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The Federal Reserve held back on Thursday from raising interest rates for the first time in years. But it will eventually, maybe later this year.

Whatever the timing, a rate hike will have implications for millions of Americans. It’s important if you have a credit card or savings account, invest in a 401(k) or in the markets, or want to buy a home or car.

The Fed slashed interest rates to zero in December 2008 to help stimulate the economy and housing market during the depths of the Great Recession. The economy is much better now.

The first rate hike won’t be a game changer overnight. But it will pave the way for more hikes over the next year or two, and rates on all types of things will gradually move up, experts say.

“The precise starting date [of rate hikes] is much less important than the path of rate increases that follows,” says Robert Denk, senior economist at the National Association of Home Builders.
Here’s what you need to know about a Fed rate hike.

1. Home buyers: Interest rates are still very low
Relax. You don’t need to rush to buy a home or get a car loan tomorrow. Interest rates, even when they are raised, are still low and will remain historically low for quite some time.

The Fed’s eventual first move is expected to be small — a maximum of about 25 basis points, or an increase to 0.25% from 0%. In the world of interest rates, that’s like bunting a baseball.

The average interest rate on a typical 30-year fixed rate mortgage is 3.9% right now. Ten years ago that rate was near 6% and 20 years ago it was 7.5%, according to the St. Louis Fed. So yes, rates will likely be higher in a year but still low when compared to historical averages.

The Fed sets a target rate for very short-term debt. But that rate also influences interest rates on mortgages, car loans and other big-ticket items.
But none of the impact will happen overnight, experts say.

“We don’t expect mortgage rates to skyrocket,” says Greg McBride, chief financial analyst at Bankrate.com.

2. Savers can (eventually) smile
The first rate hike would be the light at the end of the tunnel for savers who’ve seen zero interest in their savings accounts and certificates of deposit.
That will begin to change … slowly. McBride of Bankrate warns that savers should not expect big banks to start offering higher interest on their deposits immediately.

Still, the Fed’s first rate hike will be a step in the right direction. It will mean there will likely be more rate increases in the near future (the next 1-2 years), and that eventually should mean higher interest on your deposits.
Experts say savers will be able to expect to see a more typical interest rate within a couple years, so you still need to be patient.

3. Stock markets could get even more volatile
If you invest in stocks or ETFs, or even if you just have a 401(k); a Fed rate hike will be important to you and your portfolio.

August was a very volatile month for stocks, and a rate hike could trigger even more volatility in U.S. and overseas stocks.

Sometimes a Fed rate hike causes investors to pull their investments out of developing economies like India and Mexico. Even a slightly higher interest rate in the U.S. can encourage some investors to put their cash in safe assets like U.S. government bonds, and get out of less safe assets abroad.

Already this year, investors have pulled $1 trillion out of emerging markets. If you own stocks or ETFs of overseas stocks, it could be a rocky couple of months. We’re not saying sell your stocks, sometimes volatility can present a buying opportunity. We’re saying be prepared to handle some volatility in global stock markets.

No one has a crystal ball and knows how the market will react. So far this year, whenever news suggested the Fed might raise rates, stock markets generally went down, and the opposite happened when economic news suggested a rate hike might be pushed off.
The best educated guess is that a rate hike could cause some market volatility at least in the short term.

4. Will the global gloom continue?
Sometimes economists refer to the Fed as the “World’s Central Bank” because its actions have lots of implications for global economies. Ultimately what’s bad news overseas ends up hurting the U.S. too.

China’s economy is already slowing down and developing economies are struggling with plunging currencies and low commodity prices.

The concern is that the Fed’s rate hike can cause a boomerang effect: (1) the Fed raises rates, (2) that hurts other economies even more, and then (3) economic woes in developing countries eventually hurt U.S. trade and economic growth.

A rate hike has upsides and downsides, says Diane Swonk, chief economist at Mesirow Financial. The U.S. economy could gain additional moment um behind home buyers trying to lock in low mortgage rates.

“The downside risks, however, is that a rate hike adds insult to injury in an uncertain world and causes a moderation in growth,” says Swonk.

A wall of Chinese money is heading for global real estate as local investors look for alternatives to the country’s crashing stock markets.

Chinese buyers have already spent billions in the U.S., UK and Australia, causing property prices to rise, and experts say much more cash is on its way.

The latest triggers: Chinese stocks have crashed 40% since June, wiping away trillions of dollars in market value; and Beijing surprised investors by allowing the yuan — or renminbi — to fall sharply last month.

Chinese are starting to “think money in the bank is not safe, it won’t gain any value if the renminbi is still devaluing,” said David Ji of Knight Frank, an international real estate agency. “So people will look to real estate as a more solid investment channel.”

Chinese investors are already very active in residential property markets in major cities such as New York, London and Sydney.

They’re the leading foreign buyers of U.S. homes. Sales reached a record $29 billion in the 12 months to March 30, that’s more than a quarter of all foreign purchases by value, according to the National Association of Realtors.

In Australia, sales of homes to Chinese are expected to total $60 billion between now and 2020, double the amount spent in the previous six years, according to Credit Suisse. And Chinese buyers already account for over a quarter of all London home purchases, says Savills.

With prices rising fast in major world cities, some Chinese buyers are getting more creative. They’re teaming up with local partners or looking to newer markets such as Poland. In the UK, they’re branching out beyond London and pouring money into surrounding areas, such as the county of Surrey.

Commercial real estate deals are also on the rise.

Knight Frank expects Chinese investors to spend $20 billion on major deals this year, compared with $5.5 billion in 2012.

Chinese are “getting more active right now, we haven’t seen any slowdown,” said Simon Lo of Colliers International, a property agency.

China offers limited options for local investors. Many sank money into stocks after domestic property prices began falling around four years ago, or in riskier investments that have proliferated in the shadow banking sector.

But those seeking more stable returns have increasingly turned to overseas real estate.

The rush into world markets has taken place despite an annual limit of $50,000 on the amount of money an individual can move out of China.

Those restrictions mean that investing abroad takes more planning — for example, moving money out over a long period of time, or securing approvals to send large sums abroad, but it’s clear that investor interest isn’t going away.

“We’ve seen big transactions in the States — buying a whole block of hotels for commercial development…a whole block of flats,” Lo said. Investors are “looking at things differently — what is the best way to secure long term investment opportunities?”

Ask anyone trying to buy a home today, and the vast majority will launch into a story about a bidding war. Demand for housing has returned, but housing supply has not, and the numbers are only getting worse.

The supply of homes for sale nationally in June fell 6.5 percent from a year ago, according to a new report from Zillow, a real estate listing and analytic’s company.

“Finding a house is the last hurdle for many buyers who have saved a down payment and gotten pre-approved for a mortgage, but low inventory levels like those we’re seeing across the country can bring the home buying process to a screeching halt,” said Stan Humphries, chief economist at Zillow. “In many markets, there just isn’t a lot to choose from in terms of homes on the market.”

The bigger the city, the bigger the problem. Inventory fell in 19 of the nation’s largest metropolitan areas. Supplies are also falling the most in the lower price ranges, making it even more difficult for already cash-strapped first-time buyers to get into home ownership.

The reasons for tight supply are manifold: Homebuilders are putting up single family homes at a far slower pace than historical norms. They cite a shortage of labor for at least some of that weakness, but they also are not seeing strong demand, due to their higher prices.

Another reason is negative equity. Millions of homeowners still owe more on their mortgages than their homes are worth, or they don’t have enough equity in their homes to afford to move up, leaving them unable to list their homes for sale. Still other potential move-up buyers are afraid they won’t be able to find a home to buy, so they stay where they are.

Supply is also directly connected to price. Supplies are lowest in markets where prices continue to rise, but supply is actually starting to ease in markets where home prices have flattened. Take Washington, D.C., for example. Home prices are flat from a year ago, and inventory is now up nearly 19 percent, according to Zillow. In Dallas, however, where prices are still rising, up 12.5 percent from a year ago, inventory is down nearly 20 percent.

“Sellers tend to want to hang in and get the last juice out of the orange,” said Humphries. “If you think you might see 10 percent appreciation over the next year, is it rational to move where you might squeeze more out of the market? No.”

That seller psychology is only feeding the problem in some of the hottest markets. Low inventory only pushes prices higher, and makes more sellers want to wait. That in turn pushes supply lower, as housing demand rises. In addition, higher rents are keeping more first-time buyers from saving for a down payment.

“If we can get additional increase in supply, then price increases will begin to flatten out, which will be good for the economy, good for many first time buyers, but as long as we have limited supply, and that’s what we have today, then prices inevitably will continue to rise,” said Lawrence Yun, chief economist for the National Association of Realtors.

FHA has recently announced that all deferred student loan payments must be included in the borrower’s debt-to-income (DTI) starting September 14, 2015. FHA was considered the last option available after Fannie Mae and Freddie Mac announced their change to no longer accept deferred student loan payments to be omitted. Student loans in forbearance are also required to be accounted for when qualifying for a home loan.
How does this affect you?
The more debt that is included in your debt-to-income ratio will cause your buying power to be affected because the higher the debt the less they’ll qualify. This does not only affect basic qualifications, but also for first-time homebuyer programs as well. For instance, a student who has acquired $40,000 in student loan debt will see their buying power drop by approximately 30%.
Let’s look at this closer:
If the payments on that $40,000 were 2% of the balance which is conservative, the payment would be $800/mo. If that graduate once qualified for a $350,000 home (with a 3.5% down payment and excluding the deferred payments) this new rule would decrease that amount by approximately 30% or more.
What you need to know about your student loans when applying for a mortgage
In a nutshell, all payments from a student loan must be provided to ensure that they are being accounted for in your debt-to-income. It is imperative that you are able to get a statement or letter from the creditor showing what the terms will be once the payments have commenced; otherwise, a larger payment must be used to calculate your DTI ratio.
The following are excerpts from HUD’s Handbook 4000.1:
Lenders must obtain written documentation of the deferral of the liability from the creditor and evidence of the outstanding balance and terms of the deferred liability. The lender must obtain evidence of the anticipated monthly payment obligation, if available.
The lender must use the actual monthly payment to be paid on a deferred liability, whenever available.
If the actual monthly payment is not available for deferred installment debt, the lender must utilize the terms of the debt or 5 percent of the outstanding balance to establish the monthly payment.
For a student loan, if the actual monthly payment is zero, the lender must utilize 2 percent of the outstanding balance to establish the monthly payment.
What if my spouse has student loans, but they are not on the loan?
This is a very common question and a good one at that. In a community property state such as California, all government insured loans such as FHA, VA and USDA require all debts from the borrower’s spouse to be included in their DTI. Which means your spouses’ student loans can possibly cause a loan denial.
If your spouse has student loan debt but you don’t, your other option is to qualify using a Conventional loan with a 3% down payment. All Conventional loans do not require the non-qualifying spouse’s credit to be provided, therefore; her/his debts will not be included in the borrower’s DTI ratio.
What now?
Now that FHA has implemented not only this change, but the lowering of the loan limits, working with a knowledgeable loan officer is important than it has ever been. You need to know your options and strategies that will help you obtain homeownership. The use of non-occupant co-signors such as mom and dad will be more popular going forward.
The Mortgage Credit Certificate (MCC) is also another useful program that can help you get credit to be used as income to offset some of the student loan debt.
To explore your options and to begin your home financing journey with my preferred lender, please feel free to contact me.

It’s been a long and uneven road to revival for the housing market. But things have been heating up for the last few years.
Home prices took off in 2012 and went on a tear in 2013. And while the double-digit growth has slowed somewhat, prices are still heading higher. In February, prices rose 4.2% from the year prior, according to the S&P/Case-Shiller U.S. National Home Index. And some local markets are on fire, with bidding wars and offers above asking price becoming common.

Here’s what’s driving prices higher:
Homeowners aren’t selling: Current homeowners list their home to either trade up or downsize, opening up inventory for first-time buyers to come in. One can’t happen without the other.
“The whole train has to move at the same time,” said Gumbinger.
But current homeowners aren’t flooding the market with “For Sale” signs. Some are worried they won’t be able to find a new house or they’re still waiting to recoup their home’s value lost in the crash.
“Homeowners who would be considering selling could still be underwater or still in too low of an equity position,” said Gumbinger.
Existing home sales have increased for seven consecutive months, but David Crowe, chief economist at the National Association of Home Builders, said it’s not enough. “Without additional inventory on the existing side, the first-time homebuyer is boxed out.”

Builders aren’t building: Builders have been cautious during the recovery, since they need to know homeowners will upgrade to the houses they build, said Crowe.
According to Crowe, a normal housing market has 1.6 million new single and multi-family homes built annually. Last year, the market hit a million, but single-family homes made up just 700,000, when it’s typically a little more than a million.

Lenders still aren’t lending: Strict lending practices have made it harder for buyers to secure a mortgage since the bubble burst in 2008. And while banks have loosened up a little recently, lending is still significantly tighter than it was before the housing crash.
That’s not necessarily a bad thing, but Crowe thinks standards are still a little too tight. “Underwriting standards have been tightened up beyond what is necessary,” said Crowe. “It’s an overreaction to clearly loose standards in the middle of the last decade.”

Tight inventory and rising prices can be potential warning signs of a bubble forming, but experts say it’s too early to tell.
“It’s not obvious yet,” said economist Robert Shiller, who helped create the S&P/Case-Shiller Home Price Index, on a potential bubble.
If there is one, it’s a different type of bubble than the one in 2008. While supply and demand helped inflate that bubble, the demand was enhanced by loose mortgage lending practices that sometimes pushed buyers to take out loans they couldn’t afford.
“That bubble was fostered by a finance-related push,” explained Gumbinger.
Today’s rising prices are fueled by actual market forces, backed up by real money. You don’t see all those things that would create unsustainable demand,” he said. “It’s a better qualified marketplace.”
Any potential bubbles at this point would be limited to specific markets, he added. “There are marketplaces that are beholden to certain industries and if those change, that could mean local changes to that market. At the end of the day, all real estate is local.”

Home buyers should always have their own agent. Buyer agents work to negotiate the best terms and price for the buyer. Best of all, the buyer agent’s services are free to the buyer.
Most people think they have to pay a sales commission. The truth is that only the seller pays the commission.
Whether a buyer uses an agent or not, the seller still pays the commission. The only person that wins when buyers are not represented is the listing agent.
Most buyer agents will have their clients sign an agency agreement, an Exclusive Buyer Agency Agreement. It outlines their services, how they are compensated, and how the two parties will work together. Buying a home is stressful enough, that’s why you want to make sure that you are working with an agent who truly has your best needs in mind. They should be your trusted advocate throughout the entire process.

Your agent should do the following:

1. Protect your financial information
2. Negotiate the best possible price
3. Disclose if I am working with another buyer interested in the same property
4. Show all properties you are interested in that fits your criteria and budget
5. Connect you with the service providers—inspectors, lenders, home warranty companies—to best suit your needs

Make sure the buyer’s agent you select is familiar with the type of property you want to purchase, the area you want to purchase in and the particulars of your situation. An agent is only as effective as the information they are given.

When “CBS This Morning” co-host Norah O’Donnell asked the chief executive of Zillow recently about the accuracy of the website’s automated property value estimates — known as Zestimates — she touched on one of the most sensitive perception gaps in American real estate.

Zillow is the most popular online real estate information site, with 73 million unique visitors in December. Along with active listings of properties for sale, it also provides information on houses that are not on the market. You can enter the address or general location in a database of millions of homes and probably pull up key information — square footage, lot size, number of bedrooms and baths, photos, taxes — plus a Zestimate.

Shoppers, sellers and buyers routinely quote Zestimates to realty agents — and to one another — as gauges of market value. If a house for sale has a Zestimate of $350,000, a buyer might challenge the sellers’ list price of $425,000. Or a seller might demand to know from potential listing brokers why they say a property should sell for just $595,000 when Zillow has it at $685,000. Disparities like these are daily occurrences and, in the words of one real estate agent who posted on the industry blog ActiveRain, they are “the bane of my existence.” Consumers often take Zestimates “as gospel,” said Tim Freund, an agent with Dilbeck Real Estate in Westlake Village. If either the buyer or the seller won’t budge off Zillow’s estimated value, he told me, “that will kill a deal.” Back to the question posed by O’Donnell:  Are Zestimates accurate? And if they’re off the mark, how far off? Zillow CEO Spencer Rascoff answered that they’re “a good starting point” but that nationwide Zestimates have a “median error rate” of about 8%.

Whoa. That sounds high. On a $500,000 house, that would be a $40,000 disparity — a lot of money on the table — and could create problems. But, there’s something Rascoff was not asked about: Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing. Though it’s not prominently featured on the website, at the bottom of Zillow’s home page in small type is the word “Zestimates.” This section provides helpful background information along with valuation error rates by state and county — some of which are stunners. For example, in New York County — Manhattan — the median valuation error rate is 19.9%. In Brooklyn, it’s 12.9%. In Somerset County, Md., the rate is an astounding 42%. In some rural counties in California, error rates range as high as 26%. In San Francisco it’s 11.6%. With a median home value of $1,000,800 in San Francisco, according to Zillow estimates as of December, a median error rate at this level translates into a price disparity of $116,093. Some real estate agents have done their own studies of accuracy levels of Zillow in their local markets. Last July, Robert Earl, an agent with Choice Homes Team in the Charlottesville, Va., area, examined selling prices and Zestimates of all 21 homes sold that month in the nearby community of Lake Monticello. On 17 sales Zillow overestimated values, including two houses that sold for 61% below the Zestimate.

In Carlsbad, Calif., Jeff Dowler, an agent with Solutions Real Estate, did a similar analysis on sales in two ZIP Codes. He found that Zestimates came in below the selling price 70% of the time, with disparities ranging as high as $70,000. In 25% of the sales, Zestimates were higher than the contract price. In 95% of the cases, he said, “Zestimates were wrong. That does not inspire a lot of confidence, at least not for me.” In a second ZIP Code, Dowler found that 100% of Zestimates were inaccurate and that disparities were as large as $190,000.

So what do you do now that you’ve got the scoop on Zestimate accuracy? Most important, take Rascoff’s advice: Look at them as no more than starting points in pricing discussions with the real authorities on local real estate values — experienced agents and appraisers. Zestimates are hardly gospel — often far from it.

Millions of Americans who lost their homes during the foreclosure crisis are now poised to become homeowners again.

That’s according to a new report from RealtyTrac, which estimates that 7.3 million so-called “boomerang buyers” will return to the U.S. housing market over the next eight years. Foreclosures and short sales skyrocketed after 2007 during the darkest years of the financial crisis and Great Recession. But with the economy gaining momentum and hiring picking up, many foreclosed on homeowners are in a position to buy again.

Half a million home buyers: Homeowners can recover from foreclosure in as little as three years, but seven years is the “conservative” amount of time it takes to rebuild a credit score, according to RealtyTrac. That means many homeowners who lost their homes in 2007 should be able qualify for a new home loan this year. More than 500,000 people will fit this description in 2015, according to RealtyTrac. The number jumps to 1 million next year, peaks at 1.3 million in 2018, then tapers off by 2022.

A home in California: RealtyTrac identified several markets with the most potential for boomerang buyers. They include cities that were hit hard by the foreclosure crisis, but now have home prices that are affordable for the median homebuyer. Several hard hit cities in California, such as Merced, Stockton and Modesto, are also prime candidates.

Retirement cities: Boomerang buyers are likely to be from either Generation X or the Baby Boom generation, according to RealtyTrac. So cities that attract people nearing retirement age, like those in Florida, or metro hubs with jobs such as Chicago and Atlanta are on their list

Homeownership has many advantages – both personal and financial – but buying a home is an important decision. Understanding the differences between renting and buying can help you decide if it is the right time to make the leap.

Benefits of Home Ownership:

• Tax savings – You may earn significant tax savings because you can deduct mortgage interest and property taxes from your federal income tax as well as many states’ income tax if you itemize your deductions.
• A stable monthly housing expense – Your monthly housing loan or mortgage expense can remain the same for the life of your mortgage, depending on the type of loan you choose.
• Equity – You may build equity in your home over the life of your loan, which allows you to plan for future goals like your child’s education or your retirement.
• Personal satisfaction – Your home can be a great source of pride and satisfaction – giving you peace of mind that you’ve built a solid foundation on which to build your future.

Think you are ready to buy a home? Click here to see how much you qualify for or to start getting ready to purchase a home this year
 

When it comes to the housing market, 2015 may be the year first-time home buyers make a comeback. With rents rising faster than incomes, many Millennial’s are expected to start looking to buy homes of their own. What they will find are much more favorable conditions than they have seen in years, including lower down payment mortgages, looser lending standards and a bigger selection of homes to choose from. Here are four housing market trends economists and other industry experts expect to see in the year ahead.

1. Looser lending standards Conspicuously absent from the housing market over the past five years have been first-time home buyers. But in early December, Fannie Mae and Freddie Mac put new lending guidelines in place and started offering 3% down payment mortgages that will make it easier for more first-time buyers to qualify for a mortgage. Add to that a strengthening job market, and prospects look much brighter for young home buyers. “It’s already begun that Millennials are going back into the market,” said Mark Zandi, chief economist for Moody’s Analytics. According to the Mortgage Bankers Association, sales of new homes are expected to climb by more than 13% in 2015, while existing home sales are expected to increase by 5%. A spike in the number of first-time home buyers should spark a chain reaction by enabling existing homeowners to sell their homes and buy more expensive ones, said Zandi.2. There will be more homes to choose from Builders are ramping up production of smaller homes to accommodate these new entry-level buyers, said Stan Humphries, chief economist for Zillow. Homebuilder D.R. Horton formed Express Homes, to build no-frills homes ranging in price from $120,000 to $150,000, about half the average price of the homes it normally builds. Other builders, like LGI Homes and KB Homes are also targeting first-time buyers. 3. Home prices will become more affordable With so many new homes slated to come onto the market, the supply is expected to loosen up and take some pressure off of home prices. That should improve affordability in some of the more out-of-reach metro area markets like Washington, D.C., San Jose, Calif., and Seattle. Plus, says Robert Shiller, the Nobel-Prize winning economist and co-founder of the S&P/Case-Shiller home price index, “home prices look somewhat expensive.” In fact, he thinks a decline in home prices is a “distinct possibility.” Other economists expect to see small gains. Jed Kolko expects increases, but only in low single-digit percentages because there will be fewer big institutional investors buying up properties and propping up prices. 4. Mortgage rates will move higher — at some point If there’s any single market trend that real estate industry pros have gotten consistently wrong lately, it’s the direction of mortgage rates. But most do expect rates to rise at some point in 2015. In December, the Federal Reserve signaled that it would not raise the Federal Funds rate until the summer of 2015 or perhaps even later. Keith Gumbinger of HSH.com, a mortgage information provider, expects mortgage rates to peak next year at about 4.75% for a 30-year fixed rate mortgage. He doesn’t see rates rising much beyond 5%, which would still be “very favorable rate, historically.” Khater doesn’t even expect rates to go that high. He predicts rates to top out at 4.5%, which should do little to affect buyers. An increase to 4.5% from the current 4% adds about $60 a month to mortgage payments on a loan with a principal balance of $200,000.