Mortgage Matters UPDATE

Keeping you updated on the market! For the week of  January 14, 2013 MARKET RECAP We are still early into 2013, but the data releases so far are extending the trends established in 2012. Consider inventory: The numbers continue to drop. According to data provider Movoto Real Estate, inventory dropped 9%, or by 9.551 homes, month over month in December. The latest monthly drop means inventory levels ended 2012 27% lower than where they began. Falling inventory has been a mixed blessing: On the one hand, less supply has helped lift prices higher. (The paradigm of falling supply/rising demand will always do that.) On the other hand, lower inventory has truncated sales activity. It's obvious to say that we all could have been busier if there were more homes for sale. Inventory has been squeezed for two reasons: (1) Many homeowners remain underwater, so they're in no position to sell; and (2) the rising price trend has kept properties off the market, because potential sellers believe a higher price is forthcoming. Both these situations will rectify themselves over time: Rising prices coupled with continued mortgage amortization will lift many underwater homeowners above water. Rising prices will also reach an action point for more homeowners, where the price finally justifies putting the home on the market. In short, we expect inventory levels to rise as the year progresses. In the meantime, there is little reason for anyone interested in buying a home not to buy. Despite steady price increases, homes remain very affordable. The NAR's Housing Affordability Index will likely have ended 2012 at a record high. 2013 is also expected to be a high-affordability year (though affordability is expected to drop as the year progresses). In addition, rent payments and mortgage payments have reached a multi-year gap, with rent payments becoming much less attractive when compared to mortgage payments. We thought it was interesting that the NAR mentioned in its release on housing affordability that “a more sensible lending environment that makes it easier for other financially qualified buyers to get a mortgage would allow many more households to enter the market, boosting home sales as much as 10% to 15%.” Of course, we agree. We also think that as the economy improves, the lending environment will become more “sensible.” The downside is a more-sensible lending environment will likely lead to a higher-rate environment. In fact, 2013 has been marked by higher mortgage rates. We're not surprised given the recent surge in the 10-year U.S. Treasury note yield.   Economic  Indicator Release  Date and Time Consensus  Estimate Analysis Retail Sales (December) Tues., Jan. 15, 8:30 am, ET 0.4%  (Increase) Important. Sales continue to trend higher at a modest, though sustainable, rate. Mortgage Applications Wed., Jan. 16, 7:00 am, ET None Important. Purchase and refinance applications climb despite recent rate increases. Consumer Price Index (December) Wed., Jan. 16, 8:30 am, ET All Goods: 0.0% Core: 0.2% (Increase) Important. Low consumer-price inflation continues to support a low-interest-rate environment. Home Builders' Index (January) Wed., Jan. 16, 10:00 am, ET 48 Index Important. Sentiment points to a strong new-home market in 2013. Housing Starts (December) Thurs., Jan. 17, 8:30 am, ET 878,000 (Annualized) Important. The rising starts trend will help fuel economic growth.   The Federal Reserve Gives, But Does it Want to Take Away?   Mortgage rates are at historical lows due to the Federal Reserve's unprecedented purchases of Treasury and mortgage-backed securities. The Fed had said previously that it would continue to buy these securities indefinitely. Now, there are signs that “indefinitely” could be closer than the Fed had previously suggested. At the last meeting of the board of governors, there was heavy debate about how long the Fed should continue buying Treasuries and mortgage-backed securities. A few governors believe economic growth is on track. Other governors expressed concerns that the Fed's mounting debt purchases will be difficult to unwind and could roil credit markets. The bottom line is that the Treasury and mortgage-backed securities purchases could end before the end of the year, which would be sooner than most Fed watchers had anticipated. Should the Fed cease its debt purchases, interest rates and mortgage-lending rates will surely rise. A couple weeks ago, we said that mortgage lending would likely become a more “normalized” market. To that end, a more normalized mortgage-lending market entails a market without a Federal Reserve subsidy. The point we want to emphasize – one we've emphasized many times – is that the risk of holding out for lower mortgage rates (or expecting current rates to be maintained) is rising, and this rising risk is something all refinance candidates and home buyers need to keep in mind.

Could the News be Any Better??

Hallelujah!!!   The Congress got together for at least a partial deal!!  You would think it was time to celebrate but there is more to do on the debt side.   Call your Congressman and Senator!!!

And the Real Estate News??  It only keeps coming!!!   As reported previously and echoed again in Jim Belote's Mortgage Matters, the Housing Market is coming back!!  More good news.

With the sense of calm that will occur in the market due to the recent compromise in Congress, sellers should feel very confident that the market improvements will continue.  And buyers, you best run!!  The prices will only continue to firm and, as noted in the Mortgage Matters, interest rates are projected to rise over time.  No one can tell you the exact time when the rates could move up.

Yet do you want to wait to get the double whammy of higher prices and higher rates???

Keeping you updated on the market! For the week of  December 31, 2012 MARKET RECAP Last week, we sang hosannas for home builders and new-home sales. This week, existing home-sales get their turn. We praise existing homes because sales have taken a significant turn for the better. Late last week, existing-home sales posted at an annualized rate of 5.04 million units for November – a 5.9% increase over October. The pace of existing-home sales has risen to the point they are on par with the federal-tax-credit days in the spring of 2010. The good news is the market is much healthier today compared to 2010. Back then, we were skeptical that tax credits would sustain existing home sales. Our view was that the credits were simply pulling sales in from future demand, while aggregate demand remained low. This time is different. We expect sales to continue to trend higher. The housing market is more robust today than it was in 2010. For one, distress properties are becoming less of a factor. For November, distressed properties accounted for 22% of existing-home sales, down from 24% in October. What's more, that percentage has been trending down for much of 2012. Supply has been an issue, and a mixed blessing. Current inventory of existing homes is at a multi-year low of 4.8 months. The number of existing homes on the market, 2.03 million, is retarding sales-volume growth. On the other hand, low supply is helping prices. The national medium price of an existing home is up to $180,600, a 10.1% increase over the median price this time last year. All in all, the latest data show that housing – new and existing – is increasingly taking leadership for economic growth. In other words, the world is finely returning to some sense of normalcy. Normalcy might not be the word we'd use to describe mortgage lending. Yes, rates continue to skim along multi-decade lows; that is, when they are not setting new multi-decade lows. But this is an unusual lending market. Rates are low, but risk aversion remains high (particularly among regulators). The Federal Reserve is doing everything within its power – by purchasing mortgage-backed securities and long-term Treasury notes – to hold interest rates low. This is an unprecedented move by the Fed.  To be sure, the Fed's efforts have worked, but it's worth keeping in mind that the events of today are an aberration. A more normal lending environment would consist of higher-rate 30-year mortgages. From an investor's standpoint, the rate today barely compensates for inflation and doesn't compensate for risk and the time value of money. The point we want to emphasis is that the housing market has returned to normal; we think that it's a matter of time (which isn't too far into the future) when mortgage lending returns to normal too.   Economic  Indicator Release  Date and Time Consensus  Estimate Analysis Mortgage Applications Wed., Jan. 2, 7:00 am, ET None Important. Markets expect the rising trend in purchase applications to continue into 2013. Construction Spending (November) Wed., Jan. 2, 10:00 am, ET 0.1% (Increase) Important. The residential sector is fueling gains in overall construction spending. Federal Reserve FOMC Minutes Wed., Jan. 2, 2:00 pm, ET None Moderately Important. The Fed minutes will likely report moderate, but sustained, economic growth. Employment Situation (December) Fri., Jan 4, 8:30 am, ET Unemployment Rate: 7.8% Payrolls: 140,000 (Increase) Very Important. Accelerating job growth will make it more difficult for the Fed to maintain its low-interest-rate policies.   A Look Back and a Look Ahead   It appears we were fairly accurate in our predictions for 2012. This time last year we predicted that home sales volumes would continue to improve. We said the same for pricing. We even expected prices in the sand & shore states to lead the rebound. That's been the case (even Las Vegas is rebounding). One reason we thought 2012 would be a strong year for housing is shadow inventory would be less of an issue than many pundits were ominously projecting. Our rationale was simple: What's known doesn't roil markets; it's the unknown that roils markets. The problems associated with shadow inventory are well-known and well-vetted. Markets are masters at dealing with what's known. Now, we said “fairly” accurate, not completely accurate. Our prediction on mortgage rates was wrong. We expected higher lending rates in December 2012 compared to December 2011. That wasn't the case. In our defense, we didn't expect the Federal Reserve to intervene in the mortgage market to the extent it has. For 2013, we are doubling down: Existing-home and new-home sales will continue to improve, as will overall pricing. Home starts will also pick up pace throughout the year. As for shadow inventory, it will become even less of an issue than it is today. We're also doubling down on mortgage rates. We see higher rates this time next year. We say that because the Federal Reserve's interventionist policies are becoming less effective. After the Fed announced it would double its purchases of longer-term notes and bonds, the yield on the 10-year Treasury actually increased 20 basis points. This suggests to us markets are becoming more concerned with inflation. So that's our call for 2013. Have a safe and happy New Year.

The New Neutral...Interior Design

CLOCKWISE FROM TOP: Grubb and Rueb opted for a neutral color palette as the backdrop for the entire home, including here in the living room. From there, they added layers of interest via texture in the fabrics, pattern in the pillows, and even the wood grain in the zebrawood coffee table. Various vignettes throughout the home showcase pops of color not only through accessories but also through natural wood finishes. The views in the home are so impressive that Grubb and Rueb didn't want the interior of the home to compete with them. By establishing a neutral color palette, they allowed the sweeping views of Hollywood to take center stage. The dining room is one of the few rooms where a bolder color tends to dominate the look, shown in the custom-made dining room chairs.

The living room was one of the first rooms the team tackled. Neutral-toned furnishings in various textures and tan hues, including a custom-made sectional swathed in Nairobi chenille and a tufted suede bench, complement the room’s amazing view. Even the stained wood pieces, such as the custom-made zebrawood coffee table, function as doses of neutral color, says Grubb. “People forget that the stain on the wood is color,” he adds. “It’s an opportunity to add interest to a room.”   A few of the walls were painted Gentleman’s Gray by Benjamin Moore rather than the entire room, a trick Grubb likes to apply to many of his residential projects. “By painting only one or two walls one color, it gives the room a chance to breathe,” he says. “It emphasizes the color more.”   The neutral furnishings and wall colors were purposefully chosen for the young bachelor, who, like many homeowners, may want to change the look of his home in a few years. “What’s great about what we did with this room is that the client can paint the wall and add new pillows and someone will come over and say, ‘Wow, you redid the room,’” explains Grubb. “The neutral color palette allows you to make changes later and create a whole new look. That’s the beauty of it.”  The home’s base color palette flows seamlessly from room to room, including into the master bedroom and dining room. Here, neutral tones in olives and slate blues are complemented by bolder pops of color via accessories such as the custom-made dining room chairs by Zanchez Upholstery or the artwork above the master bedroom headboard. The designers took advantage, though, of one room’s playful purpose and incorporated bolder doses of color. The pool room’s white walls and exposed wood ceiling and beams serve as the perfect backdrop for a bright orange sofa from Crate & Barrel, a custom-made ottoman by Zanchez Upholstery swathed in a Kravet fabric, and a patterned rug by Modern Rugs. In the end, the client loved the result, which Grubb and Rueb say is the best compliment. “He loves being home,” says Grubb. “We created an environment that he wants to be in.”

AUGUST | SEPTEMBER 2012

For architect Christopher Grubb and interior designer Jamie Rueb, the project was rare. Most of Arch-Interiors Design Group’s clients come to them with a home in need of design or structural help, not to mention most clients have existing furnishings—artwork, antiques, furniture—that they want to incorporate into the finished product.

 So when a twentysomething bachelor approached the Los Angeles–based firm for help furnishing and decorating his completely empty circa-1942 Hollywood Hills home, the duo was understandably excited. “It really was a start-from-the-beginning opportunity,” says Grubb.

“He only had a few inspiration images, too,” adds Rueb, who says those photos, from magazine spreads and online galleries, consisted of lots of grays and blues. “The home was originally really drab. He wanted it to feel sophisticated and masculine. Luckily, he purchased the home [originally built by an architect] in great condition, so there was no remodeling work needed.” 

 With a blank canvas, the team drew up several schemes ranging from intensely modern to more transitional for their client to mull over. In addition to creating a sophisticated and updated look for the interior, Grubb and Rueb’s goal was not to compete with the home’s expansive and breathtaking views of Los Angeles. “You can literally see the Hollywood sign from his windows,” says Grubb. So the pair chose darker, neutral tones in the grays and blues the client had requested, keeping the view the focus of each room. When the team presented their schemes, they were surprised, though, when their client chose one with bold pops of color brought in through various accents and decor. “He really reacted to the brighter colors,” says Grubb. “It really resonated with him.”

 So the duo ran with the design, keeping the base of each room—wall colors, flooring, and most of the furniture—neutral but adding bold doses of color throughout each space via artwork, accessories, soft goods, or statement pieces. The homeowner kept the original wide-plank oak flooring, which ran throughout the entire home; paired with dark blue, tan, gray, and olive tones, it creates an aesthetically pleasing look.

LEFT: The pool room's light walls and natural wood beam ceiling serve as the perfect backdrop for bolder pops of color brought in by the tangerine sofa and patterned rug. 
ABOVE: The wide-plank oak flooring was original to the home and worked well wit