Why Are Interest Rates Rising?

Many people have asked me why mortgage rates have gone up so much so quickly, even on “good loans”. Sue Baker Dirickson quoted rates at our office meeting yesterday, with Jumbo(non-conforming)rates now in the 7%-plus range.
Here's the scoop.
Even though the Feds kept things the same yesterday, default and foreclosure has been on the rise, so now institutions are demanding a much higher "risk premium" for taking on pools of loans.

But because these institutions are purchasing these loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting.
This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.

In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime loans are, these rates are now higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.

Statistics Don't (Usually) Lie

I send a quarterly "Housing Inventory Snapshot" to a list of clients and potential clients who sign into my website.
Patrick, one of the recipients, just emailed to ask if I had comparative prices for years 2005 and 2006, and the percentage increase.
The figures for July 31, 2007 in Santa Clara County were:
Single Family under $1 Million: Average list price, $702,476
Median list price, $682,000
Days on market 59
Single family over $1 million Average list price, $2,012,892
Median list price, $1,549,999
Days on market 68
Condo/Townhome under $600K Average list price, $441,335
Median list price, $430,888
Days on market 60
Condo/Townhome over $600K Average list price $722,296
Median list price, $675,000
Days on market 43

My statistics don't go back to 2005, but I can do an interesting comparison between this time a year ago and the present.

In July of 2006, there were 3364 single family homes on the market in S. C. County
They took an average of 40 days to sell, and sold for an average of 99.6% of listed price. Condos and townhomes numbered 1170, took an average of 37 days to sell, and sold for 100% of the listed price, on average.

At the same time in 2007, there were 4050 single family homes for sale. They took and average of 40 days to sell, and they sold for an average of 99.3% of listed price. Condos/townhomes numbered 1396, and sold for an average of 98.1% of list after 36 days on the market. Not bad for a so-called slow real estate season!

As I have often said, our Cupertino/Sunnyvale area shows much better numbers, and we continue to see multiple offers, often in the first week on the market.

Sunset Oaks Neighborhood

According to Sue McAllister, the Real Estate Editor for the Mercury News, in her Square Feet Blog, the latest "in thing" is rating your neighborhood or your street.
I live in a large townhouse development near the Sunnyvale Community Center in the west side of the city. Even though there are a couple of minuses by today's standards...one car detached garages, small kitchens, and trash pickup in central dumpsters...the pluses more than compensate. The location is ideal, mostly located in the Cupertino School area. (a few units north of Crescent Avenue have Sunnyvale schools.) The landscaping is award-winning, and beautifully maintained. Additional off-street parking is generous, and there is always street parking available for guests.
The best part about living here is the friendly diversity of the neighbors, and the excellent on-site management, unusual in a development of this size... over 240 units. Our board of directors is also hardworking and responsive.
I have seen an sold many townhouses in the area, and rarely see a complex with better reserves. This is a great place to live.

How to Vent a Dryer Safely

When we were looking at townhouses last week, we saw a variety of "creative" dryer vents. Virtually every building code addresses clothes dryer exhausting. The codes mandate that dryer exhaust needs to be ducted outdoors. Terminating the exhaust pipe near an attic vent does not meet this requirement.

Clothes dryer exhaust can cause major problems within a house. One is a fire hazard due to the massive quantities of exposed fabric lint dust. An open flame could turn your attic into an inferno within seconds. The dryer also pumps a large amount of humid air into the attic with each load of laundry that is dried. This warm, moist air is exactly the tropical climate that mildew loves.

Interior vent kits do not meet most model building codes and they inject large amounts of humid air into your home. Condensation on windows, within exterior walls, and in attics can result from this method of dryer venting. This trapped moisture can cause wood rot and mildew problems.

Dryer venting is not as simple as it seems. The blower motor within a dryer can only push the moist air so far. If you exceed this limit, the dryer will not dry clothes properly and the vent piping can clog easily with lint. The exhaust hood design, the type of exhaust pipe used (smooth metal vent vs. corrugated/flexible metal pipe), and the number of bends in the exhaust piping create friction that slows the air leaving your dryer. Smooth metal vent pipe and exterior exhaust hoods that have openings of sixteen square inches or more offer the least resistance to air flow.

You can vent a dryer through a roof if you use the correct exhaust hood. The best hoods are one piece and contain wide flanges that permit a leak proof installation under common asphalt shingles.

Learn More About Sunnyvale Downtown

The Sunnyvale Downtown Development has been a continuing interest of mine, both as a city resident, and as a Realtor who specializes in the area. I've been providing progress reports on the construction (mostly destruction and hauling up to this point.)
Now we all have a chance to see the newest architechtural proposals for the new Town Center. The plans for the Target building, the cinemas, retail shops, office buildings and housing will be presented by the developer and City staff at the Sunnyvale Senior Center, 550 E. Remington Drive, on Thursday, August 9, as part of their Community Outreach Program.
For more information, call: 408-737-4900, or go to the website at Downtown.inSunnyvale.com.

Persistance Pays Off!

As they say, "All's well that ends well." After we lost the second property by hours (see post, "The One That Got Away,") we went back to my client's first love, the townhouse on the golf course. A week ago, the sellers wouldn't even counter our offer, but time changes a lot of things, and they were open to reviewing our second offer last night.
This time around, compromise worked...We came up some on the price, and the sellers came down some. The contract was ratified last night, and my buyer is delighted to get her first choice after all. Now we only have the hassle of four parties potentially moving on the same weekend at the end of August...but that's another story.

Unusual Home Repairs

I've mentioned before that my office keeps a list of workmen(work-people?)in all categories. We keep updating this list as someone leaves the area or an agent has a bad experience with a tradesman. Of course, new names are added whenever a client has a good referral for us.
Earlier in the week, I had a contact from someone in my "farm" area who needed a roofer specializing in tile roofs. Her neighbor had noticed that one of the concrete tiles on her roof had come loose, and she was concerned about the general condition of the roofing material.
We had nearly a dozen roofers on our list, but none specifically mentioned tile, so I went to Plan B...the Tuesday morning office meeting. I made my request in the "wants and needs" period, and had a great recommendation to pass on to my client.