be a new median between the Science Center and SLU-High marking the entrance to the neighborhood.
The Grove is really taking off in terms of commercial and retail opportunities. The Executive Director said he was expecting four new restaurants to open in the next few months. He did not mention any names, but said it would all be published in the neighborhood’s upcoming newsletter.
Despite all the coming development there are still opportunities to buy and renovate property in the neighborhood. Race Course Avenue is one example. The photo below is a view of Tower Grove Avenue from Race Course looking toward Manchester. Race Course itself is a short dead end side street just north of the intersection of Vandeventer and Tower Grove Ave.
FPSE has come a long way in the last five years and it doesn’t look like its going to stop anytime soon!
A lender that I work with just sent this info in an email to me yesterday.
Just an FYI – rates took a .250% drop on Friday so if you have anybody on the fence now is the time. A 30 year fixed with no points should come in right around 5.875% on loan amounts above $125,000.00. If you have any questions about anything else let me know. I will be available all week.
What does that look like in terms of a monthly payment?
$200,000 sale price
3% down
30 year fixed
5.875% interest rate
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$1147.58 would be the monthly principle and interest payment. Then add taxes and insurance which are different for every home.
Real estate agents are everywhere. It seems that everyone knows someone who has a real estate license. Real estate licenses aren’t hard to come by. You don’t even need to be a high school graduate to take the state real estate exam. Couple that with the fact that income potential in real estate is pretty high and you get A LOT of people with a real estate license. Asking someone you trust for a referral is a good way to start looking for an agent, but even when you are referred to an agent, it is still important to conduct an interview. I enjoy it when potential clients interview me. It always seems to be a much smoother transaction (buying or selling) when my future client and I take some time in the beginning to get to know each other. This way they know my sales history and methods and they have an opportunity to check with my past clients and my broker. It also gives me some time to discover what they are looking for, what they already know in regard to the process and what they expect from the experience.
Below are a few questions I would ask if I were interviewing agents.
1. How many transactions have you worked on?
You can ask an agent how long they have been in business, but the answer can be vague. Some agents have had their license 20 years and have only worked one or two deals a year. Other agents have been in business for less than a year but worked with 20 different buyers or sellers. In my opinion, it isn’t about the length of time or the millions sold but the number of transactions. There is something new to learn with each experience. (For the record April will be my four year anniversary and I average 2 transactions a month)
2. Does your company charge a transaction fee and how do you get paid?
Sellers generally contract with an agent and that seller and agent negotiate a commission to be paid to the listing broker. When the listing agent enters the listing into the MLS, they are agreeing to pay the selling agent (whoever represents the buyer) a portion of the agreed upon commission. In addition to this some companies charge a mandatory transaction fee to all buyers and sellers. So whether you are signing a listing contract or buyer’s agency you need to know whether or not you are going to be charged a handling fee. (For the record, we don’t charge this fee at Circa)
3. What certifications do you hold?
I haven’t met any seasoned agents who claim to know all there is to know about this business. It is important to take continuing education courses and to take them seriously. My first designation was the ePRO certification. My second was the GRI. I found this one to be extremely helpful. After that I sat for broker’s exam and passed that so now I am broker/salesperson. Next I will work on the ABR and CRS. In addition to these classes which are sponsored through the St Louis Association of Realtors I am working on a Master’s in Urban Planning and Real Estate Development. 4. What is your specialty?
You most certainly want to know if your agent is familiar with the areas you are interested in. I couldn’t find my way out of cul de sac in St Charles and my clients know that. So they don’t ask me to help them find their new place out there, but they do ask me to help them find an agent who will offer them the same service that I would. I don’t know my way around St Charles county or Jefferson county and unless going back to Franklin county for a visit I rarely cross 270 but I do know the City and the inner-ring communities. Check my website for specific neighborhoods!
5. Can I have a list of past clients?
Asking for a list of references is common so don’t hesitate to do it. You will discover a great deal about the agent as well as the transaction process. Of course I am only going to give you a list of people who will go on and on about how great how I am, but it will be a long list. If nothing else it will help you decide whether or not you want to be trapped in a car with me for an entire weekend.
6. Who is your Broker? Can I call him/her?
You do want to speak to the broker. In the event something goes awry the broker is your first line of defense. I am tempted to write my new broker’s direct line here.
7. Can you describe one of your most successful moments in real estate this year?
(Can’t give away all the goods in this one post)
8. Can you describe one of your most difficult transactions this year?
It is my opinion that you will be able to tell the most about your prospective agent by asking numbers 7 & 8. By asking about their successes, you learn how that agent measures success and if his/her idea of success matches yours. And by asking about their difficulties you can see if they learn from the challenges. If the person you are interviewing responds that they encountered no obstacles in the past 12 months, she either wasn’t working, wasn’t paying attention or simply isn’t telling the whole story. Every occupation has its challenges, you want to make sure your agent knows how to anticipate and navigate the hurdles.
Dawn Griffin Real Estate Blog
I’m an experienced Saint Louis Realtor specializing in St. Louis City as well as neighborhoods like Webster Groves, Maplewood, Clayton, University City and Ladue. With an undergraduate degree in Education and Master's in Urban Planning and Real Estate Development — I have the heart of teacher.
I have been immersed in Residential Real Estate, helping home buyers and sellers understand the market, manage the ambiguities and negotiate the best terms for themselves. I am consistently voted a 5-Star Agent by clients and featured as one of St. Louis' Best Agents in Saint Louis Magazine.
