SubscribePendings, Applications and Multiple Offers all UP
May 15, 2009
Fellow contributor sent this to me, and I thought is was worth sharing. I’ll have Administrator Kevin re-post this under his authorship when he has a minute….
We are finally seeing seeing a little sunlight through the economic gloom, both nationally and locally. Take a look at these new statistics, and some anecdotal data from here in Palo Alto.
On a seasonally-adjusted basis, pending home sales in the US were up 3.2% last month (3.9% in the West) and 1.1% over last year (1.7% for the West)
On a non-seasonally-adjusted basis, pendings were up 28.2% last month (23.9% in the West) and 3.2% over last year (4.3% in the West)– wow
What’s significant about this is not only the fact that we continue to see more homes selling, but the index itself is running at volumes similar to what we saw in 2001! Further, this activity helps to stabilize the market, which leads to:
- more available lending, especially for the non-conforming (jumbo’s equity lines, construction financing) market
- helps the conforming market by enabling the MI companies to insure up to 95% again, as opposed to the 85% that they’re at now
- appraisal report concerns reduce
- reduces the emotional aspect of the sale that has created a tremendous amount of tension in the marketplace, as both buyer and seller feel more comfortable about moving forward
A factor that could be contributing to this increased volume is REO’s since Fannie and Freddie had a moratorium on foreclosures from December through March. As such, we may see a slight decrease in the median home price for the month of April. That written, it’s been the first-time homebuyers who have been driving this market, and first-timers don’t prefer to buy REO’s due to the headaches and lack of disclosure involved.
Purchase Applications Continue to Increase
Up 5% over last week on purchase applications, with no signs of slowing down. Refi’s are naturally very volatile as rates fluctuate with supply and demand. Overall, the conforming-level loans applications take the majority of overall applications but we have seen non-conforming application double this month over last.
On conforming loans ($ to $729,750) no matter how hard the government (taxpayers) works to throw money into the system, demand continues to outstrip supply driving rates higher.
On non-conforming loans, rates are driven by deposit rates, which have remained low this year. The 30-year is running about 6% with the 10/1 about 5.5%, the 7/1 about 5.25%, the 5/1 about 5% and the 3-year at 4.75%
Any mortgage rate below 7% is beating the average over the last 40 years.
Multiple Offers Coming Back
Last night one of our clients was the successful bidder of FOURTEEN total contracts submitted- wow! And, yes, this was on a $1.3mm home in Palo Alto. The important thing to remember is that going the old strategy of “as is” with “no contingencies” against multiple offers should be used with high caution when there’s a loan involved and the loan-to-value limits are applicable. Why? The due-diligence process on loans is 4X what it used to be, and appraisal reports are highly scrutinized; as such, it’s recommended that only the most qualified buyers consider proceeding as above.
Mortgage Process, Guidelines and Discretion
Did you know that a loan is actually NEVER officially committed until it funds? In most of the US, the financing contingency runs all the way to funding.
For the first time in 10 years, underwriters are using discretion to determine an applicant’s ability to replay a loan; as such, guidelines are just that—guidelines—and transactions may be in jeopardy if the process is rushed. A good example are those borrowers who have had a bankrupts in the past. Individuals who file bankruptcy once are 80% likely to do so again in their lifetime. An underwriter may see that a credit score requirement is met, but if the overall profile of the applicant’s repayment history is highly questionable, the request could be severely altered or declined.
The process is far more involved than it’s ever been, for both good and bad reasons. As such, we all need to keep in mind that closing dates need to be flexible. Additional due diligence is required on every transaction, and the verification process alone is one that can make the difference between a deal closing and a deal blowing up. A solid, reliable lending source will always provide proper guidance and multiple solutions
In a nutshell, BofA and Morgan Stanley are ranked at the bottom with Citibank and Wells in the middle, JP Morgan and Goldman at the top… The need to raise additional capital places stress on the system and essentially forces rates up since investors know that additional capital is required and will therefore demand a premium for it. For a 4-page version of the results, check out RBC’s summary.
Real Estate Buyers, Tired of Whiplash, Becoming More Sophisticated
March 12, 2007
The Spring sellers’ market here in the Bay Area’s Peninsula continues unabated, with no rest in sight for buyers. Multiple offers are still de jour on many sales in the area, with most listings selling for more than the list price.
This week marks a growing trend that could perhaps be called “buyer’s revenge.” Tired of the constant whiplash inflicted on them by sellers hosting an offer presentation rodeo and then squeezing out every drop of blood they can (wow — three unrelated metaphors in one sentence!), buyers are backing off and becoming a bit more patient.
Anecdotes abound this week about properties that had a dozen offer “maybes” turn into only two real offers. On some other transactions there were more offers — say, 6 to 10 — but the final price was only a few percentage points above the list.
Buyers seem to be getting more patient, more sophisticated, more value conscious. They realize that if they pile on during a listing presentation and drive the price of a property up by 20%, that sets the benchmark on the next properties they bid on.
Anyone else seeing this?
(Image courtesy of www.necksurgery.com)
To Preapprove or not to preapprove…that is the question
February 8, 2007
Well, nowadays, and at least in the Bay Area, that is no longer the question. Bay Area buyers have become accustomed to hearing agents, and their friends, emphasize the importance of being “preapproved”. But like many overused and underexplained topic, few people actually fully understand the power of a properly executed preapproval, and how to distinguish it from its more commonplace cousin, a prequalification.
If you are in the market for to buy a home, especially in some of the more competitive neighborhoods of the Bay Area (such as Palo Alto, Menlo Park, Los Altos, Mountain View and San Carlos), your agent – if he or she is any good – will ask you to meet with a qualified mortgage advisor as soon as possible to get prequalified or preapproved. This will serve two main purposes: 1) the agent will be able to serve you best by understanding the range of your affordability and not waste anyone’s time, and 2) you will be able to focus your search on what you know you can comfortably afford and not fall in love with something that was not meant to be. The purpose of the initial meeting with the mortgage specialist is to get “prequalified”; however, you can also get preapproved at the same time. So what’s the difference, and who cares?
Prequalified means that the mortgage specialist has taken a detailed discovery interview of your financial and credit background, along with your housing goals. Based on the information collected, s/he should be able to make a professional decision (based on his/her years of experience and the guidelines published by the lenders) whether or not you are “qualified” to get a loan and approximately how much you can qualify for. Let me stress that this is a decision that the mortgage specialist will make, NOT the person/organization who will ultimately lend you the money. Needless to say, the prequalification has the following weaknesses:
- There is no assurance whether you will actually get a loan or not
Preapproval, when done properly, is much more powerful. It is a prequalification taken to the next step. Preapprovals can take 2 forms:
CONFORMING LOANS ($417K and under)
For conforming loan amounts, the mortgage specialist can actually upload your file information into one of two national approval engines (Fannie Mae or Freddie Mac sponsored), and within minutes, obtain a printed formal approval of your loan amount and any pertaining conditions. This approval, because it is governed by a set of approval criteria that is universally accepted by all lenders, can then be submitted along with the hardcopy of your loan file to your lender of choice. That lender’s underwriting department will in turn accept and adopt the findings generated by this online engine. Hence, once you received an 
from this online engine, you can be fully confident that your loan is essentially approved. The reason that mortgage specialist don’t automatically do this is because (sadly) most people in the industry are not properly trained financial advisors and simply don’t know how to use this application, or are not even aware of it! Those who are aware are often deterred by the extra work and/or upfront cost, and so simply downgrade their clients’ to a “prequalification,” assuming that they won’t know the difference anyways.
NON-CONFIRMING (AKA JUMBO) LOANS (Over $417K)
For Jumbo (non-confirming) loans, preapprovals are a bit more complicated, and controversial. Since the national (Fannie Mae or Freddie Mac) engines that are uniformly accepted by all the lenders approve up to $417K – the conforming loan amount limit – many loan agents simply treat jumbo loan preapprovals like prequalifications. That is to say, they use their judgement to see whether a loan would be approved. In most cases, and especially if the agent is seasoned and dependable, the preapproval will not be at risk. But, if time permits and the agent has access to underwriters, it is always safer to discuss the actual loan package with a specific underwriter and obtain a verbal approval. In this case, the loan is not only in good shape according to the agent, but actually considered “approved” according to the person who would ultimately be granting the funds. This “preapproval” is very important – basically, as long as the borrowers can subsequently provide the required documentation (according to loan type) to support what was disclosed to the underwriter, than the written approval would be provided almost immediately upon submission.
Preapprovals, when executed properly, provide buyers with peace of mind when they need to go in with an aggressive offer, such as bypassing finance contingencies. If a loan is preapproved, either through the automated engine or verbally with an underwriter, buyers can be assured that their financing is confirmed within the payment terms of their comfort level, subject to slight market movements prior to locking a loan. However, if a preapproval was not done properly, and the buyers waived finance contingencies, they could be in a sticky situation. I have inherited many clients who have learned this lesson the hard way, having had to back out of a beloved house they won through multiple offers due to a prequalification error, and risking their deposit in the process.
Lastly, while it’s a hard sell, what people don’t realize is that a strong preapproval from a reputable mortgage specialist should placed the buyers in a more desirable position than even a 100% cash buyer. The sellers have no control over what a cash buyer will do with their money between offer acceptance and close of escrow. While not probable, it is possible that the purchase money could go down the drain through a big Vegas visit, or disappear through a bad stock day. Conversely, if the bulk of purchase money is coming from a reputable lender, and the lender has already preapproved, then sellers can have the comfort of knowing that the money is not going anywhere and not accessible to the buyers for any purpose except to buy the house. As a seller, I would much rather to see a strong preapproval than an all cash buyer.
SUMMARY:
- Make sure you know whether you are getting a prequalification or a preapproval (hint, latter is better!) If the person you’re speaking to can’t explain the difference to you – SWITCH!
- If you are getting a preapproval, ask which lenders you have been preapproved with (and why those were chosen)
- Before you waive finance contingencies, make sure that the person doing your preapproval has verified your credit, your cash reserves, and your household income
Market returning…to insanity?
September 18, 2006
Fortunately for buyers, we’re certainly not back to the 2004-2005 market when nearly every property, no matter its price, had multiple bids and went well over asking. Some properties have been on the market for a while — 60 days or longer — and some have been selling at (gasp!) under list price.
