LoanCentral's Real Estate Lending Blog

The U.S. economy is closely watched by investors, borrowers and anyone in the financial or real estate business. The Federal Reserve is often in the news, but the mystery surrounding the FED is misunderstood by some. Some will think of the Federal Reserve as being Alan Greenspan, Paul Volker, Ben Bernanke and the Federal Open Market Committee (FOMC). While this group might be the most influential within the Federal Reserve System, it is a small part of the whole picture. Here is a brief overview of the Federal Reserve and its different parts.

The Federal Reserve System

The Federal Reserve System is basically America's central bank.

It was established in 1913 to maintain a sound and stable banking system throughout the United States and to promote a strong economy. The Federal Reserve System is composed of 12 regional banks in major cities around the country and the Central Bank, which is run by the Board of Governors and is based in Washington, D.C.

The Board of Governors is made up of 7 members that are appointed to 14-year terms by the President and approved by the Senate. Almost all banks are a part of the Federal Reserve System, which requires that those banks maintain a certain percentage of their assets deposited with the regional Federal Reserve Bank. These "reserve requirements" are set by the Board of Governors and by changing the requirements, the Federal Reserve System can greatly impact the amount of money supply in the economy. Because of the great impact of changing the reserve requirement, the Federal Reserve rarely does this.

The Federal Reserve System wears a great number of hats.

• First, it serves as a bank for banks: many transactions between banks are processed through the Federal Reserve System. Financial institutions are also able to borrow money through the Federal Reserve, but only after attempting to find credit elsewhere; the Federal Reserve System provides credit only when it cannot be found in the markets or in cases of emergency.
• Second, the Federal Reserve System acts as the government's bank. The tax system processes incoming and outgoing payments through a Federal Reserve checking account. The Federal Reserve also buys and sells government securities. The Fed even issues the U.S. currency, although the actual production of the currency is handled elsewhere.
• Third, the Federal Reserve System acts as a regulatory agency. The Fed polices the banking industry to make sure that things run smoothly and that the rights of consumers are protected.

The above calculator works! Click on the calculator and move across the screen to see different numbers.

I developed this calculator for realtors, loan officers and borrowers who are "On the fence" thinking that housing prices may drop further to look at their personal situation to see the effects of the lower price and a higher interest rate.

You can change the sales price or discount the property you are looking at. Once you've lowered the "Future Property Price", you can increase the interest rate just like the FED... all in one calculator.

Click on the two combo boxes to

1. Increase the percentage drop in future sales price if you wait to buy
2. Increase the Interest Rate to see the effects on the monthly payment

Download the Future Sales Price vs. Payment calculator in the following forms:

          PDF Calculator           Powerpoint Calculator

If this blog post is TOO WORDY for you – use the calculator above to see how interest rates affect your payment if you wait for a “Better Deal” and the interest rates go up on you!

Click here for a downloadable version of 18 years of housing appreciation in key markets to justify your decision to wait or to buy. 

This is the strongest Buyers Market to hit the Seattle area since 1990-1991, maybe 1986 from what I can remember, and yet many buyers are waiting for the market to “turn around” before taking advantage.

The fact is, you are missing the best opportunity to buy a home in the last 20 years! First let’s discuss the definition of what happens in a Buyers Market like the one we are currently seeing and how buyers felt during the latest hot “Sellers Market”.

When real estate experts and economists talk about a “Buyers Market” they are referring to the fact that there are more sellers than buyers. When this happens, the BUYER gains control of the negotiation process & can find some fantastic properties “On Sale”. There is also excess housing inventory to choose from which allows them to find their perfect home at a great price. In a Buyers’ market – the Sellers become willing to work out deals to sell their home, things like paying discount points to lower your monthly payments, or paying closing costs, or fixing the squeaky floors, or drastically reducing their price if they must sell fast. Any of these items allow you to buy the perfect home today for a great deal.

In a typical “Sellers Market”, many of the buyers are frustrated and during the hot “Sellers Market” - they wished there were MORE homes to choose from. They complained that sellers expected full price (or higher) for their homes and many times buyers ended up in a multiple offer situations. Lastly, even the best agents couldn’t convince sellers to give assistance to buyers making it even harder for first time buyers to afford to purchase. These items all happened because during a Sellers Market, the seller is in control of the negotiation process.

The very distinct difference between the two types of markets shows why buyers should be buying today. The sad reality is that the average person always buy high and sell low. They buy and sell based on emotions that are steered by media hype. If you decide to follow the masses, I believe you will miss out on some opportunities. This is the time that wealth transfers, this is the time for smart move up buyers to save tens of thousands of dollars and it’s the perfect market for first time buyers to get the best pricing and incentives possible.

We don’t have room to go into all the further details of Fiscal and Monetary Policy by the feds, but ask yourself (or someone knowledgeable) what happens when the economy picks up and the Fed wants to slow it down. Yes, you are correct – they raise interest rates. Soooo… what really happens if you wait in an effort to save an additional 2% to 5% in sales price?

The first thing that happens is you have to guess when the Seattle/Eastside market “Hit’s bottom”. Oh, we can also wait for Microsoft to go public again so I can buy more of their stock. Seriously, when do you jump in? If you are looking at a $500,000 house – do you jump at $490,000? $480,000? Let’s say it bottoms out at $475,000 and you save an additional 5% and during that time – the Fed’s raise rates by ½%. Guess what – you’re payment just went up $1.80. Since most people buy on payment, not price – and since most people buy for a place to live as a HOME as well as the investment… and over the longterm real estate has been a great investment for building wealth – why are you waiting?

You have been warned that housing prices will go up and that interest rates will go up as well. You have been informed that this is the best buying opportunity in at least two decades.

So the real questions are:

• Why aren’t you buying a home today?
• Why not take advantage of the best “Buyers Market” in recent history?
• Why not get the best price possible for the home of your dreams?
• Why not take advantage of the glut of inventory and shop for a home when you have more options?
• Do you want to risk that interest rates increase before you purchase your next home?

For 28 years I've been involved in real estate and lending and watched the cycles come and go. Now, as the challenges of real estate intensify here in the Seattle / Eastside area - daily I hear of many loan officers and agents that are thinking about leaving the business.

GREAT! - We need to weed out some of the individuals who don't contribute in either a productive or professional way. This clears the stage for YOU to flourish – IF you have the right tools and work for the right companies - and there are plenty of them left.

The Compass of Change
Over the past few years, the real estate industry has fluctuated significantly. First, there was an unprecedented increase in the real estate values and volume of transactions. This increase drew many people to work in the real estate industry for the first time. In many markets this was followed by an extraordinary fall in home values and market volumes. It is well known that real estate is cyclical, but even the veteran loan officers, brokers and investors are surprised at the seriousness of this downturn.

If you’re one of the individuals who started a real estate career in the last five years, this set of market conditions and developments can be puzzling. Can you survive in a "Normal Real Estate Market"? Are you ready to ride it out and pick up market share from your competitors who are leaving the business?

These are all important questions for which you’ll need answers in order to make informed career decisions in the months ahead. Change is upon everyone in the real estate industry. Do you have someone who is helping you navigate this change and take advantage of the opportunities that will emerge as the industry gets shaken up?

In addition to cutting expenses, most individuals in the business need additional support and guidance during these turbulent times. Many see themselves at a crossroad: Should you throw in the towel and go get another job, or is it necessary to persevere through the difficult times in order to realize a long-term success?

If you are interested in joining one of our loan officer or agent 'MASTERMIND GROUPS" that share ideas and work together to support each other's success - contact me at George@GeorgeCharles.com 

A safe harbor may help you find the answer to this question. Surrounding yourself with supportive people who have the experience, knowledge, and interest in helping you make insightful career decisions is one of the best things you can do during a time of change... I'd like to help

I am hearing more and more from loan officers and real estate agents that don't know what to do since the market shifted. The fact is, we have shifted from a "Sellers Market" to a "Buyers Market". We can survive if we shift our thinking and our toolbox to match the market.

• Real Estate is on Sale
• Interest Rates are still at historic lows (See charts below or email me for a 200 year history on interest rates)
• Real Estate is a LOCAL market, don't let your clients believe the media that it's all doom and gloom

Remember, to increase determination, focus on the solutions, not the problems; target the destination, not the obstacles. What tools do you need to overcome your buyers and sellers objections and be successful in this market?

Problems proclaim themselves on their own; it's the solutions that need our attention.