What’s the Latest?
Week of March 18th-24th
Property Tips and Tricks
Ensuring The Best Insurance
Recently, State Farm dropped news that it will not renew insurance policies for approximately 30,000 homes and 42,000 apartments across the state of California due to "..inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations".
If you haven't done so already, its worth shopping around to compare coverage and prices from a few different insurers every year or two.
How else can you save on your home insurance? A few tips below:
Increase Your Deductible: A higher deductible can lower your premium. Don't forget to make sure you have enough savings to cover your deductible if there is a loss.
Improve Home Security: Installing additional security features like deadbolts, fire alarms, or a fully-monitored security system can earn you a discount. Check with your insurance provider beforehand to see if any of these are a worthwhile undertaking.
Bundle Insurance Policies: Many companies give a discount if you buy two or more policies from them.
Maintain a Good Credit Score: Insurers often use credit scores to determine premiums.
Make Your Home Disaster-Resistant: If you live in an area that is prone to natural disasters, consider home improvements that could protect you in the event of a natural disaster.
Avoid Filing Small Claims: Insurers may raise your premium if you file many claims, so consider paying out of pocket for minor damages.
Ask About Discounts: Insurers can offer discounts for being a new customer, being claim-free, or having a new roof.
Review Your Policy: Regularly reviewing your policy can ensure adequate coverage.
Real Estate News
Local Market Strength and How Rates Work
This past week, the Federal Reserve convened, and the crystal ball is becoming a bit more clear on rate cuts this year. Current projections suggest three quarter-percentage-point cuts by year-end. The Fed Funds rate is likely at its peak, but reducing rates too fast could reverse the progress made so far on inflation. Furthermore, unexpected weakness in the labor market could warrant a response i.e. cutting rates faster.
Speaking of the labor market, a large number of the recent jobs created were in government and healthcare. The US government just passed a $1.2 Trillion spending bill, and the US debt to GDP ratio now stands at 123.7%, which is very high. Despite the Fed's efforts to curb inflation, such substantial government spending is inherently inflationary.
Speaking of inflation, did you know that inflation is 10 times higher than it was 60 years ago?! The good news for homeowners is home prices are 24 times more expensive...take that, inflation.
Recently, nationwide data on rents came out, and Salinas, California saw a rent increase of 7.1% year-over-year as of February, placing it third in the nation for rent growth. On average across the country, rent growth was only 0.2% year-over-year. Why did Salinas perform so well? It's simple...supply and demand. Occupancy sits at nearly 97%, due largely to very limited supply, with nearly no new units being developed. The story is similar for real estate on the Monterey Peninsula..there are still not enough houses to meet demand, which is keeping prices strong.
Back to rate cuts - could we see sub-6% mortgage rates by the end of the year? Before we tackle that, let's consider how mortgage rates surged from 3% to 8% between 2021 and 2023...the answer may surprise you.
About half of the climb from trough to peak can be directly tied to the 10-Year Treasury yield. The other half came from an increase in the term premium, an increase in the prepayment risk, inflation, more lender fees, and a higher OAS Spread.
At the risk of boring you, I included descriptions of each component highlighted above:
- Term Premium - The additional compensation investors require for long-term investments.
- Prepayment Risk - This covers the possibility of early mortgage repayment due to refinancing or home sales.
- Inflation - I think we all have a good understanding of inflation by now...more dollars chasing the same amount of goods and services. It always takes all the money to buy all the goods and services, so when you suddenly have a larger increase in the money supply than the increase in goods and services, you have inflation.
- Lender Fees - These encompass the cost of mortgage issuance and compensation for loan originators' interest risk.
- Mortgage Bond OAS - This spread is the premium paid to mortgage bond investors to compensate them for the additional risk of holding mortgage-backed securities versus treasuries.
Since mortgage rates peaked last fall at around 7.8%, they've fallen to the high-6% range due to a decrease in the term premium and lower lender fees. Some experts are expecting both the term premium and lender fees to stay lower, and prepayment risk to fall a bit by the end of the year. If this happens, we could see mortgage rates fall to 6%, potentially dipping into the high-5% range before 2024 sunsets.
Worked with me in the past? Share your experience.
Jonathan Balog
DRE# 01980970
Broker
M: 831.747.0310
[email protected]
Compass is a real estate broker licensed by the State of California operating under multiple entities. License Numbers 01991628, 1527235, 1527365, 1356742, 1443761, 1997075, 1935359, 1961027, 1842987, 1869607, 1866771, 1527205, 1079009, 1272467. All material is intended for informational purposes only and is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to the accuracy of any description or measurements (including square footage). This is not intended to solicit property already listed. No financial or legal advice provided. Equal Housing Opportunity. Photos may be virtually staged or digitally enhanced and may not reflect actual property conditions.
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