How Inflation Affects Mortgage Rates

INTRODUCTION Inflation is a critical factor that influences the broader economy, including mortgage rates. As inflation rises, the purchasing power of money decreases. A persistant rising in prices during and after COVID due to tight supply chains and Covid-related shutdowns prompted the Federal Reserve to take action to curb inflation and stabilize the economy.     RISE IN INTEREST RATES In an effort to curb inflation, the Federal Reserve in March 2022 implemented its hawkish stance ever since the 1980s  raising it's Federal Funds rate a total of 11 times between March 2022 and July 2023 before leaving the rate unchanged for ninth of the last 10 meetings. At it's most recent meeting in July 30-31 the Federal Reserve announced that it would refrain on raising rates again while it waits for more economic indicators to guide its policies, leaving the federal funds rate at a target range of 5.25 to 5.5 percent.        THE MEASURE OF INFLATION AND TRENDS The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services and is a key measure of inflation. The Index has been rising at a slower rate since the Federal Reserve implemented its Fed fund rate hikes in 2022. As of the latest data, CPI all items stands at 2.9% year-over-year. CPI for Shelter, a measure of changes in home prices remains at 5.03%, above it's pre-covid range. Markets are beginning to price in a potential drop in interest rates as inflation measures move towards Fed's target rate of 2% and economic indicators continue to indicate slowing economy with the hope of a soft landing, avoiding a recession.   The Federal Reserve does not directly set mortgage rates. However, by affecting the Fund Fed Rate, the rate by which banks lend to each other overnight, the Federal reserve influences short-term loans and credit lines. Mortgage rates tend to track the 10-year Treasury closely which makes it an important indicator to watch. The T-bond tends to reflects investor sentiment about future economic conditions and inflation expectations. Currently, the yield on the 10-year T-bill is around 4.6%. As this yield rises, mortgage rates typically follow suit. As of now, the average 30-year fixed mortgage rate is hovering around 6.43%, down from approximately 7.9% in October 2023 but still higher than pre-pandemic rates. This decline in mortgage rates has be attributed to the Federal Reserve’s pause on raising rates as inflation began declining, the economy softening and buyer demand declining as affordability decreased over the years. Higher mortgage rates mean higher monthly payments for homebuyers, which could dampens demand in the real estate market.   In summary, rising inflation has prompted the Federal Reserve to adopt a more aggressive stance on interest rates, leading to higher mortgage rates in 2022 and 2023. As the For those in the real estate market, staying informed about these economic indicators—CPI and the 10-year T-bill—can help you make better decisions whether you’re buying or refinancing a home. Keep an eye on these trends and consult with financial experts to navigate this challenging environment effectively.

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Why You Need a Real Estate Agent – 184 Reasons

    “By all accounts, the general public is not aware of all the services that agents provide to sellers and buyers during the course of the transaction, probably because most of the important services are performed behind the scenes.” Pat Vredevoogd-Combs, past president of the National Association of REALTORS in 2007. Below is a list of 184 things that listing agents do in every real estate transaction she presented in her testimony to the House Financial Services Committee on Housing.   Pre-listing activities Make an appointment with the seller for listing presentation. Send a written or e-mail confirmation of appointment and call to confirm. Review appointment questions. Research all comparable currently listed properties. Find sales activity for the past 18 months from MLS and public databases. Research “average days on market” for properties similar in type, price, and location. Download and review property tax roll information. Prepare “comparable market analysis” (CMA) to establish market value. Obtain a copy of the subdivision plat/complex layout. Research property’s ownership and deed type. Research property’s public record information for lot size and dimensions. Verify legal description. Research property’s land use coding and deed restrictions. Research property’s current use and zoning. Verify legal names of owner(s) in the county’s public property records. Prepare listing presentation package with the above materials. Perform exterior “curb appeal assessment” of the subject property. Compile and assemble formal file on property. Confirm current public schools and explain their impact on market value. Review listing appointment checklist to ensure completion of all tasks. Listing appointment presentation Give seller an overview of current market conditions and projections. Review agent and company credentials and accomplishments. Present the company’s profile and position or “niche” in the marketplace. Present CMA results, including comparables, sold, current, and expired listings. Offer professional pricing strategy based and interpretation of current market conditions. Discuss goals to market effectively. Explain market power and benefits of multiple listing services. Explain market power of Web marketing, IDX, and REALTOR.com. Describe the work the broker and agent do “behind the scenes” and agent’s availability on weekends. Describe agent’s role in screening qualified buyers to protect against curiosity seekers. Present and discuss strategic master marketing plan. Explain different agency relationships and determine the seller’s preference. Review all clauses in the listing contract and obtain the seller’s signature. After listing agreement is signed Review current title information. Measure overall and heated square footage. Measure interior room sizes. Confirm lot size via owner’s copy of the certified survey, if available. Note any and all unrecorded property lines, agreements, easements. Obtain house plans, if applicable and available. Review house plans, make a copy. Order plat map for retention in property’s listing file. Prepare showing instructions for buyers’ agents and agree on showing time with the seller. Obtain current mortgage loan(s) information: companies and account numbers. Verify current loan information with the lender(s). Check assumable loan(s) and any special requirements. Discuss possible buyer financing alternatives and options with the seller. Review current appraisal if available. Identify Homeowner Association manager is applicable. Verify Homeowner Association fees with manager–mandatory or optional and current annual fee. Order copy of Homeowner Association bylaws, if applicable. Research electricity availability and supplier’s name and phone number. Calculate average utility usage from last 12 months of bills. Research and verify city sewer/septic tank system. Calculate average water system fees or rates from last 12 months of bills. Or confirm well status, depth, and output from Well Report. Research/verify natural gas availability, supplier’s name, and phone number. Verify security system, the term of service and whether owned or leased. Verify if the seller has transferable Termite Bond. Ascertain need for lead-based paint disclosure. Prepare a detailed list of property amenities and assess market impact. Prepare a detailed list of property’s “Inclusions & Conveyances with Sale.” A complete list of completed repairs and maintenance items. Send “Vacancy Checklist” to the seller if the property is vacant. Explain the benefits of Homeowner Warranty to the seller. Assist sellers with completion and submission of Homeowner Warranty application. When received, place Homeowner Warranty in property file for conveyance at the time of sale. Have an extra key made for the lockbox. Verify if the property has rental units involved. And if so: Make copies of all leases for retention in listing file. Verify all rents and deposits. Inform tenants of listing and discuss how showings will be handled. Arrange for yard sign installation. Assist seller with the completion of Seller’s Disclosure form. Complete “new listing checklist.” Review results of Curb Appeal Assessment with the seller and suggest improvements for sale-ability. Review results of Interior Decor Assessment and suggest changes to shorten time on the market. Load listing time into transaction management software. Entering property in MLS database Prepare MLS Profile Sheet– the agent is responsible for “quality control” and accuracy of listing data. Enter property data from Profile Sheet into MLS listing database. Proofread MLS database listing for accuracy, including property placement in mapping function. Add the property to the company’s Active Listings. Provide seller with signed copies of the Listing Agreement and MLS Profile Data Form within 48 hours. Take more photos for upload into MLS and use in flyers. Discuss the efficacy of panoramic photography. Marketing the listing Create print and Internet ads with seller’s input. Coordinate showings with owners, tenants and other agents. Return all calls–weekends included. Install electronic lockbox. Program with agreed-upon showing time windows. Prepare mailing and contact list. Generate mail-merge letters to contact list. Order “Just Listed” labels and reports. Prepare flyers and feedback forms. Review comparable MLS listings regularly to ensure property remains competitive in price, terms, condition, and availability. Prepare property marketing brochure for seller’s review. Arrange for printing or copying of supply of marketing brochures or flyers. Place marketing brochures in all company agent mailboxes. Upload listing to company and agent Internet sites, if applicable. Mail “Just Listed” notice to all neighborhood residents. Advise Network Referral Program of listing. Provide marketing data to buyers from international relocation networks. Provide marketing data to buyers coming from referral network. “Special Feature” cards from marketing, if applicable. Submit ads to company’s participating Internet real estate sites. Convey price changes promptly to all Internet groups. Reprint/supply brochures promptly as needed. Review and update loan information in MLS as required. Send feedback e-mails/faxes to buyers’ agents after showings. Review weekly Market Study. Discuss feedback from showing agents with seller to determine if changes will accelerate the sale. Place regular weekly update calls to seller to discuss marketing and pricing. Promptly enter price changes in MLS listings database. The offer and the contract Receive and review all Offer to Purchase contracts submitted by buyers or buyers’ agents. Evaluate offer(s) and prepare “net sheet” on each for the owner to compare. Counsel seller on offers. Explain the merits and weakness of each component of each offer. Contact buyers’ agents to review buyer’s qualifications and discuss the offer. Fax/deliver Seller’s Disclosure to buyer’s agent or buyer upon request and prior to offer if possible. Confirm buyer is pre-qualified by calling the loan officer. Obtain pre-qualification letter on buyer from the loan officer. Negotiate all offers on seller’s behalf, setting a time limit for loan approval and closing date. Prepare and convey any counteroffers, acceptance or amendments to the buyer’s agent. Fax copies of the contract and all addendums to closing attorney or title company. When Offer-to-Purchase contract is accepted and signed by the seller, deliver to buyer’s agent. Record and promptly deposit the buyer’s money into an escrow account. Disseminate “Under-Contract Showing Restrictions” as seller requests. Deliver copies of fully signed Offer to Purchase contract to sellers. Fax/deliver copies of Offer to Purchase contract to selling agent. Fax copies of Offer to Purchase contract to the lender. Provide copies of signed Offer to Purchase contract for office file. Advise seller in handling additional offers to purchase submitted between contract and closing. Change MLS status to “Sale Pending.” Update transaction management program to show “Sale Pending.” Review buyer’s credit report results–Advise seller of worst and best case scenarios. Provide credit report information to seller if the property is to be seller financed. Assist buyer with obtaining financing and follow up as necessary. Coordinate with lender on discount points being locked in with dates. Deliver unrecorded property information to the buyer. Order septic inspection, if applicable. Receive and review the septic system report and access any impact on sale. Deliver a copy of septic system inspection report to the lender and buyer. Deliver well flow test report copies to lender, buyer and listing file. Verify termite inspection ordered. Verify mold inspection ordered if required. Tracking the loan process Confirm return of verifications of deposit and buyer’s employment. Follow loan processing through to the underwriter. Add lender and other vendors to transaction management program so agents, buyer, and seller can track the progress of the sale. Contact lender weekly to ensure processing is on track. Relay final approval of buyer’s loan application to the seller. Home inspection Coordinate the buyer’s professional home inspection with the seller. Review home inspector’s report. Enter completion into the transaction management tracking software program. Explain seller’s responsibilities of loan limits and interpret any clauses in the contract. Ensure the seller’s compliance with home inspection clause requirements. Assist seller with identifying and negotiating with trustworthy contractors for required repairs. Negotiate payment and oversee completion of all required repairs on seller’s behalf, if needed. The Appraisal Schedule appraisal through lender. Provide comparable sales used in market pricing to the appraiser. Follow up on the appraisal. Enter completion into transaction management program. Assist seller in questioning appraisal report if it seems too low. Closing preparations and duties Make sure the contract is signed by all parties. Coordinate closing process with the buyer’s agent and lender. Update closing forms and files. Ensure all parties have all forms and information needed to close the sale. Select location for closing. Confirm closing date and time and notify all parties. Solve any title problems (boundary disputes, easements, etc.) or in obtaining death certificates. Work with buyer’s agent in scheduling and conducting a buyer’s final walkthrough prior to closing. Research all tax, HOA, utility and other applicable prorations. Request final closing figures from the closing agent (attorney or title company). Receive and carefully review closing figures to ensure accuracy. Forward verified closing figures to buyer’s agent. Request copy of closing documents from closing agent. Confirm the buyer and buyer’s agent received title insurance commitment. Provide “Home Owners Warranty” for availability at closing. Review all closing documents carefully for errors. Forward closing documents to the absentee seller as requested. Review documents with a closing agent (attorney). Provide earnest money deposit from escrow account to the closing agent. Coordinate closing with seller’s next purchase, resolving timing issues. Have a “no surprises” closing so that seller receives net proceeds check at closing. Refer sellers to one of the best agents at their destination, if applicable. Change MLS status to Sold. Enter sale date, price, selling broker and agent’s ID numbers, etc. Closeout listing in transaction management program. Follow-up after closing Answer questions about filing claims with Homeowner Warranty company, if requested. Attempt to clarify and resolve any repair conflicts if the buyer is dissatisfied. Respond to any follow-up calls and provide any additional information required from office files.

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Appraisals – What Buyers and Sellers Need to Know

An appraisal is an opinion of value. An appraiser does not establish value but provides judgment, based on experience, of the estimated ’value’ or ‘worth’ placed on a property. Although value is created by people in the marketplace, an appraiser must estimate it. Financial Institutions Reform Recovery Enforcement Act of 1989 created appraisal standards and requires all appraisers to be licensed.  Appraisers in Arizona are licensed by the Arizona Department of Financial Institutions (AZDFI). In general, an Appraiser uses properties that are most similar in design and appeal to buyers to assess value.   Factors taken into consideration during the appraisal process include but are not limited to: Location of property and identical comparable homes, preferably in the immediate neighborhood, and, or in a one-mile radius. Preferably 5-6 homes that closed in the last 6 months, or up to a year, if recent sales are not available. Active and pending listings in the selected geographical area. Homes with similar specifications such as the number of beds, bathrooms, square footage, age, and builder. Appraisers may use market data, cost approach or/and the income approach to estimate value depending on property-type and age. The appraiser’s opinion of value also takes into consideration the safety, soundness and structural integrity of a property. This is required for government-sponsored enterprise (GSE) funding such as Veteran Administration (VA) guaranteed and Federal Housing Administration (FHA) loans.  The VA issues a ‘certificate of reasonable value’ that states the present market value base on a VA approval, setting a ceiling on the amount that can be financed. A VA appraisal is good for 6 months for resale homes and 12 months for new/proposed homes while an FHA appraisal is valid for 120 days. An Appraiser’s estimate of value typically trumps the listing and sales price in a real estate transaction financed by a lender if it comes lower than the contract/sale price.  This is because it is assumed that given all property and market information, an appraiser’s opinion of market value is the closest to the market price. This value is used by a lender to estimate the financial worth of a property used as collateral for lending purposes. Did you know? Both VA and FHA loans have ‘an escape clause’ that permits the buyer to void the contract if the property does not appraise at or below the sale price. Buyers in both situations get their escrow monies back. Conventional loans do not have the escape clause, however, buyer and seller can negotiate and come up with a solution as per the purchase contract. It is there very important that your listing and buyers’ agents understand the appraisal process to ensure their comparative market analysis (CMA) provides a recommended listing price that does not differ ‘significantly’ from the final appraisal value. A range of the recommended listing price is advisable. Real estate agents need to incorporate in a CMA: Five to eight like-homes in the immediate neighborhood (location), Homes sold in the last 6 months, Homes with similar builder, square footage, number of bedrooms and bathrooms, Homes with similar special features, and Active and pending listings, Selected geographical area. Most importantly, real estate agents should note where there are unique features in a home such as: Over-improvements, Basements, Changes in zoning, and Additions, among others. Additional and separate comparisons must be made to provide and include the estimate of the additional value placed on these unique home features in the listing price and inform the seller of these additional features that could result in differing valuations by buyers and appraisers.  Realtors should ensure that Appraisers have access to all and any information provided by sellers on improvements done in the last 15-years. In situations where there are no comparable homes sold in the last 6-12 months in the neighborhood, a mile radius can be used to find similar-type homes. Additionally, appraisers will make market movement adjustments to ensure appreciation is included in lieu of recent sales of similar homes in the neighborhood. Professional realtors who do their due diligence when performing a CMA for listing purposes will look for and note when additional comparable market analyses are necessary to capture the value of unique features. A private appraisal is always recommended in situations when a seller’s expectation of their home value differs significantly from what the market is valuing comparable homes in the immediate neighborhood. Today, Freddie Mae and Fannie Mae require the lender to provide an appraiser with the sales contract for their review and response to ensure the Appraiser has all relevant information on the transaction, including any concessions made. By adding notes in the purchase contract, a Realtor can provide information that can advise an appraiser of a potential need for adjustments. Work with a fiduciary. Call/text me for a free consultation.

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