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Interest Rates Historical Perspective

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In 1968, mortgage rates were 8.5%. The next year, rates went down to 7%. Homeowners could buy a 15-20% larger home for the same payments if they could find someone to assume their mortgage.

FHA and VA mortgages were very popular in certain price ranges and they allowed anyone to assume the mortgage regardless of the credit. If you could find a person to take over your note, you were free to qualify for another mortgage.

In October 1981, mortgage rates reached 18.63%. A $250,000 mortgage had a monthly principal and interest payment of $3,896.46. As astronomical as that rate sounds, people were still buying homes and were good investments. 

Four years later, they were still over 12%. The monthly payment was $2,571.53. Believe it or not, people were excited to be paying only 2/3 what they had to pay a few years earlier.

Fast forward to late 1991 when the rates went below 9% and that same payment was to $2,015.16. At the turn of the 21st century, rates were 8.15% and that made the payment $1,860.62. Not much change in rates during that decade.

If we look around the housing bubble, late 2008, the rates were 6.04% and the payment was $1,505.31. By 2009, mortgage rates had fallen below 5%. The lowest mortgage rate was 3.31% in November 2012 with a payment of $1,096.27.

Rates fluctuated for the next few years until now, and most of the experts are expecting them to be above 5% by the end of 2018.  Rates have increased each week for the last six weeks to 4.38% with payments of $1,240.12.

The average mortgage rate for the past 47 years is a little over 8%. The real estate and mortgage markets are cyclical. Rates have been historically low for a long period but will probably continue to rise. Most buyers don’t pay cash and mortgages enable them to purchase now. Based on history, even 8% would be an excellent rate. Until it reaches that point again, everything lower is a bargain.

 

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GETTING TO KNOW YOU: BENEDICT PARAS

We at Hatch Realty Group aim to forge lasting relationships with our clients. We hope to connect with you on a personal level in order to understand your needs and best serve you in reaching your real estate goals. Benedict Paras shares a little more about himself so you can get to know him as both the person and the agent helping you buy and sell homes. 

 

BENEDICT PARAS

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Tell me a little about yourself and your family.

Hmmm... well, I'm a Bay Area local. I was born and raised in Daly City, but spent my teenage years in San Francisco. I'm married to my beautiful wife Renee, who's a designer. We have two awesome kids, Kennedy, our 2 year old daughter, and Kenzo, our 1 year old son. I became fascinated with real estate when I purchased my first home in 2010, when I was 28 years old. At the time, I was working as a Branch Manager for Bank of America. It wasn't until 2012 that I would decide to step away from the corporate world and jump into real estate. I started as an assistant, working for our broker/owner Monica, and became a realtor in 2014. So far during my career, I've sold or assisted in over 60 transactions and have loved every minute of it! 

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What do you like most about real estate?

Sounds cliche, but I truly enjoy meeting new people. This industry connects with me with so many people from all different walks of life, so to have the opportunity to help with their real estate needs is a bonus. 

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What do you find challenging about real estate?

The challenging part, in my opinion, is finding the right balance between work and family. My natural instinct is to devote all my time and energy into doing the best possible job for my clients. It can be a challenge at times making sure the same amount of time and energy is spent with my family. 

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What do you like to do for fun?

#1 Spending time with my wife and kids! But besides that, I'm also an avid golfer, Bay Area sports fanatic, whiskey enthusiast, foodie, traveler, and gym rat.  

What is your ideal vacation?

Beach, wife, and kids. Golf course. Michelin Star restaurants. If a place has at least 3 out of 4 it's ideal. 4 out of 4 would be a DREAM! 

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What is your favorite food?

Sushi but not just in general. Traditional omakase prepared by a well-renowned sushi chef. Followed closely by PIZZA, any pizza! Pizza never disappoints in my book. 

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What are your hopes and dreams for the future? 

World Peace! But aside from that, my dream is to live a life of complete balance filled with health, financial stability, family, and lasting friendships. Also 5 more Warriors championships, a Niners Super Bowl win, and one more ring for the SF Giants! 

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January / February Market Update

Despite the instability in the stock market and all the buzz about Crypto Currencies, the real estate market in the Bay Area is still very strong and even with the rates slightly going up and the reduction in mortgage interest rate deductions, I don't see a drop in prices in the immediate future.  The lack of inventory and the influx of high earning, out of state imports into the tech industry buying property in the Bay Area has been driving the prices up and it's still going very strong. 

Reporting from the battlegrounds, I still see multiple offers and overbidding in all price ranges from $3M and below in the Peninsula and *San Francisco. Listing agents, in many cases, are still slightly underpricing properties in hopes to generate a demand and ultimately receive multiple offers surpassing their target sales prices. Buyers need to know the market before writing offers. Rule of thumb is if the price is too good to be true, it probably isn't true. It's more likely that it's a teaser price the listing agent set to drive as many people through the door as possible.

Tip: Make sure you check average price per square foot in the areas before getting too excited about a home. 

The school districts are the foremost factor that is driving the desirability of neighborhoods. So if you have a property in a good school district, you can bet you will be getting top dollar and multiple offers for your property. If you're looking to buy in one of these API10 neighborhoods, be prepared to compete!  Homes in the areas with API scores of 10 have the stiffest competition due to lack of inventory. Small developments in bedroom communities with room to build are popping up in cities like San Ramon get sold out quick to techies with small families willing to commute to silicon valley. More established areas like Fremont (Mission San Jose School District) have little to no inventory. Other cities in the Peninsula with 10 API scores like Millbrae, Burlingame, Cupertino have a price tag of over $1200/sqft.

Non-contingent offers are the industry standard in most of San Mateo, Santa Clara, Alameda, Contra Costa and San Francisco counties. Agents tell me that most offers are written non-contingent and the winning bid is always non-contingent. This is good news for sellers as once they accept an offer, they can almost be certain that escrow within contractual timelines. If you are a buyer, make sure that your loan is completely underwritten and you are able to write a non-contingent offer if you want to win. The competition is stiff and you need to do your prep work before entering this market if you want to save yourself heartache.  

On the lower price spectrum, the market in the East Bay for entry level homes is also going bananas. Most recently I was shocked to hear 42 offers on a fixer-upper property in San Leandro that went well above what I considered to be market value. Hayward, Fremont, and Union City are now beginning to be out of reach for many local families who are into the central valley (Lathrop) where many new planned communities are popping up (http://www.riverislands.com). It will take you as much as $550k to buy a decent condo or townhouse in Hayward. In lower median income cities like Richmond and San Pablo, you can still buy a single-family home for about $450k, but you may have to dodge a few bullets occasionally—just kidding.

Silicon Valley is HOT!!! There are many micro markets in Silicon Valley so if you have questions about that, feel free to message me directly and I can send you the data. The new frontier in the South Bay has been areas like Gilroy and Hollister. Buyers are opting to commute to San Jose from further south in order to buy an affordable home.

See attached San Francisco and San Mateo County Market reports and let me know if you have any questions or concerns. If you would like more data about a specific area, let me know. I can pinpoint your area of interest if you want specific data. I will add Alameda and Contra Costa Data at a later date, but email me if you want it right away.

*$3M and below refers to single-family homes n San Francisco. I am finding that condos are being sold close to the asking price and oftentimes, it is not a multiple offer situation so buyers tend to try and bid under or at the asking price.

*What is affecting the market slightly is the ability of H1B buyers. Previously, they were purchasing homes but now with Trump and his keeping jobs in America campaign, the future of the H1B worker in the US is uncertain and those buyers are now waiting on the sidelines before making a move.

*I have a feeling that cash buyers / foreign investors are back in the market paying top dollar for investment properties to rent to those who can't afford to buy.  (540sqft condo in San Bruno recently closed escrow for $520k)

Click and See 2017 San Francisco Sales Stats Report

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  San Mateo County Single Family Home Annual Report

San Mateo County Single Family Home Annual Report

  San Mateo County Condo Annual Report

San Mateo County Condo Annual Report

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GETTING TO KNOW YOU: THELMA TUNQUE

We at Hatch Realty Group aim to forge lasting relationships with our clients. We hope to connect with you on a personal level in order to understand your needs and best serve you in reaching your real estate goals.  To kick off this blog series, Thelma Tunque shares a little more about herself so you can get to know her as both the person and the agent helping you buy and sell homes. 

 

THELMA TUNQUE

As a wife, mom, manager, and realtor, I value my personal time with my family and close friends.  I love baking with my daughters and enjoy a simple movie night with my husband, Dalton (preferably scary movies). For fun, I enjoy family road trips. My favorite time of the year is Halloween and Christmas.  

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Christmas 2017

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Road Trip to Universal Studios 

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Halloween with Interface Engineering team

 

What drives me to keep going are my children. I have a personal goal to save enough funds to cover my kids' college tuition and would like to see them become successful in the future. The legacy I want to leave for my children is to never go down without a fight and to keep in mind that hard work and perseverance is key to success. Life can be tough but I know they are tougher and hopefully one day they will grow into strong women who will inspire others. 

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Gum Wall, Spring Break in Seattle

 

I became a real estate agent in 2006 and purchased my first property at the age of 25 in Millbrae where we raised our two daughters, Tiffany and Desiree.  After surviving the economic downturn in 2008, my husband and I purchased our 2nd property in Daly City.  The plan is to build more equity at my current property before making my next move.  

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Playing tourist at Ghirardelli Square

 

I chose to pursue my passion in real estate to help other families, like my own, attain their dream of becoming a homeowner to build equity as opposed to helping their landlord build theirs. My clients have their own personal story and helping them achieve their goal is what motivates me.  I have helped clients convert from a renter to a homeowner and that's the most rewarding part of my job.  Happy clients, happy realtor. 

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Family picture with my parents and younger brother 

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The New Tax Law and Its Housing Impact

There have been a few changes in real estate taxation that will take effect in 2018, so for this blog post, I will talk about how it affects homeowners living in the Bay Area, what has changed, and what stays the same. Before we begin, I’d just like to clarify that I am not a CPA, and that you should talk to your own tax advisor about how the new tax reform affects you personally, but I thought this would be a nice topic to discuss.

First the good news: Ever wonder why some of your friends move around every couple of years, upgrade or rent after selling their house in a high market, then buy again after the market takes a dip? Well, chances are it’s because they are taking advantage of the primary residence capital gains exemption. This exemption allows homeowners to keep any profits earned from selling their primary residence up to $250,000 for individuals, and $500,000 for married couples. This law fortunately didn't change…, so for those of you who want to make a move and cash out on this hot market, you can still do so as long as you have lived in your property for at least 2 out of the last 5 years. 

Not so good news: State tax plus property tax exemption is now limited to $10,000. This one pretty much screwed homeowners over in the Bay Area. I usually tell people that the average property tax rate is 1.2%. Based on data from the San Mateo County Association of Realtors, the median sales price of a single family home is $1,500,000, with condos at $875,000 (see graphic 1). Property taxes on an average property purchased for $1,500,000 is at $18,000, and $8,000 of that amount is not claimable under the new tax law.

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If you own property and make at least $150,000 as a single person, or $180,000 as a married couple, then you won't be able to deduct any of the property taxes you pay under this new rule. The state income tax for $150,000 is already more than $10,000, which would mean that your income would eat up that allowable deduction. Under the previous tax law, you could deduct all the state taxes paid, as well as your property taxes, with no limits. The new law is going to cost the average homeowner in California a majority of the tax savings they would have had under the old tax law. This is unfortunate, but hopefully not a deal breaker for those of you thinking about home ownership this year. True, part of the reason people buy property is for the tax benefits, but that's not the only reason. In my opinion, pride of home ownership, stability in housing payments, and equity gains take precedent over the tax benefits. Hopefully, prospective homeowners see the benefit of owning their own property, and continue to see the value in owning their own home.

Other minor changes: The previous tax law allowed you to claim interest up to $1,000,000 in deductions, but with the new tax law, this is limited to $750,000 in interest. This is a minor change. I don't know why it was really necessary, but this is going to cost tax payers in California interest on $250,000 a year. I would suggest talking to your CPA to see how this affects you personally.

For those of you who don't know what a HELOC is, they are equity lines of credit you can use to borrow against your home to consolidate debts or make investments. The previous tax law allowed the mortgage interest to be tax deductible. Now, it's limited to $100,000, and only if the money is used for home improvement. Homeowners can no longer use their equity like a piggy bank they can take money out of, and use for whatever they want.

Below is a chart which summarizes the new law, and how it affects all of us. I’d love to hear your thoughts on it!

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The mortgage interest deduction is now limited to mortgages totaling up to $750,000 for primary and secondary homes. This means that home buyers with a 20% down payment can only deduct 100% of the interest from their mortgages if their purchase price total is less than $937,500. 

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State income tax, sales tax and property tax deductions (SALT) are now capped at $10,000 total. This is a significant hit for many high tax state residents in high cost areas.

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What does this mean for your bottom line? The Wall Street Journal’s tax plan calculator analyzes the impact of the biggest factors in the bill, so you can estimate your tax liability 2018 through 2027. Click here for The Wall Street Journal Tax Plan Calculator.

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Bloomberg shows how taxes owed on wage and pass-through income (from a business you own) will change in 2018. These scenarios may remind you of someone you know:

  • The multimillionaires in new York
  • The second home scenario in California
  • The small business owners in Pittsburgh
  • The suburban family in Westchester
  • Single in Manhattan
  • Married in Austin — a young couple who rents
  • Median income in Oregon
  • Renting in Milwaukee
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Owners and buyers of second homes can potentially turn their vacation homes into an investment property by setting up a limited liability company. That allows them to write off interested and upkeep, while using the property part of the year for themselves, according to The Denver Post. Consult a tax professional for help navigating the new tax rules and how to best structure this business. 

Source: Karen Burrous

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