Home Loan Interest Rates and Related Stuff

 

Home Loan Interest Rates and Related Stuff

Bill Barksdale, Columnist

This is a very complex, volatile topic that even economic experts, which I am not, have written long studies about.  My observations do not constitute expert advice and you should not base your financial decisions on what I have to say.  If you need financial advice it is essential that you consult a qualified expert.  So here I go with my opinions and observations.

As a society we are still riding the wave of the devastating financial economic collapse that began in 2006 as big financial institutions began to play Russian roulette with the economy.  It made markets nervous and there’s still some nervousness from that disaster. 

 In 2007 the huge banking institution Lehman Brothers, had been packaging so called subprime loans, which were home loans made to people who didn’t actually have the income to make the payments.  They became known as “liar loans” because unethical lenders encouraged borrowers to lie about their incomes and those incomes were purposefully not verified by the many lenders that made them because those lenders were making huge profits and knew that the Federal Government would pick up the tab i.e. U.S. taxpayers.  Well anyway in 2007 Lehman Brothers dumped their toxic loans into the financial markets and in 2008 declared bankruptcy! 

By the end of 2007 at the tail end of the George W. Bush administration, the U.S. economy began to be unstable.  The Lehman Brothers failure triggered a domino effect and many crooked financial institutions began to fail.  President Obama took office as the economy was in free-fall.  He must have had nerves of steel!

As a real estate agent I can tell you it was breathtaking to watch the real estate market turn around in weeks as home prices dropped dramatically.  The effect began to cause wholesale, widespread foreclosures on home owners whose home values dropped.  They found themselves “upside down”, meaning they owed much more than their homes were worth.

At the time, home interest rates for well-qualified best buyers were around 6.25%.  Many factors go into what your home purchase interest rate will be.  Among them are your credit rating - based on your personal history of how you manage money.  Do you pay bills on time?  Have you had the same job for at least 2 years?  Does your income match what you, and your family if you have one, need to live on?  How much have you saved to make a down payment?  Lots of stuff.  If your rating is low, say below 680, you will pay a higher interest rate for the risk the lender is taking on you.  Insurability of the property is a factor.  Also, location-location-location.  Is the property in a desirable location?

Other factors include: is there enough housing stock to supply demand?  Answer - There’s not.  Inflation is often caused by corporate behavior.  Are corporate profit demands increasing faster than a reasonable rate of return?  Look at drug prices, medical care & fuel prices for instance.  Social conditions are factors.  Look at the instability of the January 6^th insurrection and the insecurity caused by the recent Russian war in Ukraine. Things like that make markets & their investors nervous.  These things cause economic instability. 

In January of 2021 interest rates for best-borrowers dropped to an all-time low of about 2.65%.  In 1971 they were about 7.3%.  In 1980 they were around 18%.  When I began my real estate career people were rushing to refinance at the bargain rate of 9.5%!  Today, as I write this, a home loan with 20% down payment - 740 credit score is about 5% + 1% of the loan amount for loan points.  Lenders are raising their rates regardless of what the Federal Reserve is doing.  Per loan officer, Debbie Mirabelli, the Feds are no longer buying mortgage-back securities, so insurance companies and other investors are now taking that investment risk and they want a higher rate of return.  My opinion, it looks pretty certain that rates are quickly headed to around 6%, fairly soon.

Home prices have risen to unsustainable highs in most markets.  The demand exceeds supply.  That causes inflated prices – INFLATION!  As one control on inflation, interest rates rise.  As interest rates rise, home prices normally fall because more of the borrower’s dollar goes to paying interest instead of the principle they owe on the loan.  Thus, the borrower qualifies for a lower loan amount and home prices fall.  People need a place to live so until there’s more housing created, or population falls, prices may remain somewhat inflated.  We’ll see how much pain buyers can handle. 

Normally reasonable housing expense should be no more than about 40% of your household income.  Many buyers spend more than that.  Fuel prices and a declining supply of truck drivers are rapidly increasing the cost of goods, including food.  The need for renewable, non-fossil fuel energy is rapidly becoming an imperative.  Lower heath care expense has to be lowered as it is in every other developed country.  Huge disparities in what the super-wealthy & regular people pay in taxes must be corrected.  Money for increased housing & living expense needs to come from somewhere.  Somethings got to give. 

Still with me?  Congratulations!

Bill Barksdale was inducted into the 2016 Realtor® Hall of Fame, and served as Chair of the County of Mendocino Assessment Appeals Board settling property tax disputes between the County Assessor & citizens and businesses.  Read more of Bill’s columns on his blog at www.bbarksdale.com

Talk of the Town

 

Talk of the Town

Bill Barksdale, Columnist

I don’t know how many times I can say in this column how much I love Willits.  I don’t know why, but it’s such a good fit for those of us it fits.  It’s the people really.  Like this morning, I had just gotten up, was wearing my sweats and opening the blinds when I saw my dear old friend Norma Hanson walking past.  I opened the door and called out to her and she stopped and we chatted and laughed for quite a while.  That’s kind of the style of our friendship. 

Years ago Norma and I decided to take a ceramics class at Mendocino College.  As I recall it was two evenings a week.  Our first teacher was the late, great Bob Kirkpatrick.  Bob used to be the Superintendent of Schools I think.  He was a wonderful teacher.  Once he taught us the basics we were pretty much left on our own to create whatever we could.  Norma and I became attracted to throwing pots on the wheel, so we each have lots of bowls in all shapes and sizes. This was back in 2001. 

We would chatter all the way down to Ukiah, all through the class and all the way home.  The thing about throwing a pot on a wheel is, you have to concentrate.  That lump of clay has to be centered and stay centered as you delicately lift it and shape it into a bowl or vase or whatever.  The problem Norma & I would have is sometimes we would start laughing over some story or person we were talking about and suddenly, in an instant, both partially-formed pots would go wonky and sometimes even flying off the wheel.  I still use the bowls and plates I made in those classes every day.

My first job in Willits, back in the 80’s was being the maintenance crew at Brooktrails Lodge along with Joe and with Bill Wilson, who eventually became the head of the City’s maintenance department.  We remained friends throughout Bill’s life until his all-too-soon passing suddenly.  Rosemary still managed the Lodge but it was in transition and eventually she lost it.  It was a favorite vacation destination for many people who would plan their yearly vacations there.

We met Verda Campbell there, who was a long time waitress but also raised horses on the ranch with her husband, Peck.  Joe and I would go to their ranch every spring to get horse manure.  At the Lodge, there was Don whose hair remained an unnatural jet black despite his age, and his wife Millie who worked in the kitchen.  All became friends like an extended family.

We met our beloved friends, Marilyn McNair and Jeanne Hargraves at the Lodge.  They played Bridge there on a regular basis.  Joe and I started a deck refinishing business called Deck Savers, after we left the Lodge.  Marilyn was our first customer and Jeanne our second.  We all became very close.  Jeanne like a second mother, Marilyn like a sassy, flippant older sister.  We went to Jeanne’s house for almost every holiday or birthday for dinner.  We often played poker together, for cash.  Jeanne’s mother was still alive at the time and was a shark of a poker player. 

I learned real estate from my still good friend, Lee Persico at Coldwell Banker.  Well into his 80’s, Lee is still at it.  I’ve met almost every old rancher in Willits through Lee.   His wife, Evelyn, taught me how to peal garlic.  I only made the mistake of talking about politics with Evelyn once!  She’s a champion canner and I always enjoyed the jam I got from her every Christmas.  Now I’ve become a pretty good canner myself and make way too much plum jam every year.  This year I’m going to grow jalapenos and make some nice “hot” jam.

When we first came to Willits the place to eat was Mom’s Place, which became the second location for Ardella’s which Kathy & Lorrie owned.  Now it’s the Cafe’ 77.  Mom’s Place was the most entertaining place it town.  Always crowded.  The most engrossing   aspect was that the waitresses always had an ongoing conversation, completely oblivious to who was listening, as they gossiped about the most intimate details of the lives of anybody who they had a bit of dirt on, while they worked the room.  After a meal at Mom’s you knew just about every salacious detail of the “life of the day” being discussed as they waited on tables, never stopping their very loud conversations.

One of my beloved friends is Emmy Good.  At 84 Emmy is still my yoga teacher.  She amazes me with what she can do!  Much more flexible than me.  Her stories about her first yoga teacher in Beverly Hills, who wore fishnet tights and had a very large bosom, are hysterical - especially when Emmy really does the unidentifiable accent.  Emmy is a prize-winning raconteur.  We can, and do, talk for hours with story after story.  So glad those conversations have never been recorded. 

I could go on and on about treasured friends.  So much gossip.  So much love and friendship.

Bill Barksdale was inducted into the 2016 Realtor® Hall of Fame, and served as Chair of the County of Mendocino Assessment Appeals Board settling property tax disputes between the County Assessor & citizens and businesses.  Read more of Bill’s columns on his blog at www.bbarksdale.com

They’re Playing Our Song

 

They’re Playing Our Song

 “Getting old is not for the faint of heart.”  My mother says this often.  She ought to know. She and her husband are both 100 years old.  They deal with many of the things you’d think two 100 year old people deal with.  They both use walkers but not wheel chairs.  They live in a 2 room managed-care condo with daily help and all meals prepared.  There’s a small lake outside their window and my Mother loves to sit and watch the geese & ducks swimming by, plucking & grooming.  For her it’s as good as TV. 

My stepdad likes to go to the weekly dances.  He loves life.  Goes out to play cards every day, various games and activities.  An old railroad man who handled timber shipping accounts, he can strike up a conversation with anyone.  I really admire how each day is a holiday for him it seems.  Having a good attitude seems to be an elixir for those who live long lives. 

They live in a nice assisted-living place.  Most assisted-living places have different levels of assistance based on the needs of the resident.  It can get pretty expensive, and for many people will likely take all their income plus some.  Savings, retirement accounts – if you have one - various government programs, insurance, Gi, etc. make up the rest.  Many people don’t have resources like these available.  There’s a great need for affordable, reasonable assistance for millions of older and disabled people.

The Cost of Living, is going way up.  Inflation is increasing much faster than most peoples’ income.  There’s that, and there’s the distribution of wealth in our nation’s economy.  The tax bill of 2018 that passed with only Republican votes gave a permanent tax reduction to corporations.  Regular taxpayers saw a temporary tax break but many of these tax cuts will expire in 2025 and around 65% of the population will have a sizable tax increase in the following couple of years, per Joseph E. Stiglitz 10-31-2020 in the New York Times. Resulting deficits could leave a hole of billions or trillions of dollars threatening Social Security & Medicare which most Americans rely on. 

In Willits, there’s not enough housing – period, but also very little affordable housing for the elderly & disable.  In fact, there’s not even enough such housing for people who could afford to buy something.  In areas where they have them, a rented 2-room elder condo with minimal care for two people often costs around $6,000.00 or more per month!  Can you afford that, especially when you’re old and not working?  There are other solutions to be found, more affordable ones.

Developing more housing depends, of necessity, on expanded water & distribution capacity, more street construction, expanded sewer capacity, energy & internet– all that stuff we depend on to live. Local development of needed housing and care for those in need starts in the community.  We can’t just say ‘costs go up faster than income and we just have to live with less’, leaving people homeless.  This is a dilemma that we have to create a solution for.  Everything starts with Planning.

Willits needs more housing for the elderly & disabled.  More housing needed for everyone, really.  Here’s part of the equation; ‘What are the people’s incomes in the area’ – then create housing that most people can afford.  People who are living in just regular housing today, will likely be wanting the more “senior” versions of housing and ways of living in the future.  Let’s just start planning it now!  Create apartments & condos, on large lots & small acreage that we can get infrastructure to.  The housing by the Senior Center is a start.

Local government – I request that you begin with Zoning.  Willits is a mishmash of dysfunctional zoning, it just grew that way.  But it doesn’t have to stay that way.  The tool of the General Plan is really a Vision Statement of how we want things to grow.  What would a better-planned, more convenient to live in, beautiful – Willits look like? 

Willits, like many places, has limited City staff and funds.  Only so much can be done at a time.  Things have to be prioritized.  That’s why a Plan is so important!  When you have a long term plan – say a ten-year plan – then each decision, everything you fix or expand or zone for, becomes a step toward that Vision, that Plan.  That’s how the tool of Planning works.  That’s how all goalsetting works. 

As my column title advises “They’re playing our song”, meaning, we’re all headed in that direction.  Nice elder-care housing could be ready in 3-4 years with the cooperation of City and builder/developers.  Good, creative planning can get us a place to live that is well-planned, well-built, safe and attractive.  The question of affordability comes up again.  There are ways.  We need to find them, and to create affordability with legislation & evaluation of resources.  It’s our future after all. 

In one episode of The Golden Girls, Sophia says “It costs money to get old.”  The price is not only a place to live, many people become “homeless” as they grow old for lack of funds.  The suicide rate of Americans 85 years or older is over 20%.  White males made up 69.38% in 2019 of suicides, per the Centers for Disease Control!  If you or anyone you know is thinking of suicide please call 1-800-273-8255 or 911, or call a trusted friend or family member.  Pause, and talk with someone, Please. 

Factors of growing old or disabled include: growing old in place (in your home with help), homelessness, health care, managed care, assisted living, food, lack of enough income, family assistance or lack of, mental health issues, loneliness, pets, affordable housing, failing health & pain, death of friends, discovering new interests, finding ways to be happy. 

As a Community we need to be talking about these issues, and finding solutions.  We can’t just ignore that this is happening.  Most of us will be dealing with at least some of these issues as we age.  Earlier I mentioned Planning, meaning primarily Municipal Planning by the City.  The pissing match between the County & the City about land has to end. The City must zone for needed housing development and facilities.  Fix the broken patchwork of zoning in Willits and create appropriate housing for our aging population. Expensive, inadequate housing on big lots is not the answer.  Selling land to the highest bidder for more industrial development in town is definitely not the answer.  Let’s get serious!

I don’t care what your age is, you will be needing this type of housing if you live long enough.  Get vocal.  Attend City Council meetings and ask that senior housing with various levels of care get in the plan.  It doesn’t have to all be care-type facilities.  It can be co-housing with sharing of some facilities, Condos above commercial space as one sees in many towns & cities, small houses on tiny lots with a common parking area.  These are all types of development that are being done right now all over the Country.  Believe me when I say – They’re playing our song, as we age and look toward what we need here.  If you want to stay in Willits, as I do, we need places to live that work for older and disabled people.  And while we’re at it, for everyone really. 

Bill Barksdale was inducted into the 2016 Realtor® Hall of Fame, and served as Chair of the County of Mendocino Assessment Appeals Board settling property tax disputes between the County Assessor & citizens and businesses.  Read more of Bill’s columns on his blog at www.bbarksdale.com