homeowners are about to get slammed with higher monthly payments
homeowners are about to get slammed with higher monthly payments
Introduction and Overview
Okay.
We might be getting a relief in inventory. Thousands of homeowners are about to get slammed with higher monthly payments. We'll talk about that as well as it's never been easier to build a home in a backyard home in San Jose and list price reductions, Las Gatos home of the week. And. Tuesday's highs and lows.
Let's get moving here.
Adjustable Rate Mortgages Explained
Thousands of homeowners are about to get slammed with higher monthly payments. Now, it's not a very pretty look at this article here, but what's happening is people buy arms or adjustable rate mortgages, and they're locked in for five years. And after five years, they go up and down depending on the rate.
There's a cap on that. Like sometimes it's half a percent. Sometimes it's 1 percent per year. So if you got a 2%, but it's an arm after five years, it might go up to two and a half or three. And then after that, it'll go up to four. And after that, it'll go up to five, depending on what it is.
Your rate is up to the equilibrium of what the market is. The good news is if it goes down if the rates do go back down, then your rates will go down too, And typically arms are interest-only payments. So that's something you also have to be aware of that. Although you're saving money on your monthly payment, you're not putting money towards your principal.
So I always say, pay off your loan. Pay off your mortgage as quickly as possible and move forward with that. There are other schools of thought where you take the money that you could be saving and put it into another property or into another investment that generates income for you.
Absolutely. Schools of thought. Don't listen to me. Listen to your financial advisor, listen to your tax accountant, listen to your lawyer, and understand what strategy works best for you.
Impact of Rising Rates on Homeowners
Let's say your monthly payment is 2, 000 a month and your arm goes up a month, a couple, a percent while these arms after five years will go up.
That means your interest payment and your monthly payment will go up by 1%. It could be a lot depending on the value. So 1 percent over three or four, let's say you're stuck at 4 percent, and goes up to five and a half, 5 percent your payments are going to get more expensive. That could help with the inventory problem.
when we first got into this house, we weren't making a ton of money. So we bought an arm knowing that we would refinance eventually. And we did after five years, we refinanced, but in this market, if you're going to refinance from 3 percent to 7%, your rates are going to go up much higher.
So I think what's going to happen is that your monthly payments are going to stay the same. It's not good news for loan brokers or lenders, because if you have a 2%, it goes up to three, we have a 3 percent and it goes up to four. You would look into getting you. A refinance and guess what?
It's going to be 7%. So you're just going to be stuck there. What I would suggest you do is put an extra thousand or 2, 000 a month into it and pay down that principle. As painful as it is, pay down the principle unless you can't afford it. I understand. There's 1. 7 million homeowners have bought homes with adjustable rate mortgages since 2019.
I don't know what percentage that is. It doesn't really say the fixed period for these arms has already reset for 328, 000 homeowners and 102 more loans will rate reset over the next 12 months.
Typically there are Regulations in place that keep that from jumping up super high, like what's happening in Canada or what's happening in the commercial loan space.
Commercial Real Estate Challenges
we're seeing a lot of pre-foreclosures in multimillion-dollar commercial properties, multimillion, like 30, 50 million. Properties are turning and, rents going up.
Rates are going up. Interest is, that taxes are going up. And the cost of doing business is going up. So people are walking away from multimillion-dollar homes. There's an apartment, a building in San Francisco that was bought for 50 or 60 million. And it just got sold on the auction block for a mere 6 million, six and a half million dollars.
So I went to an equity group who I think it's a, they're going to convert an office building into. Rental units. So something to be aware of. Be careful with your money guys.
Home Inspection Checklist
A crazy thing is that segment or this last segment was brought to you by the home inspection checklist.
The link's down below. Go grab a home inspection checklist. Even if you're not thinking about selling right now, these are typically what inspectors will look for throughout the entire house, right? They want to make sure that you get the house. Or they have to disclose everything that they can find that's wrong with the house.
That's what an inspector does. It's their job. Don't take it personally. Just their job. Their job is to help disclose for you. Some agents get pissed off. Oh, you can't say that. That's a bad agent. And there are agents out there that do that. I follow Cy, the inspector. He's out of Arizona and, agents tend to yell at him, but I always say over-disclosed.
I would rather scare away a shitty buyer Or a buyer that's not fully committed to buying your house and have fewer offers on our table than have it done. And here in Santa Clara County, we typically have the inspections done ahead of time. And this in no way, shape, or form should ever take the Place of a professionally done home inspection.
It just allows you to get inspection-worthy things on the list so you can fix them and then disclose them. All right. So download it.
Building Backyard Homes in San Jose
It's never been easier to build a backyard home in San Jose. ADUs, accessory dwelling units, or granny shacks or granny homes. this is a kind of a normal thing. And now what we're seeing are module homes or prebuilt homes being craned into properties after the foundation is.
set, pop them on. It's a one or two-day thing and you're up and running. And some people are liking it just for the extra space. Some people are doing it because they want an office away from the family.
If people needed to get ahold of me in this situation, I would have a house for a little shed there. You can also put people there and add rent. Which from a commercial standpoint helps build value to it. However, understand some people, just like when you buy a house with a pool, some people might not want to have a house with an ADU on it.
It's extra income, it's extra property taxes, and it might not be worth the value. Some people will like it. Some people want a house with a pool. Some people don't want a house with a pool and that's okay. Just realize that when you do that, It might put a stigma on your house and turn away a certain portion of the home buyers that are in the market at that time.
It's just like houses with lease solar. Some people absolutely don't want to deal with that. Some people don't want to deal with solar at all. So when you put a big ticket item on it, and these are not cheap, these are 35 too. 100, 000 to put a new ADU on it or a solar system or a pool, right?
You're some people who want a pool. Some people don't, I personally don't want I'd rather have access to an association pool so I can go jump in the cool water over there and be done with it. That's just my taste. That's just me. If you want a house with a pool on it, we can help you find a house with a pool on it.
If you want to find a house with ADU on it, absolutely. what San Jose has been doing has been making it a fast-track permit application process. I sat on a board a couple of years back in Almaden, Indiana. And talked about the pluses and minuses of adding an A. D. U. And then, the fire marshal required more water to come into the house.
There needs to be more electrical that comes into the house. So some other things have to be attached to it. However, with the new fast track, San Jose is Allowing a lot more, leeway in those different aspects of the utilities. So just be aware of what you're buying into. And if you want to learn more about it, let me know.
Real Estate Listings and Market Analysis
The reason why I've chosen this is because it backs right into Santa Teresa High School, which is my kid's high school. Been on the market for 18 days, four bedrooms, three baths, 2, 274 square feet. It's a nice-looking house built in 1964. It's not my listing.
It's original everything. Remember what I tell you about being a market maker or attracting the market to you. Now, what I can tell you that this agent did was he said, your house is worth 1. 6 million. We should sell it. He or she, I don't know, whoever this agent is, but look, it's original condition.
It's a split level. I sold a few of these. These are really good, hardcore, great homes to have. but when you're selfish and greedy, you list it as 1. 6, and then all of a sudden it's on the market for how many days, 18 days, and crickets, you get nothing while you're not taking into account the fact that it's original.
You're not taking into account a lot of different things and you're just being greedy and seeing big numbers In your eyes thinking, Oh, I can sell this house. I'm going to make 1. 6. That's what my house is worth because every other house is selling at that price.
You're not doing a full in-depth CMA or comparable market analysis on the houses you're competing against the houses that have sold. So over promise under deliver, I would rather attract the market And get your house sold quickly without having to deal with lowering the price.
So there you go. I don't care who puts this on the market. If you're a seller and you tell me that I don't care if we have to wait for the market, for the right buyer to come along, that's the wrong strategy to sell your house. You need to sell your house quickly with velocity and you set the tempo.
Los Gatos home of the week is Alamandra. Again, the reason why I picked it is because it's within walking distance of downtown Los Gatos. This is nice. It's built in 22 four-bedroom, three-bath, 2, 500 square feet.
Not my listing. Yeah, a little driveway with two garages in the back. It looks all brand spanking new. Oh, there's a nice negative. It's right next door to a commercial property. See a problem with that though, is When you're next to a commercial property, you have to take that into account. And look, it's 5 million, right? Let's see what if I can do satellite. What is this right here? That's North Santa Cruz. So you're exactly within walking distance of it. And I think it's overpriced, but it's brand spanking new on the market. Oh no, 54 days on the market. Why is it sitting there? I don't care how new it is. You have some things that you have to worry about, right? You have a lot more traffic that you have to deal with.
And quite frankly, that kitchen is fugly and there's not a whole lot of backyard. Oh, you got a nice little ADU. That's nice. But look guys, that's just way too dark for that small of a room.
I believe that's virtually staged. Yep. That's virtually staged.
All right. There you go.
I have to get that for you real quick, in Santa Clara County is 12 million. The lowest sold is 16 million. 177 the lowest house for sale is 600 or 444, 000. Let me see if I can pop this open real quick.
All right.
Okay. Let's see. We're just going to deal with this right now. Full may drive two bedroom, two bath Morgan Hill, two bedroom, two bath, 915, 000. 915 square feet, about a 2000 square foot lot, and HOAs. Gotta love it. This is a 55-plus community. Plus is a minus to 55 plus communities. This is just an HOA, right?
They're just trying to keep it so that this is down. You might have a clubhouse, not a lot to it, but there you go. Okay. What's the next one? This one's still active. Waverly is still active. Greenwood is the highest sold in 73 days, with seven bedrooms, eight and a half baths, 8, 200 square feet with an ADU on one ac, and built in 2024.
So it's all brand spanking new.
I think we looked at this one. Yeah, it's nice.
And then the last one is the lowest for sale the same one on Loma Chiquita. It's a compound, very basic, 444, 000. The original was 600, 215 days on the market. You're getting five acres of land, but here's the tough part.
It's far away from everything. You're like an hour out. Once you get to the mountain to the hills, it doesn't matter how you get there. It's going to take you forever to get there. So it might be a good bug-out place. If, a nuclear bomb happens, but yeah, there you go.
Conclusion and Key Takeaways
Today we talked about how interest rates might be going up, and arms might be resetting or setting to go higher, which is already starting to happen.
What are your plans for the 4th of July?
ADUs might be an option for adding value, something you have to think long and hard about. Are you ready to have a renter? Or do you just want it for yourself? Completely up to you to do this. And guys understand that these links that I'm sending you, they're all in the blog. So just jump over to the blog and it'll get you right to these articles and list price reductions, or don't be a market maker.
Attract the market. Unless you have a house like this, where you can sit on the market for 60, or 90 days. I'm Vito with Avatano. We'll see you out there.
Vito Scarnecchia
Real Estate Broker, Veteran, Dad
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Vito@abitano.com
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