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Free Mortgage Payment Protection, FHA Standards Easing and Loan Mods at Absolute Mortgage Banking

Free mortgage payment insurance, really?  Yes!  While hosting one of my monthly mortgage market updates, which generally occur every third Wednesday of the month, I learned that CAR actually offers complimentary mortgage protection through their Housing Affordability Program (special thanks to Pam Page and Julia Keady for this information).   To be eligible, the following are a few highlights:

• First-time buyers only
• Dwelling must be single-family residential
• Must close escrow by December 31, 2009
• Must be represented by a CA Realtor
• Buyer(s) have not received benefits from HAF in the past

The maximum monthly benefit is $2,250 per month for a total duration of six months, after an initial four-month seasoning period.  As such, it may be worth looking in to additional providers to augment the CAR program, should additional peace of mind be desired.

So what else was good information discussed at the update on Wednesday? 

• Bridge financing is available for qualified move-up buyers looking to leverage their current home and buy before they sell
• “Jumbo” money is more available today than it has been over the last year, which is primarily due to price stabilization– there are now programs offering rates below 4%, leverage as high as 90% (80% to $2mm loan amount!) and financing for investment properties
• with the elevated conforming loan limits staying in tact, rates below 5% and a total of $18,000 in tax credits available to eligible buyers, first-time buyers are likely much better off owning versus renting provided that the holding period is five years
• Move-up buyers appear to be the most motivated lately, as we are seeing twice the number of applications on “jumbo” mortgages versus conforming mortgages coming in at present
• with qualifications tightening, sellers are wise to consider offering up to 2% of the sales price  as a credit toward a buyer’s non-recurring closing costs to yield a lower rate and therefore payment
•  Multiple offers are back, so it’s good to know that the 21-day close is also available again

Next update presentation will be on January 20, 9:30 am and posted on the AMB website calendar– hope to see you there!

FHA Standards Easing

If you know of someone looking to puchase a condo in a new development,  HUD just made it easier to obtain an FHA loan.   HUD is easing up on the requirements that 50% of the units be sold (now down to 30%) and now allows up to 50% of the units to be FHA financed (up from 30%) before funding for FHA is allowed.  The rule that no more than 10% of the units can be owned by one owner and that 50% of the project must be owner occupied hasn’t changed, and the developers aren’t very happy about it, but the reality is that the deal is simply not insurable otherwise.

Loan Modifications Available Through AMB

Coming soon, Absolute Mortgage Banking will have an arrangement with a reputable company that can help individuals modify their loans per the HAMP requirements, and we’ll make the process very easy with a link through our website.  We are in the final due-diligence stage, and we will have a formal announcement likely before Thanksgiving. 

Tax Credit Extended, Markets Further Stabilizing and Real Estate Ideal Hedge

Tax Credit and Conforming/FHA Loan Limit Extended

Made official on Friday, the tax credit for home purchases was extended through July 1, 2010 and the important details are exactly as they were in my post on Friday the 30th of October, which was summarized as follows:

· Effective on binding real estate contracts from December 1, 2009 through April 30, 2010, The tax credit would be $8,000 for first time home buyers and $6,500 for move-up buyers who have owned their current home for at least five years

· The tax credit expires on April 30, 2010; however, if a binding contract is reached by April 30, 2010, buyers have an additional 60 days to close the deal and still be eligible for the tax credit

· For purchases made in 2010, taxpayers would be able to claim the credit on their 2009 income tax return

· The income limits for both first time home buyers and move-up buyers would be $125,000 for single return and $225,000 joint return.

· Cost of the home may not exceed $800,000 to be eligible.

Remember that a tax credit has about THREE TIMES the impact of a tax deduction, which allows someone earning $125,000 per year to be taxed on about $102,000*. And since other items like interest and property taxes are also deductible*, that same individual may be looking at less than half of their earnings being fully taxable..!*

Add the above news to the fact HUD also extended the conforming loan limit of $729,750 in the Bay Area to December 31, 2010, and you have a “perfect storm” for every qualified first-time buyer in the Bay Area.

S&P Case-Shiller Confirming Further Improvement of Housing Prices

Released last week, the S&P Case-Shiller index confirms that housing prices continue to improve, especially in areas like San Francisco where the index moved another 2.8% in August to 132.47. This marks the seventh straight month of improvement.

Zillow also reported that their index reflected further stabilization for the third quarter, with over 26% of the metropolitan statistical areas showing signs of improvement.

Real Estate as an Ideal Hedge to Both the “W” Concern and Inflation

You may recall from my last post that we are seeing far more application activity for purchases in the $1mm+ range, especially the $1.5mm to $4mm range. These applications have been coming from our more financially-minded clients, as they not only see tremendous opportunity to obtain a more valuable home, but they are very concerned about a “W”-shaped economic recovery and subsequent inflation. As such, obtaining an upgraded home for less, cheap financing and hedging against inflation make buying a larger home an ideal move. All things being relative, the reality is that the S&P 500 currently has a rather high price-to-earnings ratio at about 19.52 versus the historical average of 15.7. As such, if we were in average economic circumstances, it’s arguable that the stock market is overvalued by about 25%. Given the fact that our current economy is FAR from being in average condition, it’s anyone’s guess just how overvalued the stock market is. All I know is that my savviest, financially-minded clients think that the stock market is due a correction and that real estate is a great asset to have as a hedge against both a market correction and inevitable inflation.

Fannie’s New Program: Deed for Lease

Announced on November 5, Fannie Mae is helping those qualified applicants to essentially sell and lease back their current home. This program is also applicable to investment-property owners who are facing foreclosure and wish to deed the property over to the lender and allow the renters to continue renting at market levels.

Rates and Activity

• Rates continue to run as low as 3.75%, depending on a number of different factors, with the conforming 30-year at just under 5% and the jumbo 30-year at about 4.75%
• 71% of our transactions last month were purchases, and the average loan was in the $500k range.
• As mentioned above, we’re seeing a heavy trend in purchase applications for the move-up market, but inventory is turning off a majority of those buyers
• We closed a deal in TWO weeks, but we still recommend a 30-day closing period
• If you or someone you know prefers to pay cash for a purchase, then finance that purchase within 90 days to protect valuable tax advantages, we can help, as we have programs that DO NOT require 6 months seasoning and pricing is based on purchase money, NOT a cash-out refinance

* Does not constitute tax advice.  Please seek any qualified tax professional for proper guidance.

High-cost conforming loans and housing prices

On November 6, Scott Sambucci of Altos Research did some analysis of housing prices around the $730,00 sales price to see if conforming loans requiring as little as 5% down were having an impact on selling prices, vs. the 20% minimum down payment for loans over $729,000.

Basically, there is an effect, and we are seeing market striations here locally at the $1.5M and $2M price points as well, where most lenders require 20% and 25% down payments respectively.

Get the scoop, analysis and commentary with cool charts HERE

Tales From The Front, My World of Real Estate, November 8, 2009

I had the pleasure of hanging out here again this Sunday. It’s a 6 bedroom, 4.5 bathroom home in Los Altos, brand new construction, for the low, low price of $4,188,000.

Currently, there are only 11 homes in Los Altos for sale priced over $3,000,000, so this isn’t exactly your run of the mill property. As you can see from the Virtual Tour, it has everything you need, including two laundry rooms, media room, office, nice master suite and an outdoor kitchen, all nicely packaged in about 6700 square feet. If you have an extra $4 million that you would like to put into real estate and you would like to see it, let me know.

What continues to surprise me is the number of people looking for a home in this price range. The couple today who work at Google (him) and Facebook (her) are obviously planning a big stock sale, now that the market has picked back up.

If we look at the top quartile of the Los Altos market, it definitely falls into the Buyer’s Market category,as the median price of the top quartile has dropped from a high of $3.5M a year ago to about $3.2M today.

Looking at North Los Altos (94022) we see that the drop in the median price of the top quartile has dropped more significantly from almost $4.75M a year ago to a bit over $3.5M today.

Meanwhile the inventory of these high-end homes has dropped over the last

few months from a high of 34 in July to 25 today.

In North Los Altos, only two of these high end homes have sold or come off the market, even though about a third of the inventory is in 94022.

What does it all mean? Well, like with everything for sale right now, cash is king, and if you have the means and are interested in purchasing something, especially something expensive, there are some great opportunities out there. Be it luxury goods, cars or houses, sellers are feeling the effects of the downturn and lack of big stock and bonus payouts.

If you want more specifics, let me know.

Thanks for reading….

What Happened To The Market? – A retrospective on June 2009

With the warming weather, June saw the market continue to heat up, as Buyers jumped back into the market aggressively, resulting in strong sales across the area, especially for single-family homes under $1.5 million. Homes that are attractive to the bulk of the market, with updates, attractive floorplans, and four bedrooms are commanding multiple offers again, with a few homes in Los Altos and Palo Alto recently receiving over ten offers and selling for cash.

A combination of continuing low interest rates, rising consumer confidence ( we are getting used to bad economic news), and the closing window for tax incentives, is fueling the current buyer activity, so we will see how long this will continue. The state is running out of funds for it’s tax rebate, but the US government has the printing presses running to fund its programs.

The Anderson School of Business at UCLA released its latest report for the California economy last week, and senior economist Jerry Nickelsburg writes “there is nothing happening in California that will help pull the state out of recession in advance of the nation.”

“The dire conditions surrounding the state budget will contribute to prolonging tough conditions in California, according to the report.

Yet that the real risk for California, Nickelsburg writes, is the possibility that there will be no budget agreement at all and that the chaotic and inefficient spending cuts that would likely follow would have an even more severe impact on the ability of California to stem the downturn in economic activity this year.

Overall, the forecast for California is for a very weak first two quarters of 2009, to be followed by very little growth in the last six months of the year. The economy will begin to pick up in 2010 and return to more normal levels of growth in 2011.

The expectation is that total employment will contract by 3.5 percent in 2009 and will not grow in 2010. Once growth returns in 2011, it will rise at 1.8 percent.”

The high-end, over $3 million continues to lag, as usual, but the lack of stock profits and the international economic downturn has really depressed the market for luxury homes over $5 million. Two noteworthy listings in Portola Valley and Woodside really symbolize the luxury market currently.

1990 Portola Road in Woodside has been on the market for two months, and just was reduced from $12,500,000 to $8,500,000. That isn’t a mis-print. So much for the benefit of Larry Ellison living next door. . . . This could be an excellent opportunity for the right buyer. If you are interested, I’d be happy to show it to you.

In Portola Valley, 5070 Alpine Road is Portola Valley’s first REO property. Priced at $7,895,000, the bank is willing to provide attractive financing terms on a $1.2 million down payment. Again, I’d be happy to show it to you if you are interested and a $6.6 million mortgage doesn’t frighten you.

On to the numbers:

Atherton:

Currently, the Median Price of a Single Family Home in Atherton is $4,095,000 with a range of $1,075,000 to 16,800,000. 36% (versus 48% last month) of the homes in Atherton have had price reductions, as Sellers are accepting that the market has shifted, and the average number of Days on Market is 132 days versus 133 last month.

Menlo Park:

The Median Price of a Single Family Home in Menlo Park is $1,297,000. 39% (versus 38% last month) of the homes in Menlo Park have had price reductions, as Sellers are resisting that the market has shifted, and the average number of Days on Market has risen to 135 days from 127 last month. If you look at individual homes, the ones that are well prepared and marketed are still selling quickly, some with multiple offers, while those that are overpriced, or are less desirable due to location, odd floor plans or deferred maintenance issues are being passed over.

Palo Alto:

The Median Price of a Single Family Home in Palo Alto is $1,595,000. 41% (versus 41% last month) of the homes in Palo Alto have had price reductions, as Sellers are resisting accepting that the market has shifted, and the average number of Days on Market has fallen slightly  to 96 days from 99 last month.

The Market Report – June 2009

I send my clients a monthly market update and thought I’d share it with the blogosphere. If you agree and think that I’m a genius, please comment below. If you disagree and think I’m an idiot, keep your thougths to yourself. You can send me an email to subscribe to your city of  interest (Atherton, Los Altos, Los Altos Hills, Menlo Park, Mountain View, or Palo Alto), and I’ll add you to my monthly update list. The commentary is as of June 1, 2009, that data is real-time.

 

May brought a ray of light into the local real estate market, as consumers, boosted by the rising stock market and low interest rates, began buying up homes on the market. Both Pending Sales and Pending Prices are up (see attached chart for a historical comparison), absorption numbers have outpaced new inventory both statewide and locally, and multiple offers on homes in Los Altos and Palo Alto have come back into play. At the low end, investors are superheating the Santa Clara and San Jose markets for single-family homes under $500,000, with many bank owned properties getting 20 – 30 mostly cash or all cash offers.

In general, prices are at about 2004 levels, and interest rates continue to hover near historic lows, with conforming loans under 5% for 30 years, and Jumbo loans staying around 6%. The big question on everyone’s’ mind is, “How long will this last?”

This past week we saw rates on the 10 year bond jump 0.5%, putting upward pressure on mortgage rates, which responded by rising for the different conforming loans. To get some additional input on whether this is short-term volatility or a longer term trend, I called my favorite mortgage bankers, who all had the same opinion, and all disagree (with all due respect) with Fed Chairman Bernanke that we will be out of the woods by the end of 2009.

The abridged version is that the government is subsidizing rates on loans backed by Fannie Mae and Freddie Mac (who are backed by taxpayers), so long-term mortgage rates are unsustainably low. The funds being used to subsidize these loans are finite, and limited, so there is upward pressure on the various conforming rates to rise to the real market rate of 6% as we are seeing in the Jumbo market.

Unusually, BOTH Buyers and Sellers are facing threats from market forces, creating compelling arguments to act now:

Sellers:

• Rising interest rates cut the purchasing power of Buyers, reducing the pool of potential Buyers for a given property
• The threat of rising unemployment and continuing slowing of the economy reduces consumer confidence and spending, especially on big-ticket items like cars and houses
• The current tax incentives for buying homes are limited to 2009. Reduced government from taxes due to lower incomes and corporate earnings makes it less likely that these are extended in 2010.

Buyers:

• That unemployment thing
• Qualifying for mortgages is getting more difficult, and the regulation of the process has tightened, adding new hurdles to the underwriting and appraisal process as the market overcorrects for the Wild West of the last few years.
• Rising rates cut purchasing power

Wow, kind of heavy stuff for a Friday. The good news is that summer is less than 3 weeks away!

 

On to the numbers:

 

Atherton:

Currently, the Median Price of a Single Family Home in Atherton is $3,996,500 with a range of $899,000 to 16,800,000. 48% (versus 41% last month) of the homes in Atherton have had price reductions, as Sellers are accepting that the market has shifted, and the average number of Days on Market has risen to 133 days from 114 last month, meaning that we should see more price reductions as the market searches for equilibrium.

 

 

Los Altos:

Currently, the Median Price of a Single Family Home in Los Altos is $1,999,900. 36% (up from 32% last month) of the homes in Los Altos have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has dropped slightly to 98 days versus 96 last month.

 

 

Los Altos Hills:

Currently, the Median Price of a Single Family Home in Los Altos Hills is $3,146,500. 36% (up from 23% last month) of the homes in Los Altos Hills have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has dropped to 173 days versus 187 last month.

 

 

Menlo Park:

Currently, the Median Price of a Single Family Home in Menlo Park is $1,447,000. 38% (versus 37% last month) of the homes in Menlo Park have had price reductions, as Sellers are resisting that the market has shifted, and the average number of Days on Market has risen to 127 days from 116 last month.

 

 

Mountain View:

Currently, the Median Price of a Single Family Home in Mountain View is $899,000. 55% (versus 38% last month) of the homes in Mountain View have had price reductions, as Sellers are learning that the market has shifted, and the average number of Days on Market has decreased to 121 days from 127 last month.

 

 

Palo Alto:

Currently, the Median Price of a Single Family Home in Palo Alto is $1,595,000. 41% (versus 43% last month) of the homes in Palo Alto have had price reductions, as Sellers are resisting accepting that the market has shifted, and the average number of Days on Market has risen to 99 days from 94 last month.

 

Change, Logic and Money

January is a month typically filled with many things inspirational, and I must say that January 2009 appears exceptional.  In listening to Obama’s inaugural speech on Tuesday, my own interpretation was, “The power of change begins with me.  With you.  The sooner we all believe that we can change things for the better, the sooner we ACT to make things better.”

 Would you like a tax credit of $7,500 for buying a home?  And I mean a REAL credit, not the 0.00% loan that the 2008 stimulus package was enactingfor firs time home buyers?  Well, that’s the latest possible modification going forward as part of the 2009 Stimulus Package, and it’s NOT limited to first time home buyers.  There’s discussion that ANYONE wanting to buy residential real estate will be entitled to this $7,500credit.   As you know, a tax credit directly offsets the amount of federal tax that you may owe the federal government—it’s not a reduction in taxable income—which makes this a very compelling reason for would be home seekers and investors to make a purchase this year.   

Want another compelling reason why the smart, savvy buyers are acting sooner than later?  Because they know that average appreciation rates in California are 8.8% over the last 40 years (yes we all know that the Peninsula is much greater), and today provide an opportunity for both tremendous value and cheap financing.  Let’s think about real value for a moment.  The last year we had average appreciation in California, it was the year 2001 (8.7%).  If we strip out the overbuilt areas of California.., and concentrate specifically on areas where housing expansion is extremely limited, like the Peninsula, one can simply take the median price of comparable homes in 2001, add 8.8% appreciation per year, depreciate appropriate improvements to the property and a value may be derived.  Thus, if a would-be buyer can obtain a home at that value or better, and combine the cheap cost financing, that’s an ideal move on a fundamental basis, whether the purchase is for shelter or for investment.

Want more?  OK.  How about the fact that, since 1968, there have only been four real periods of decline:  1984 (0.1%, so not really), 1990 (only 1.2%, despite the Loma Prieta earthquake in October 1989), 1992-1996 (Average of 2.44% despite a major recession following a major earthquake) and today (yes, believe it or not, there was NO decline for CA as a whole in 2001 when the stock market crashed; in fact, it was up 8.7% in 2001 and up over 20% in 2002. All the more reason why 2001 is a good basis to use.  

Want even more? “Thank you, Sir, may I have another?”  Sure.  How about the fact that I have personally bought at a low point (1994), sold and bought at a high point (2000), sold and bought at a mid point (2004) and came out ahead EVERY time.  In fact, that stepping-stone approach toward buying a home in Palo Alto without a trust fund was a goal realized solely because of real-estate appreciation.  On that note, let’s review again the fundamentals of buying real estate for both the person seeking shelter and the person seeking an investment. 

For those seeking shelter, it does not matter which price point one is buying at today, as there is good value on property and cheap money available now.   It also matters very little at this point whether we’re at the bottom of the current cycle.  The reality is that interest rates across the board, combined with attractive pricing, have made it far more financially advantageous to buy versus rent.  And with a 5-year holding period, equity is protected and an increase to net worth is likely.  For those looking to buy their primary residence, and who are also trying to time the market, they will likely be settling for less desirable property at a higher cost…    

For those seeking investment, there are properties everywhere that are positively cash flowing, thanks again to a strong combination of value and very cheap financing.   A recent example I looked at was a 4-plex here on the Peninsula going for about $900k, and it POSITIVELY cash flowed with only 10% down!  To boot, if the client had 30% to place, it would yield a capitalization rate of almost 3%– that’s HUGE for residential property investment on the Peninsula!   

What about financing?   Mortgage banks offer the greatest breadth and depth of available programs, but large institutions with reputable loan professionals are a good alternative .  As you may have heard this week, Chase is the latest major player to cease brokerage operations (yet they are still buying paper from mortgage banks) making it tougher for brokers to source money.  Rates on conforming programs have risen in recent weeks, but rates are still very attractive around 5%.  Further, rates on non-conforming/jumbo programs have also been very attractive at rates BELOW 5%.

Please keep in mind that seller financing is an ideal way for buyers to buy more valuable property while protecting their liquidity and sellers to obtain a great investment while selling their property at a reasonable price.   Many are waking up to this option, which will undoubtedly move greater inventory.

Plankton, Vendus Encourigitis, and the Stratification of Market Activity in Silicon Valley

A few days ago I spoke about the effect a mythical local insect, Vendus Encourigitis, has on housing inventory patterns here in Silicon Valley. It quite dependably comes out in the early part of each year, spraying homeowners with pheromones that make the notion of selling their home completely irresistible, thus putting an end to the seasonal problem we have here of low inventory. A close cousin of said insect, Achetus Encourigitis, tends to come out shortly thereafter, encouraging buyers to compete with eachother to buy the new inventory and drive prices up.

To continue the allegory, we look at another creature, this time a real one, but again with an allegorical function in this tale. I speak of the lowly plankton, a tiny oceanic life form: in size, seemingly insubstantial, but in importance, great. The plankton, you see, is at the bottom of many aquatic food chains, and if it were for some reason to disappear, the effect would be disastrous for the creatures that depend on it for food, and for predators of the creatures that depend on the plankton, and so forth: a ripple effect ultimately reaching most aquatic life.

The plankton of local real estate is the humble first-time homebuyer in the lower priced areas such as Redwood City, East Palo Alto, Menlo Park east of 101, parts of Mountain View and San Jose, and so forth. These folks purchased their homes in the last few years, assuming (as we all did) that prices would continue to rise, and they could then “move up” into a ritzier neighborhood with the equity they had built up. A higher than normal percentage (for this area) of such purchases were made with sub-prime loans.

Fast forward to 2008…these markets are hurting, some of them quite badly.

East Palo Alto’s inventory, for instance, has been marching steadily and worryingly upwards since early 2007…

…and prices have been going in the opposite — and expected — direction:

When inventory is over three times what it was a year ago, and prices have dropped by over 15%, the market basically freezes. Deflation does what it always does: makes the bargain-hunters decide to continue salivating just a bit more, because surely those prices are going to continue going down! Homes sell more slowly, prices continue downwards…it’s a vicious spiral.

And the plankton who own these homes? Well, if they can’t sell, that means they can’t buy the $850K starter home in Flood Park…and that homeowner can’t buy the $1.1M home in Palo Alto…who in turn can’t upgrade to the $1.6M property in Los Altos he’s been salivating over…who in turn can’t move to a respectable venture-capitalist-ridden neighborhood in Atherton.

The sub-prime woes affecting the lower-end markets are bound to eventually impact Palo Alto and its kin — though probably not as much as this analogy makes it sound. Why? In this market, there are plankton at almost every price point, so homeowners looking to sell don’t necessarily need to wait for a $500K homeowner to be able to sell his home. For every East Menlo Park’ian who was planning to — but no longer can — move across the 101 to buy an $850K home, there’s a dual-income tech couple who’s looking for the same $850K as their first home. Higher up the food chain, newly minted Googlers represent the plankton of the Atherton market.

But make no mistake about it: the lower end markets here are hurting, and will continue to do so for a while.

For instance, Redwood City’s inventory, much like East Palo Alto’s, is more than triple where it was a year ago…

…and prices in the two lowest quartiles are not looking pretty:

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