Next year may see increasing interest rates, stabilizing prices and another wave of short sales.
That’s what a group of local real estate professionals discussed at a recent roundtable discussion hosted byThe Daily Transcript.
However, Century 21 Horizon owner and broker Joe Carta said he expects interest rates to go back down into the 3s in 2014 — a prediction that was challenged by other roundtable participants. He also said that a drop in interest rates would be a good thing and would allow the first-time homebuyer to have a chance in the market again.
“We still need that because the first-time homebuyer is a step-up homebuyer five years from now,” Carta said.
He added that interest rates are manipulated for one reason: jobs, and for every one escrow that opens, 30 jobs are put in motion.
“As these rates go up, unemployment is going to go up with it,” Carta said.
Vanessa Ruelas, owner and Realtor at Twin Cities Realty, disagreed with Carta and said interest rates “need to be above 5 [percent].”
“The sense of entitlement in these first-time homebuyers who are not responsible going through and holding their loans is unacceptable,” Ruelas said. “The sense of entitlement for these kids nowadays has to be taken away. It is the American Dream. It is something that has to be earned — it is not a right, and I think that is one of the biggest problems we’ve had.”
Alisha Sirois, senior loan officer at Guild Mortgage, said changes in interest rates affect those she has spoken with and who were putting offers on houses when the rates changed.
In June, people who called her on a Monday were told the interest rate was 3.25 percent, and by Friday it had gone up to 4.25 percent, increasing their payment by $250 per month.
“It was devastating,” Sirois said. But to those who call her for the first time and hear 4.25 percent, “it doesn’t mean a whole lot,” she added.
Alex Rojas, ShorePoint Real Estate owner and broker, said interest rates were too low at the beginning of the year.
“Too many people could afford too much property,” Rojas said. “From my sample … I would price [my listings] above any recent comp and I was getting over 20 offers, and I was getting $30,000 to $40,000 over the list price, and that is not OK.”
Rojas said he was one of the few who were happy the interest rates went up a full point — because it slowed the market down and brought it to a healthier level.
Cameron Herndon, Realtor at Keller Williams Realty, said increasing interest rates has, historically, been a good thing.
“Typically, when we look back to ’95-’96, maybe ’85-’86, interest rates started going up and real estate starting going up,” Herndon said, referring to a long-term change.
But in 1995, there were other factors backing an increase in interest rates, including a great economy with people making more money, Herndon said.
Ruelas predicted that interest rates will be at 6 percent by the end of the second quarter in 2014, and said that there’s going to be “another huge wave of short sales.”
“There’s no doubt about it — because the loan modifications that were already done and accepted — they’re already failing again,” Ruelas said. “Our economy is not doing well.”
She said 501 people in the 92592 ZIP code – the Temecula area — were late on their mortgage payments in November. She said her company has done short sales where there are no groceries in the house and looks at the loan and asks “why on Earth” that person is an owner.
“An agent, a lender, put them in irresponsibly into something that with any change in the economy, they were going to lose it,” Ruelas said. “So we’ve got to get interest rates up, we’ve got to get rid of people that are buying beyond their means and, most important, teach them how to save — they you can get into conventional.”
Loren Sanders, Realtor at Sea Coast Exclusive Properties, said real estate lenders shouldn’t take all of the blame, and he said first-time homebuyers are being more conservative than in the past.
“The whole country was ‘over-lifestyling.’ It wasn’t just real estate — so they used their real estate to over-lifestyle and then when they had a problem, there was nowhere to go,” Sanders said. “That was the biggest difference that I’ve seen in all my time doing real estate. People sucked equity out of property where, in the past, when they got in trouble they could go back … and pull [money] from there.”
Sam Khorramian, partner at Big Block Realty, agreed with Ruelas that 2014 will see more short sales.
“One, the average house in San Diego that was going for $200,000 is now going for $400,000, which is very close to what we were selling … at the peak,” Khorramian said. “People buy because of benefits of rate or because of benefits of value. And if value is now back to almost where it was at our peak, rates are not going to stay where they are forever.
“I think that with values being where they are and people having a lot of uncertainty with Obamacare and everything, I think that next year is going to be a rude awakening for a lot of us.”
It took more than 13 months for values to go from $200,000 to $400,000 in the last upswing, Khorramian said.
“We didn’t learn our lesson. We did it again and twice as fast,” Khorramian said.
Sirois said the financing on the properties were a “huge contributor” to the short sales from 2007 to ’09. Loans made from 2005 to ’08 still had a “triggering factor,” and a lot of those short sales were predicated by an interest rate adjustment or interest-only payment adjustment becoming an amortized payment, she said.
“So there was a significant change in an existing homeowner’s monthly payment on their mortgage that upset their household, that made them consider whether to keep their house or not,” Sirois said.
At the time, those people didn’t have the option to sell because they may not have had any equity. Now, almost all loans made since 2009-2010 have been 30-year fixed-rate loans, Sirois said, and, due to increasing home prices, homeowners have the option to sell if they can no longer afford their house.
“So the borrowers know what their mortgage payment has been and what it’s going to be. And so there’s no triggering event that makes somebody have to make a decision right now because their mortgage payment just went up $700 a month and they don’t want to continue to pay more for the house they’ve lived in,” Sirois said.
But Khorramian said buyers are making a smart choice in that area, but bad choices elsewhere when they pay $40,000 over a property that’s already overpriced. Rojas said the growth in 2013 isn’t sustainable and that he doesn’t expect prices to appreciate by 20 percent year-over-year in 2014.
“We bounced off the bottom and now we’re going to see something different going forward,” Rojas said.
