Historical Interest Rates

I receive interest updates from several sources all the time. Recently, one source posted some historical interest rates along with the current interest rates. Thought I would share.

Currently, a 30-year fixed Mortgage rate is 2.77%, 3 basis points lower versus last week! 15-year fixed rate is 2.1%, unchanged versus one week ago.

Now for the historic interest rates:

  • Average 30-year Interest Rate in the 2010’s: 4.1%
  • Average 30-year Interest Rate in the 2000’s: 6.9%
  • Average 30-year Interest Rate in the 90’s: 8.1%
  • Average 30-year Interest Rate in the 80’s: 12.7%

Interest rates have an affect on home prices, as you might expect. When I purchased a home in the early 1980’s in South Orange County, it cost $157,000. That’s about what I could afford with a 12% interest rate! If rates were lower at the time, I, along with thousands of other buyers, could afford more home! It would most likely have driven up home prices (supply and demand).

In Escrow! 102 Plateau in Aliso Viejo

Barely had time to blink before we got this wonderful property into escrow.

This single family detached home located at the end of a cul-de-sac features three bedrooms, three baths and 1439sf of living space. Super floor plan that has great flow, spacious rooms bathed in light, and nicely updated and maintained throughout. Super private yard and garden, beautiful curb appeal and views from the serene master bedroom. Great home has so much to offer and at a great price! Listed at $722,000.

Call for more info or if you are ready to buy or sell 949-525-5905.

In escrow! 102 Plateau in Aliso Viejo

Orange County Real Estate – the Distressed Market

Foreclosures and short sales make up less than half a percent of the listing inventory and demand.

Parents worry about their kids all the time. Often, their minds jump to the worst-case scenario. As their newly licensed teenager drives down the street solo for the first time, mom and dad are concerned that their inexperience could result in a devastating accident. Hiking as a family on one of Southern California’s many hilly trails often leads to unexpected sheer cliffs just feet away. Many parents visualize the potential for one of their children to lose their footing and slip to their peril. Parenting is full of anguish. To keep their kids safe, they, unfortunately, must consider the most severe outcome that can reasonably be projected to occur in every situation. Similarly, due to the recession, everybody is jumping to the worst-case scenario for housing, the inevitable wave of foreclosures to come.

It is crucial to immediately point out the simple fact that just because the economy is in the midst of a recession does not mean that the housing market will tank, values must go down, and many homeowners will lose their homes due to foreclosures or short sales. In fact, in the past five recessions, only two have led to declines in real estate values, the recession that began in 1991 and the Great Recession that started in 2008. Both were fueled by asset bubbles in housing that eventually popped. The recession in 1991 was powered by the savings and loan crisis. The Great Recession was driven by subprime lending and risky investments in mortgage securities. Thus, a wave of foreclosures ensued.

Today, there are only 11 foreclosures and 7 short sales to purchase in all of Orange County, that is 18 total distressed listings, the lowest level since initially tracking distressed listings began back in 2007. It represents only 0.4% of the active listing inventory and 0.4% of demand. Compare that to January 2009 when there were 5,104 distressed listings, 44% of the active listing inventory, and demand (the last 30-days of pending sales) was at 1,428 pendings, 67% of total demand.

That meant that two-thirds of all escrows were distressed. Lenders were in control of the market, either through bank owned listings, foreclosures, or short sales where the lender (or lenders) needed to approve taking less than the outstanding loan balance.

Today, the supply of homes to purchase is low, demand is high, and home values are on the rise. Multiple offers are once again the norm. Homes are flying off the market and into escrow. And, tight lending qualifications continue to be the bedrock and strength of housing.

Even with the strength, many homeowners are worried that the housing market will tank again, and a wave of foreclosures will inevitably follow. This stems from remembering the burn from the Great Recession. Everybody was either burned or knew someone who was hurt by the collapse in housing prices. The economy ground to a halt and unemployment grew to levels last seen at the beginning of the 1980’s. With COVID-19, the economy stopped and unemployment spiked to levels not seen since the Great Depression. As a result, everyone is jumping to the worst-case scenario in their collective minds: housing must suffer.

The current recession is unprecedented. Recessions occur due to a weakness in one area of the economy that is preceded by an implosion of an asset bubble. However, the current COVID-19 recession was instigated by a forced stop of the economy, which allowed United States citizens the ability to hunker down and flatten the curve in the spread of the Coronavirus. It was the pandemic that caused the recession and not a single sector of the economy. This is precisely why the recovery has been distinctly different than a customary recovery. Housing has seen a “v-shaped” recovery, and so has manufacturing and retail sales.

A closer look at unemployment illustrates that it is affecting the lower wage earners. According to the Wall Street Journal, Bureau of Statistics, employment has only dropped 2% since December 2019 for those with bachelor’s degrees. For 16 to 24-year old’s, employment has dropped by 20.6%. Restaurants, movie theaters, amusement parks, and many retail stores have been hit hard. Younger workers have been hit the hardest. Younger, lower wage earners are not homeowners.

There are about 4 million homeowners in active forbearance, which is 7.5% of all active mortgage. Of all current forbearances which are past due on their mortgage payment, 77% have at least 20% equity in their homes, and 90% have at least 10% equity. Upon exiting forbearance, homeowners can negotiate a payment plan to pay back the missed mortgage payments or defer the payments to the back end of their loans. If they are continuing to experience a hardship and are forced to sell, most will have plenty of equity to tap into that will allow them to sell, avoiding the short sale or foreclosure route.

With about 10% of homeowners in forbearance with less than 10% equity, those owners are vulnerable to becoming a distressed sale if they experience a financial hardship. That amounts to approximately 400,000 homeowners. But not all 100% will suffer this fate. Also, with values on the rise, their equity positions will increase in time. Some will not be able to avoid becoming a foreclosure or short sale statistic, but that is a 2021 story. It will be more of ripple in the market than a wave.

The bottom line: do not count on a wave of foreclosures or short sales due to the economic fallout of the COVID-19 recession. While there may be a bit more distressed in 2021, a slight rise, it will pale in comparison to the Great Recession. Nobody should expect any type of a deal anytime soon, especially with mortgage rates that dipped below 3%, reaching yet another record low.

from Steven Thomas’ latest Orange County Housing Report

Home Inspection – Eyes Only!

Home Inspections are a necessary part of the home buying process. Take your time to get a really good look or two, hire a pro to help you and ask questions. It’s all about the all-important peace of mind when buying and selling a home.

My latest podcast has a some tips and info help you gain that peace of mind.