Jan. 26: 319 square foot homes; lower interest rates aren’t a surprise

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more

While real estate agents in many areas grapple with the lack of listings, one thing they don’t have to worry about is interest rates. It’s no surprise that mortgage rates sank after the Federal Reserve raised the cost of banks to borrow overnight. This may seem contradictory, but history shows otherwise.


“Mortgage rates continued a trend of small, steady improvements into the new week today,” said the Mortgage News Daily, explaining that real estate financing rates had gone down. “This marks the 4th straight day of a winning streak that began last Wednesday when the Fed announced its much-anticipated rate hike.”


While banks were busily raising loan rates as soon as the Fed announced its long-anticipated decision, the cost to finance real estate was going down.


This makes no sense for those who believe all interest rates move in unison, but that’s not how the marketplace works. While the Fed controls the overnight cost of interest paid by banks and credit unions, mortgage rates are different. Mortgage rates are not controlled by the Fed; instead they tend to parallel the interest rates for 10-year Treasury notes.


The two rates have virtually nothing in common, and to some extent, this is good news for mortgage borrowers. Bank rates are effectively set by the Federal Reserve as it attempts to guide the economy. Mortgage rates are established by supply and demand. If there’s a lot of cash floating around than interest rates fall, if cash is tight interest rates rise.


There can be many factors which investors will look at when determining what to do with their capital. For instance, what is the inflation rate? How do mortgage returns compare with investments? How secure are the mortgages?


Control issues:


Some of us are “control freaks” by nature even though we know there are just some things out of our control. Consider our financial world. Recently reported job growth insights positivity followed by recurrence of labor and housing issues, China and the oil economy. What happens on Wall Street and the potential effect on sales and closings have a somewhat unfortunate symbiotic relationship. So instead, try concentrating on things that you can control. Important, fundamental necessities in our working world such as customer care, employee morale, process improvement, collaborative thinking, innovation and effort. Your customers’ reliance and trust in you will make the difference, always.


Zillow’s ZRI and newest Rent Forecast:


Zillow has been a busy little bee with real estate research. Zillow’s Rent Index (ZRI), estimates median rent for a geographical region on a monthly basis. From ZRI, Zillow has created Zillow Rent Forecast which is the prediction of ZRI over the coming year. The Zillow Rent Forecast will be a regular part of its monthly Real Estate Market Reports going forward. If you have curiosity regarding ZRI calculations, review of its ZRI methodology is available here.


Zillow’s December Market Report stated median U.S. rents were growing at a 3.3 percent annual pace, to $1,381 per month, according to its Zillow Rent Index. That pace of growth is forecasted to slow to 1.1 percent nationwide by December 2016. Even with the slowdown, rents will remain unaffordable in many of the major markets across the U.S., especially on the West Coast. Renters in San Francisco and Los Angeles, for example, can currently expect to spend more than 40 percent of their income on a rental payment. The future doesn’t look much brighter as median rents in L.A. are expected rise 2.8 percent in 2016 and 5.9 percent in San Francisco. Zillow’s December Market Report can be viewed here.


319 sq. ft. homes:


There are traveler trailers and motor homes but have you heard of a Home RV? EscapeHomes, owner Dan Dobrowoski, has created a tiny home, the Traveler XL that is also movable, and it’s only 319-square feet! If you have a buyer with an open mind looking for a small, affordable home, the price starts at $74,500. The Traveler XL has a queen-size, first-floor bedroom, sleeps as many as eight people and can include full-sized appliances for additional cost. These tiny home range from micro cottage and portable homes to micro apartment units. The pictures are unbelievable, click here to take a look.


So far, oil has continued its rally and stocks are following along. The Dow is moving back up, As of Friday, it was above 16,000 and Chinese stocks rallied as well.  All of this is, of course, is bad for bonds but it could always be worse. Existing Home Sales rebounded nicely in December.  This is, as you would expect, is being attributed to our industry getting a better grasp of the new TRID rules, which slowed sales in November.  The rebound was actually a little better than expected.  The Index of Leading Economic Indicators was released and came in a little bit below expectations. The huge winter storm back east will inevitably have an effect on both the market and volumes, only time will tell how this week will progress.


Replacing lost construction workers:


Data shows employment growth is on the rise and one profession rose twice the pace of the annual growth. In 2015, the number of Americans working residential construction jobs rose 5.8 percent. Good news for the real estate industry. However, with that in mind, Krishna Rao, director of Economic Product & Research at Zillow wrote “but even at that rapid rate, it will likely take the rest of the decade or more for construction employment to return to its pre-crash, 2008 levels. Total employment in residential construction remains more than 20 percent below 2008 levels, while overall employment is 3 percent higher over the same time”. Housing starts and permit purchases are on the rise but is that a concrete indicator of advancement to come? Nothing is concrete in the real estate business with the exception of change is inevitable. The tides may be turning but realistically, reaching pre-crash levels may not occur. Only time will tell.



Coastal Commission Director:


California’s Coastal Commission may be seeing a change in power. The Commissions panel met in December for a “periodic performance review” of the executive director, Charles Lester. The closed session resulted in notification to Lester that the Panel is considering dismissal. Given the choice to step aside and aid in a transition or opt for a public hearing on his future, Lester chose the hearing. Get ready for some public debates.


Future millennial homes?


What happens in Vegas doesn’t have to stay there. Klif Andrews, Las Vegas division president of Pardee Homes, has designed a home with millennials in mind that is affordable, practical and sustainable.


The home design has rooms that can start as apartments. “A young single guy could bring in a couple of roommates, rent out rooms for a big chunk of his mortgage payment, but then those spaces could easily turn into a baby’s room, a mother-in-law quarters, later,” said Klif Andrews.


The electricity in the houses runs completely on solar power. Gas stoves are still in high demand and natural gas is cheap so the whole house doesn’t use zero total energy. With rain sensors on the roof, the irrigation system is alerted. In addition, sinks and showers save water.

Technology is common place for millennials thus the houses also use smart tech, energy systems or lighting can be controlled through your phone. This concept makes you wonder, is this the house that will turn millennials into homeowners?



A man brings his best buddy home for dinner unannounced at 5:30 after work.

His wife screams at him as his friend listens in.

“My hair & makeup are not done, the house is a mess, the dishes are not done, I’m still in my pajamas and I can’t be bothered with cooking tonight! What the heck did you bring him home for?”

“Because he’s thinking of getting married….”




(Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman. To subscribe please visit www.knowledgeforrealestateagents.com.)