An Appraiser's View

September 27th, 2022 3:31 AM
A recent price shopper asked me "If online valuations are free, why does an appraisal cost so much?" The reason is both simple and complex. The simple is, online valuations aren't required to be unbiased or accurate. Providing an accurate opinion of value requires an inspection not only of your property, but a neighborhood inspection, and a street inspection of all sales deemed relevant. This takes extensive time, gas, and unbiased reasoning. If you don't need an unbiased accurate opinion of value, I will tell you. But first I must know the reason you want an appraisal. That's where it gets a little complex.
In every appraisal request I determine the scope of work before I provide a fee quote. It is as important for me to understand the reason you need an appraisal as it is to have the details on what is being appraised, because the time needed to inspect and complete an appraisal depends on the purpose of the appraisal. The fee is based on the time needed to provide an accurate opinion of value. Although there are typically only 3 or 4 sales plus a listing or two in the reports I complete, those sales are selected after extensive research into 20 to 30 sales from within the market.  Rarely are the 3 sales you see the "easiest" sales, which is what online valuations use. The average time to complete an appraisal today is 10 hours. Add in the cost of a vehicle, gas, yearly schooling, tools needed, mls access, insurances, software, etc. and the cost per appraisal easily exceeds $500. It's possible that you can hire an appraiser for less, but based on the math, you may end up with the equivalent of an expensive online valuation.
When shopping around remember, your are getting an appraisal because you need an accurate opinion of value, so you might want to hire an appraiser who is good at math.      


     

Posted by Jeff Pickerel on September 27th, 2022 3:31 AMLeave a Comment

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Ok, now that I have your attention, no, the market is not declining in most areas, but I guarantee you it will. When? Well, if I knew the answer to that I would be sipping a beverage on the beach of a tropical island instead of trying to help people prepare for the coming market decline. That said, when asked, my magic 8 ball responds with "Without a Doubt" and "You may rely on it" instead of the  "Cannot predict now" it was coming up with just a few months ago. Given the accuracy of the 8 ball I myself have decided to prepare for the decline. I recommend you do the same. 
But how do I "prepare" for a market decline? I recommend three things. #1 Refinance out of a variable rate 1st mortgage. #2. If you have a HELOC balance either pay it off or refinance it into your 1st *Note* If when refinanced you will not be able to afford payment do not refinance. and #3. If you are considering investing in distressed sales by tapping into your home equity, increase the value of your home so you can get the lowest rate possible on monies borrowed. 
Which brings us to the meat and potatoes. How do you increase the value of your home in a declining market when with a few exceptions, remodeling currently  increases home value by only 70%-85% of the cost? Yes, I have seen all the tv shows and even know a few contractors who specialize in flipping properties. They have a spreadsheet that shows what they paid, what their costs were, and how much they sold it for, usually showing a 15-20% flip profit. But they are leaving out two important parts of the formula, their own labor costs and the time factor of an increasing market. (The home would have increased in value during the time they were remodeling whether they remodeled or not). Plus, if they are acting as the real estate agent they leave their 3-6% sales commission out as well! When these are added profit usually drops down below 10%. Which means the exception is, if your home is in need of repairs and/or significant updating, taking care of your home maintenance, finishing those projects, and updating your home can increase the value by as much as 10% in a declining market!  
My magic 8 ball says the market decline is coming "Without a doubt" so my advice is don't wait. Prepare your home today. 

Posted by Jeff Pickerel on September 21st, 2022 3:25 AMLeave a Comment

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August 25th, 2022 4:57 AM

Will appraisers be replaced next year with big data provided by companies like Corelogic, Zillow, Cubicasa, and Open Door? 
?            Well, no. And yes. I entered the profession in 2001, and one week after starting my new career I was stunned to find a front page article that laid out the end of the appraisal industry within a year. The culprit? Big data and appraisers who unknowingly allowed companies to data mine their appraisals, (The content once belonged solely to the appraiser and use of the content for anything but the purpose stated by the appraiser was prohibited) but that's a story for another day. Today I want to talk about why does big data and algorithms continue to fail to be accurate?
            First a simplified explanation of what big data is and where it comes from. Big data in the appraisal industry is a compilation of everything real estate. It is data mined appraisals uploaded through software companies, the entirety of Fannie Mae and Freddie Mac's appraisal portfolio, current and past mls data, county records, national real estate trends, local trends, and more recently, third party property data such as building sketches, all input into an AI system that analyzes it in seconds and spits out a current market value. The key to accuracy is the algorithm(s) it uses. And in a subdivision of similar quality and condition homes, it can be accurate. But it isn't always. Why?
            I have explained for 21 years why online valuations aren't accurate on properties with non standard amenities, the easiest explanation being that if an appraiser failed to consider non standard amenities in developing an an opinion of value for a property they wouldn't be accurate either. But the losses incurred by Open Door this year and my direct knowledge of homes they overpaid for last year when the market was increasing had me wondering how their model is so far off on a simple tract home. The answer is they have a faulty algorithm. It may be as simple as they built their algorithm during a historic market increase and the AI determined the increase would continue, or the human component influenced the AI by buying properties above the suggested value. In any case, like the platforms before, it failed to be accurate on a large scale.  Imagine big data, algorithms, and private enterprise as the only means of valuation in a declining market and how that would affect lending abilities and home prices? Yikes!  
            Markets change, neighborhoods change, buyers preferences change. What increased the sales price by 5% in 2010 may not affect the sales price today. Algorithms and AI can only consider data after enough of it has been compiled to affect the algorithm. Any change to that and you end up with home values being based on the last house that sold. As appraisers we analyze the last hold sold, contact the selling agent, look through photo's, drive by the property, etc. and incorporate the result in developing their opinion of value of your home.  
            The appraisal industry isn't the only one experiencing big data pains, and certainly isn't the 1st. In fact, big data has been around since the early 1980's. I embrace big data fully, and even wrote a big data program in the mid 1980's (DB3 anyone?). But big data has it's faults, and those faults haven't changed much in 40 years. You ever wonder why your local hardware or big box store is always out of something? It may be because they use big data to order for them. Big data orders based on what is selling, and if at the time of inception there wasn't much inventory on an item, sales would therefor be low, and big data can only order off that data. Example. An electrical supply house installed a big data ordering system. At the time they had just sold all of the most popular romex wire they had in stock, 14-2 with ground. The computer didn't order any because it had no record of selling it and it took a couple months before a human was able to override the system. It was 1988 and they lost over 3 million dollars in sales, as well as several customers. Today we have algorithms all over the world basing what is needed on data acquired during the pandemic. Inventories are undersupplied and staffing is shorted today because a computer is telling humans what is needed and humans aren't being allowed to override the systems.        
            There is a place for big data. The more data we have the more accurate an appraiser can be when comparing properties and market influences. When I started in this industry all the data was obtained in a printed book, on a black computer screen with green writing, driving by a property, and calling the listing agent. Today we have multiple sources of photo's, permit records, assessor records, etc. at our fingertips which help, but big data cannot (yet) replace a physical inspection by a knowledgeable appraiser who can consider the quality of materials, condition of the improvements, location influences (does it really have a view?), and functionality of your home.  
            So no, big data is not replacing your trusted appraiser next year. But yes, if appraisers stop providing more accurate opinions of value than big data does, then they will be replaced.  


Posted by Jeff Pickerel on August 25th, 2022 4:57 AMLeave a Comment

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Do mortgage interest rates affect or effect appraised values? The simple answer is no, and yes. Confused? Let me explain. 
Assuming you are aware of how an appraiser arrives at his or her opinion of value, lets take a look to see if interest rates "affect" appraisal values. Affect is a verb and describes current action, which means something that AFFECTS the appraiser's selection of comparable properties, ie; the presence of a pool, the size of the house, number of baths, location, condition, etc., the appraisers reconciliation of the cost to build a similar home, or the appraisers selection of comparable rental properties. And although changes in the market can make the selection of more recent sales important, that is due to the price they sold at, which may or may not be from the interest rate the buyer received.
But do interest rates EFFECT appraised values? You bet they do. EFFECT is a noun, descriptive after the fact, so current mortgage interest rates AFFECT how much a buyer can afford to borrow, which EFFECTED how much they were able to pay for a home. This is similar to the current job market in a an area. A borrowers employment status AFFECTS how much they borrow, so if an area is depressed, this will EFFECT the values in the area. Understand? No?
Hmmm. That's ok, just try and think of it this way. Appraisers do not determine how much you will buy or sell your house for, or how much the bank will loan you against your house. We report current market conditions like increasing or decreasing values, supply, and demand, which AFFECTS the banks lending decision, and EFFECTS your buying decision.
One last thought. Did you know yo can get an appraised value based on what a property will be worth at a selected future date? It's called a *Prospective Appraisal. It's a handy tool when you are looking at flipping, renting for market appreciation, subdividing, spec building, or holding paper on a loan. One aspect of prospective appraising is determining where the market will be on the chosen prospective date, and historical interest rate trends are part of that equation. So as in all things involving the English language, prospective appraisals are the exception to rule. 

Up next. Math, the English method. 

*If interested in a prospective appraisal or you would like prospective appraising explained, feel free to contact me directly. 
    

  

Posted by Jeff Pickerel on August 6th, 2022 6:00 AMLeave a Comment

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Home prices are cooling, does this mean values are declining? No, it does not. Home price cooling can mean many things, the list price vs. sell price to be dropping, the percentage increase in values to be slowing, the median home price is lower than it was, or, in some cases, homes selling for less than comparable homes sold for recently (a.k.a. "declining values"). Typically when you hear in the media that home prices are cooling only one or two of the above circumstances are happening in your specific market, verses when market values are actually declining all four are present. 

The issue with broad statements of increasing, declining, or stable values is they are not specific to individual properties. The data the media, home owners, government agencies, etc. presented is based on National, State, county, and city wide market data and may vary significantly from what individual neighborhoods are experiencing. And even within neighborhoods fixer homes, move up homes, move down homes, etc. can experience significant differences in percentage of increase or decline.  Even when all housing markets are headed in the same direction, the percentage of increase or decrease differences between individual markets can be as much as 50%!      

Given the lack of information on all of these indicators specific to your market, how can you find out if your homes value is going up or down? The answer depends on the reason for the question.
If you need to know because you are considering selling, interview 2-3 experienced real estate agents. They are your best resource for the direction of market price. If you have a unique property, find an agent who deals in those properties. If you do end up selling, they provide the most likely route to top dollar for your property.
If you are planning on selling the property yourself, considering buying a property to flip, or considering building on vacant land to sell, hire an experienced real estate appraiser, one that has experience in the type of property you are needing the data on. You might even ask for a prospective opinion of value, but make sure you fully understand what it is based on before doing so. 
And if you want to know before taking out a loan against your home for some home improvement projects, why? You can either afford to make the payments or not, what your home is worth only matters for your LTV, and that will determined by the appraiser the bank hires, not your loan officer, a real estate agent, or even another appraiser you hired. For more on my opinion of home values for reasons other than buying or selling, subscribe to my blog.               

July 12th, 2022 10:11 AM
Did you know? In mortgage lending you are never the appraiser's client? That doesn't mean that you are not someone's client. You are the client of your lender/loan officer, the lender/loan officer is the client of a 3rd party, and the 3rd party is the appraisers client. Confused? Wait until I get into intended users! Maybe I'll save that for another day.... 

My point is, even though you are not our client, you are the client of a client, and without you we would not have the income from appraising your house, nor the pleasure of meeting you. So even though you are not OUR client, we want you to know we will treat you and your property as if you were our client, to the extent the law allows, and that we appreciate you . ??

Posted in:Lending and tagged: appraisallending
Posted by Jeff Pickerel on July 12th, 2022 10:11 AMLeave a Comment

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The rhetoric most commonly seen on social media regarding home buying today is that it is harder to buy a house today than ever. While that may be true when comparing those who are in the higher income brackets or when comparing the ease of homebuying today vs. 3 years ago, in most cases it's the expectation of the home that has changed, not the affordability. Before you cry foul and stop following my blog, let me explain. I was raised in a lower middle class family, what most refer to as "the working poor". Even then people thought home ownership was out of reach for those in my parents income bracket. But not my parents. They were dreamers willing to sacrifice to reach their goals. When I was 10 my parents bought land in an unpopular rural area, and we lived in tents while our house was built. We couldn't afford a contractor so my Dad built our house himself, with the help of his children, ages 3, 10, 12, and 13, and a couple family friends with whom he was able to trade labor. It took more than a year. In case you missed it, in order to reach the dream of homeownership, my parents had to move to an area with lower values, then have us all live in tents, no stove, no running water, no indoor toilets, etc. while my dad built our house with his own 2 hands on the weekends and after work. Because this is what he could afford to do. My path to homeownership was easier. I was fortunate enough to find a foreclosure during a market downturn and by working two jobs, one full time and one part time, I was able to make the payments. My point is, when thinking about how difficult it is to buy a home vs. how you think or the "data" indicates it used to be, understand it has always been difficult for the lower middle class, but your issue may be an unwillingness to sacrifice as much as your parents and grandparents had to. Maybe it's because you have kids and don't want to subject them to having to go new schools, make new friends, or do without things. FYI. That sacrifice has shaped my entire life. Not the struggles, heck, I was 10 years old and got to camp for more than a year, it was amazing! No, the lesson is what stuck. I learned the basic principle of this country, which is if you truly want something, with hard work and sacrifice you can attain it. Life is simple. "When your dreams and goals are bigger than the obstacles that come before you, you will overcome those obstacles and achieve your dream and goals. " If you want to buy a house, figure out what you are willing to give up to get it. Happy house hunting!

Posted by Jeff Pickerel on July 9th, 2022 5:15 AMLeave a Comment

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May 9th, 2019 7:49 AM
Fannie Mae recently announced they are testing a change in the appraisal process which would involve having appraisers rely on a 3rd party data collector for the data elements they normally collect when they inspect a property. 
One can surmise the idea for this came about through a meeting between Fannie Mae and the CEO of a certain large property acquisition company who pioneered a similar idea during the last market downturn. The meeting happened at the suggestion of President Trump who is a huge proponent of technology and innovation. One can also then surmise that this is not the only change that is planned. When you consider that Blackstone used automated valuation models coupled with their property inspection data to make decisions on how much to pay for a foreclosed property, the intellectual partnership would surely be planning a similar move in the future. The only question that remains is will it actually work? 
I could bore you with the reasons it would work in tract homes that have typical updating, no deferred maintenance, no view, and typical locations, but would be marginally to highly inaccurate in all other instances, but instead let me state simply that data collected by 3rd parties that have zero liability is unreliable. Real Estate agents will stretch photo's to make a room look bigger, exaggerate views, quality, and condition just so they can get a buyer to look at a house. 3rd party photographers are more likely to get more work if the pictures they take make a house look better than what it is. And 3rd party data collectors are likely to miss many critical value details as they rush through a property because they have no liability for the missed item and they have 10 more inspections booked that day (using Blackstone's data collection model a 3rd party inspector will make $25-$35 per inspection, you do the math on how long they can spend on a property and still earn a living).  Based on this, in my opinion, the answer to whether this will work or not is "Not a chance." But that won't stop them from implementing it. 
Big Data is here. How it is used will not only determine the fate of the appraisal, real estate, and loan industries, it will determine the size of the next bubble, and the people affected by the fall when it bursts.  
 

Posted by Jeff Pickerel on May 9th, 2019 7:49 AMLeave a Comment

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May 5th, 2019 8:18 AM

The number one question homeowners ask an appraiser is "How can I increase the value of my home?" After almost 20 years of appraising and studying what improvements have the greatest contributory value when a home is sold I have concluded the definitive answer is.......
Proper Home Maintenance!    
National averages suggest a remodeled kitchen can add 80-85% of the cost to value when you sell, and a remodeled master bath can add 60-65% of the cost, a properly maintained home will recoup 100+% of the cost when you sell. 

This is generally true even if you wait until something breaks before you fix it, but if you really want to get bang for your buck, tackle those maintenance jobs that (let’s face it) some of us forget or put off until it’s too late.  

So get out your tool kit, because we’re about to take you through the essentials of home maintenance.

What Home Maintenance Items Should I Budget For?

Okay, first think of the necessities—water, heat, cooling and the roof over your head. These are year-round needs for all households, and the things that make them possible require love and attention!

Budget every year for the cost of an expert to service your HVAC unit and water storage heater and to check your roof. Let’s take a closer look at each of these services and how much they cost.

Heating, Ventilation and Cooling (HVAC)

The HVAC is that boxy, noisy thing that sits outside your home, doing its job day in and day out. It gives you cool air in the summer and heat in the winter. The major parts inside an HVAC unit typically last between 10 and 25 years, so you need to have it serviced annually to make sure things are running smoothly.

How much does it cost to have it tuned up every year? That’ll run you about $49 to $199. But if you need to replace your HVAC unit, it will cost you $4,000 to $8,000 and up to buy a new one and have it installed. So it’s well worth paying for the annual checkup, especially if you spot a problem before it’s too late.

Hot Water Storage Tank

Just like the HVAC, you should have a professional look at your hot water heater every year. A tank lasts 10 to 15 years on average, and a new one can cost from $800 to $2,500 depending on the type you need.The average cost of installing a new tank is about $1,200.

During the annual service, the professional will flush and drain the tank (to remove sediment built up inside) and check the pressure relief valve. The cost of a service should be in the range of $100 to $200.   

Roof Inspection and Gutter Cleaning

Have an expert inspect your roof every year, especially if it’s on the older side. And if your home is framed by large trees, keep your gutters free of gunk and blockage with a cleaning once a year. If you’re fine with heights and have a sturdy ladder, you could do this yourself. Or, for around $100, you could opt to have a pro take on the task.

Home Maintenance: What Should I Do and When?

Now, here’s what you can do yourself to keep your home running like a well-oiled machine inside and out! Do these jobs to get the most out of your appliances and fixtures. It’ll help your biggest asset—your home—hold onto its value!

Monthly

Clean the inside of your washing machine.

Use store-bought sachets or throw a cup of white vinegar into an empty machine during a hot wash cycle to banish limescale and soap scum. Leave front-loading machine doors open after a wash to prevent mold from forming around the rubber seal.   

Give the garbage disposal a workout.

Run some ice cubes through the disposal to sharpen the blades. Do you have a persistent odor problem? Vinegar and baking soda make a sizzling combo for breaking down food and grease buildup and refreshening the whole thing.   

Clean drains around the home.

Hair. Soap. Limescale. Ugh! Rid your sinks, showers and bathtub drains of these things by using the vinegar and baking soda trick, or grab a store-bought solution if you have a slow-flowing or pungent drain.  

Degrease your range hood filter.

If you love to cook (and even if you don’t), the extractor hood filter soaks up all the grease and aromas, so give it a clean every month to keep it running well.

Quarterly

Replace your HVAC air filters.

The amount you use your HVAC really affects how often you need to replace your air filters. Some folks will replace their filters every couple of months, and some do it monthly. But, at minimum, you should do it quarterly. Experts agree if you use thinner filters and change them more often, they’re easier on your HVAC (Remember what it costs to replace that item!) compared to thicker ones that use more energy. 

Clean faucet aerators and shower heads.

Dirty aerators on the end of your faucets could mean limescale and dirt are blocking the water stream, and that can affect water pressure. The same goes for shower heads!

Clean your washing machine filter.

This filter in your machine picks up larger bits of debris and lint from your clothes. Unscrew the filter and clean it every few months to keep your machine running well.

Test smoke and carbon monoxide alarms.

Alarms come with a test button to make this a quick and easy job. You should also replace the batteries every year, even if the low battery beep hasn’t kicked in yet. Or splurge and buy 10 year detectors that have sealed batteries, just don't forget to still test them monthly.

Lubricate garage doors.

Garage doors have moving parts that need dusting and proper lubrication every few months. Visit your hardware store to grab some heavy-duty white lithium grease to do the job.  

Test GFCI outlets.

Usually, in your bathroom and kitchen, you’ll see outlets with buttons that say test and reset on them. These are ground fault circuit interrupter (GFCI) outlets, and they monitor the electricity flowing through them to prevent shocks. Press test and then reset every few months to make sure the trip function is working correctly.

Check salt levels in your water softener.

If you have a water softener unit (it removes minerals that cause hard water), check the salt levels inside every few months.

Check for pesky pests.

Ants? Termites? Spiders? Wasps? It’s worth keeping your eyes peeled for signs of pests inside and outside your home every few months. You can take care of some problems with over-the-counter products, while some might require professional attention.

Annually

We already covered the big-ticket items you should check every year. But what about other annual outdoor maintenance jobs?

Clean your deck or patio.

If you’ve got a wooden deck stained with a thinner, transparent varnish, restain it every year or so. And remember those fences, too!

Check your siding.

If your home has wooden siding, inspect it annually for any signs of damage or peeling paint. Also, check for cracks around the foundation of your home. It’s better to find them now before they turn into bigger issues.

Care for crawlspace vents.

Close your crawlspace vents at the start of winter to protect pipes underneath your home from cold and dry conditions. Then open them in the spring to stop moisture buildup in your crawlspace.

Remember your outdoor faucets.

If you live in a cold region, cover your outdoor faucets with an insulating cover in the winter to avoid frozen and bursting pipes.  

Fertilize the lawn and check trees and shrubs.

Monitor trees and shrubs that might be a bit too close to your house or are in need of a trim. Get in touch with a tree doctor to check on the health of your trees if you need to.

Check the clothes dryer vent.

The vent for your clothes dryer should be free of dirt and lint. While you’re running a load of laundry through the dryer, go outside to make sure the vent is doing its job. It should be releasing lots of fresh-smelling air!

Test your garage door’s safety features.

Your garage door should have stop and auto reverse motion detection to sense if an object is in its path. Get a 2x4 piece of wood and place it underneath the open door, then close the door using the button on the wall. The door should stop closing once it detects the wood and go back up.  

Let’s step inside your home for a minute to go through those annual indoor maintenance jobs.

Inspect your attic.

If you have an attic, get up there at least once a year to clean, check for pests, and rule out leaks after heavy rain.    

Get a pro to clean your carpets.

Get your carpets cleaned professionally every year or so to keep them looking great and to remove allergens and odors.

Check bathtubs and shower caulking.

Retouch caulking around your bathtub and shower if there are places that need it.

Seal your shower floor.

If your shower floor is tiled, clean the grout every year. There are lots of grout cleaners out there. Apply a sealant to protect the shower floor from all the water. 

Vacuum around bathroom extractor fans.

Clear away any dust and cobwebs from around extractor fans.

Vacuum behind the refrigerator.

Do you know those coils on the back of your fridge? You should gently vacuum them once a year to stop the fridge from working overtime.

Clean and check windows inside and out.

Clear away dead bugs from between your bug screen and window pane. Check window screens for holes and replace them if needed. Check the condition of weather stripping around your windows and doors, too. Any big gaps could mean loss of heat in winter and cool air in summer.

Maintain your fireplace.

Whether your fireplace works with real wood or is gas-powered, get your chimney swept and have your flue inspected every year.

Check window air conditioning units.

If you have in-window units, clean them every year. Also, think about covering them in the winter if you’re not storing them away from the elements.   

Do your basement business.

Basements can be a bit “out of sight, out of mind,” but try not to neglect them! Give basements a thorough cleaning every year and check for mold and cracks in the walls. Clean window wells outside any basement windows, too. You might have a sump pump (it removes accumulated water from the area), so inspect it every year.

I know the list seems long, but most items take just a few minutes to maintain. I sincerely hope this list helps save you from a costly repair down the road.  


Posted in:Advice and tagged: maintenancevalue
Posted by Jeff Pickerel on May 5th, 2019 8:18 AMLeave a Comment

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January 3rd, 2019 8:43 AM

I keep hearing people complain about how interest rates have gone up and the general consensus seems to be if you didn't buy, refinance, or get an equity line in 2017 then you missed the boat. However, while it may be true that if you didn't BUY in 2011 or 2012 you missed the low point of the housing market, and if you didn't REFINANCE in July of 2016 you missed the historically low interest rate, if you click on the chart link below you will see the facts are TODAY'S MORTGAGE RATES ARE A FULL PERCENTAGE POINT LOWER THAN THEY WERE IN 2003-2006 (The years of explosive real estate values leading up to the real estate bust). 

So yes, while rates may have creeped up, they are still historically low, and significantly better than the rate I received when I purchased my first home (8.6%)  

http://www.freddiemac.com/pmms/pmms30.html


Posted by Jeff Pickerel on January 3rd, 2019 8:43 AMLeave a Comment

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