September 1, 2008
Credit for this post really goes to 3 Oceans contributor Eric Trailer who sent me this content in a letter this week. My clients got it last week, and the blogoshpere can now benefit. We can assume that Eric has better things to do on Labor Day than blog. I’m guessing something involving his lovely wife and son . . .
To see current market data and price trends over the past year for local communities and confirm or refute Eric’s prognostications on the local market in Palo Alto and the surrounding communities,
CLICK HERE to see real-time market data, courtesy of our friends at Altos Research.
As you have likely been hearing, there continues to be more and more evidence that it will cost prospective home buyers more to purchase a home in select areas of the Bay Area as they allow time to go by.
Why? Let’s look at the basic reasons, then review an example:
1. The median price across the board in Palo Alto and the surrounding communities has risen since the beginning of the year.
2. On a national basis, the trough of the market was reached in April.
3. The conforming loan limit will DECREASE over $100,000 in 2009 to $625,000.
4. Rates have risen about .5% since the beginning of the year, despite the increase in the conforming loan limit to $729,750
5. Loan qualifications are becoming more restrictive with each passing week.
6. More restrictions on loans and a tighter supply of money forces rates to go up
7. Because loans require more work to process them (requirements today are 4x what they were a year ago), rates will go up.
8. Inflation is the number one concern of the Fed, and should be the number one concern for all of us.
Let’s say for a moment that you agree that rates are on the rise, but feel as though prices may come down on a $1mm property today; thus, you want to wait. Let’s further assume that you are right and the future price is $950,000, but rates have increased .5% at that future time. Using 20% down, waiting just cost you an ADDITIONAL $117 per month-over $1,400 per year.
But now let’s be more realistic given the appreciation rates of desirable areas of the Bay Area. If rates increase and the $1mm home appreciates to $1,050,000, you are looking at an ADDITIONAL $550 PER MONTH-OVER $6,000 PER YEAR!
What’s the take-away here? Price matters much less than true cost… My motto has always been that it always pays off to buy sooner than later, provided your holding period is greater than four years. And to prove that I walk the walk, I am happy to share my personal situation written as an article titled, “How to Afford a Home in Palo Alto Without a Trust Fund.”
To call Eric on his walking the walk comment, and get a copy of his article, “How to Afford a Home in Palo Alto Without a Trust Fund.”, click on his pretty picture over there in the contributor column to send him an email.
Tags: 4---mortgage-mania, absolute mortgage bank, mortgage rates, Mortgages, palo alto home prices, Palo alto housing market, palo alto market, palo alto real estate market
June 7, 2008
Long-time Mortgage Mania readers, (aka Mortgage Maniacs) know that I’m an avid reader of the New York Times, so it should come as no surprise that I would have some comments on this article in the Friday June 6 edition regarding the continuing foreclosure crisis affecting consumers across the country.
Authors Bajaj and Grynbaum review some recent statistics on foreclosures, and then go on to predict another wave of foreclosures as the economy continues to slow and more consumers fall victim to layoffs and job cuts.
It’s easy to ignore these rumblings here in wealthy Silicon Valley where the local economy is still vibrant, even with nearly $5 a gallon gas, as it is still a minor impact on a budget with a $5,000 a month mortgage. It’s easy for us living in The Bubble of Unstoppable Real Estate (which I define as: Palo Alto, Menlo Park, and Los Altos, your mileage may vary) to say “it can’t happen here”.
Not so fast there pardner. A Short Sale in Atherton you say? It’s almost enough to make you drop your Grey Poupon.
This little number at 199 Selby Lane in Atherton recently listed by Lanny Dannenberg of Keller Williams is a short sale at $1,795,000. It has been on the market with a couple of different brokers for over two years, starting at $2,495,000 in March of 2006.
The good news is that the local market continues to be pretty strong, especially at the upper levels, above $3 million. Don’t take my word for it, check out this market data for the latest facts and figures on Palo Alto and surrounding communities.
Thanks for reading . . .
Tags: 4---mortgage-mania, Atherton, economy, foreclosure, new york times, short sales
February 19, 2008
I’d like to thank Kristen Emery at Princeton Capital in Palo Alto for providing me with the first bit of information that actually explains what the changes to conforming loans will mean to someone in Silicon Valley trying to buy a home.
A little light reading for you:
We have seen a whirlwind of legislative activity these past few weeks! There is much confusion surrounding the recentlypassed Economic Stimulus Package and higher loan limits. Unfortunately, the new law can be confusing to decipher, andnot everyone will benefit. For this reason, we have provided an outline below that clarifies what this new law means for youand how you can benefit from the higher loan limits.
Description and Overview:An economic stimulus package just passed Congress on February 7, 2008 and was signed into law by the President onFebruary 13, 2008. This new law is effective immediately and includes a temporary increase in both the FHA andconforming loan limits to as high as $729,750 in high cost areas. This means that the interest rates on many mortgages willgo down because these loans are now eligible to be purchased by Fannie Mae and Freddie Mac or insured by the FederalHousing Administration (FHA). Previously, the FHA was only allowed to insure loans with balances lower than $200,160 -$362,790, depending on the county where the property was located. Also, Fannie Mae and Freddie Mac were only allowedto purchase loans with balances at or below $417,000. This resulted in limited options and higher financing costs for thosewith loan balances above these limits. The new law substantially increases these limits in high cost areas and opens upnew options and lower financing costs for many people.
How to Determine “High Cost” AreasThere are two things you must know in order to determine if you are in a high cost area:
1. Understanding the Formula
If 125% of the local area median home price exceeds $417,000, the temporary loan limitwould be that 125% of the median home price with a cap of $729,750. Here are threeexamples to illustrate this concept: If the median home price in your area is $375,000, 125% of that number is$468,750. Thisis above the current $417k conforming loan limit. Therefore, the conforming loan limit inyour area WILL change and go up to $468,750. This number is also higher than thehighest FHA loan limits, so therefore your FHA loan limit will also go up to $468,750. If the median home price in your area is $650,000, 125% of that number is $812,500.This number is greater than the maximum cap of $729,250. Therefore, the conforming loan limit in your area willincrease to highest allowable amount under this new law which is $729,250. (Our median home price is $612,000 for Santa Clara County).
2. Determining the Median Home Price in Your Area
The Secretary of Housing and Urban Development (HUD) will publish the median house prices within 30 days of the billgoing into effect (30 days from February 13, 2008). HUD does not have any interim stats or information for us to use. However, the bill also states that HUD can use any commercially available data if they are unable to compile theinformation on their own within the 30 day timeframe. With that in mind, it is likely that HUD’s numbers will be relativelyconsistent with the data published by the National Association of Realtors (NAR), which already has a solid track record oftracking and publishing this information on a quarterly basis. Therefore, until HUD actually publishes their version of the median home prices, the most accurate way to get thisinformation today is to utilize the data that is published by NAR. Ironically, NAR just released their latest median homeprice update for the 4th quarter of 2007 on February 14, 2008! Contact me today and I’ll research your info and let youknow exactly what the median home price is in your area and how you can benefit from this information.
What do all the dates mean?
There is some confusion because the bill has a provision that says the higher limits areonly effective for loans originated between July 1, 2007 and December 31, 2008. Inshort, the reason it is effective beginning July 1, 2007, is because the credit crisis startedto unfold in July and August of 2007. Mortgage market conditions rapidly deterioratedalmost overnight. Many secondary market investors suddenly refused to purchase loansthat couldn’t be sold to Fannie Mae and Freddie Mac. (For more info on how this processworks, please see the article entitled Saga of the US Mortgage Industry.) Unfortunately, many mortgage banks had already funded these loans in their ownportfolio or through their warehouse lines of credit. Their intention was obviously to sellthese loans on the secondary market after the loans were funded. However, the creditcrisis prevented them from doing so, and they were stuck holding these loans in theirportfolio. The July 1, 2007 date in the bill is designed to allow these lenders to unloadthese mortgages and sell them on the secondary market to Fannie Mae and Freddie Mac.
However, the July 1, 2007 date has no bearing whatsoever on new refinance transactions!
In other words, it doesn’tmatter when the loan you are refinancing was originated. The old loan could have been originated in 2005, 2006 oranytime before or after July 1, 2007 and it would have no effect whatsoever on your current purchase or refinancetransaction.
If you are refinancing a new loan today, whether it is a purchase or refinance transaction, that loan issubject to the new limits set forth in the bill.
The other date of December 31, 2008 means that the old limits will go back into effect after this year. In other words, now isthe perfect time to buy a new home or refinance your mortgage because after this year, your costs will be higher and youroptions more limited again.
When does this all go into effect?
February 13, 2008 – immediately upon the President’s signature. Therefore, HUD is obligated to publish the median homeprices within 30 days of that date. However, Fannie Mae, Freddie Mac, and various wholesale lenders may have different policies as to how these new loans are going to be priced and underwritten.
- - - Information provided by:
Tags: 2008 real estate market, 4---mortgage-mania, Conforming Loans, first-time buyer, Mortgage, Mortgage Forgiveness Debt Relief Act of 2007
February 19, 2008
. . . Said my friend Amy to me the other day. Since she is sort of a typical first time buyer, (actually not), I decided to make an example of her and contribute to her 15 mins of fame.
Amy is your somewhat typical Sillycon Valley MBA tech-marketing type. She works in marketing for a large company, so her income is derived from her salary, as opposed to commissions or stock options that may or may not vest. The company is stable, so her bonuses tend to be consistent and her income fairly predictable. She recently moved from one giant tech company to a large one, so she has a number of years of experience in her industry and job classification, excellent credit, and some equity from a condo that she sold.
Being an MBA, and financially conservative (politically liberal), she can comfortably afford something in the $650K price range, even in the current lending environment. The previous idea was for her to take out two mortgages, a conforming loan of $417,000, and then a second or equity line to cover the rest.
Now that Mr. W. has signed off on the stimulus package that included a short-term increase in the conforming loan limit for 2008, Amy’s interest in buying a house has gone up. The tax rebate will let her buy her kids a happy meal and some new jeans, so her interest is much more in the mortgage changes.
At the time of our conversation, the difference in rates between a conforming (under $417,000) and jumbo ($417,001+) loan was about .75%, depending on a million things, which I will leave to co-contributor Eric Trailer to explain. Jsut plugging in some numbers, on a loan of $585,000 (10% down on our $650K house), her payments would drop about $4300 a year excluding taxes if that loan was at the lower rate. Now we are talking interesting.
Admittedly, this is very simplified, because it doesn’t take into account the cost of a conforming first and then a second, or whether lenders will have tiered pricing based on the loan amount, or credit scores, documented vs. non-documented income, etc., etc., etc.
My intent is to show the effect of this new law on “normal” Silicon Valley home buyers who have “normal” jobs, and are trying to put a roof over their heads. While the tax rebates of a few hundred dollars will only have minor impacts on most of us (I get $300, I think), the effect on home buying capability will be potentially significant.
Let the comments fly, and thanks for reading.
Tags: 2008 loan limits, Conforming Loans, economic stimulus, Home buying, Jumbo Loans, Mortgage, mortgage mania, mortgage rates, new home buyer
February 10, 2008
The Superbowl traditionally marks the beginning of the Spring real estate market here in Silicon Valley. True to form, we are seeing inventories climb from seasonal lows, and a lot more people visiting open houses on the weekends. As the media continues to run stories on increasing foreclosures, and an economic stimulus package that includes an increase in the limits for conforming loans wends its way through Congress, more and more people are asking me if this is a good time to buy a home.
In our area (Palo Alto, Los Altos, Los Altos Hills, Menlo Park, Mountain View), prices have been stable in 2007 (except Palo Alto which is up significantly), and we aren’t seeing the big jumps in foreclosure activity that are widely reported in the media in other areas. As the Federal Reserve has cut interest rates to stave off a national recession, loans have become more affordable nationwide, with rates near historic lows.
The majority of short sales and foreclosures in the area have been in homes in the $600,000 price range, having the effect of making many of these homes more affordable as lenders want to get rid of them. In contrast to most economic downturns, the higher - end market is doing better than the lower end.
Fellow contributor and mortgage banker Eric Trailer at Absolute Mortgage Bank in Palo Alto had these thoughts on the local housing market for the next few months:
“The coil on the Spring market is winding tighter every day this year already. Applications are up 100+% this month over December and January’s production is more than double December’s. In addition, we continue to be flooded with refinance inquiries this month. Many of the buyers that we had on the fence have been jumping off in an attempt to get into contract on a home prior to February 9. Why Feb 9? That’s the weekend following The Superbowl, and those fence-jumpers feel as though they can avoid the threat of multiple offers by securing their home now. With many of the top agents that we do business with stating that they have multiple listings coming on the market the week of February 9, combined with the flurry of activity on the buyer’s side, combined further with the strength of our local economy, it’s looks like this Spring will produce transactions well beyond expectation.”
Well Eric, it’s February 10th, my open house for today sold without contingencies 3 days after going on the market, and the number of new listings in Palo Alto this week was double that of any week for about 3 months. It looks like we are off to a good start to 2008, and the local economic indicators are still favorable.
Homes are not liquid investments like stocks, so make sure you actually like the house you are buying, and plan to be there for 5 years or more. With those caveats, in this area, it’s almost always a good time to buy a home.
Thanks for reading.
Tags: 2008 real estate market, absolute mortgage bank, Home buying, Mortgage, mortgage rates, palo-alto-real-estate, silicon valley real estate
January 22, 2008
Well, it was just a matter of time before someone who bought at the top of the market sued their agent because they paid too much for their house. In this article in today’s New York Times, we learn of the sad story of the Ummels who bought a retirement home in Carlsbad, CA to be near their children.
The Ummels worked with a Buyer’s Agent who had a fiduciary responsibility to assist them in finding and purchasing their home. They looked for quite a while, fired one agent and then canceled contracts on two other homes that they had written offers on. I’m sure nerves were getting a little frayed for all concerned by the time they finally bought their home.
“Ms. Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.”
Where things get interesting, and their agent, Mike Little, makes the rest of us look bad is stated further on in the article:
“Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges.
A few days after the couple moved in, in August 2005, they got a flier on their door from another realty agent. It showed a house up the street had just sold for $105,000 less than theirs, even though it was the same size.
Then they finally got their appraisal, which told them the house up the street was not only cheaper but had a pool. Another flier in early October mentioned a house down the street that was the same size and closed the same day as the Ummels’ but went for $175,000 less.
The Ummels accuse Mr. Little not only of withholding information but of exaggerating the virtues of their house to push them into a deal.
Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”
The mortgage brokerage that funded the loan, and the appraisal company both settled out of court, but Mr. Little fights on. I bounced this off of fellow contributor Eric Trailer, and we saw a couple of red flags waving.
1) Mr. Little acted as the agent and loan broker. This is legal, but as noted in the article, he now has twice the motivation to get the deal done.
2) He urged them to get their loan through him - again legal, but the ice in sunny Carlsbad is getting thinner.
3) Mr. Little’s appraiser found the house to be worth $1,150,000 to $1,200,000 in the summer of 2005, the Ummels’ appraiser valued the house at $1,050,000. This is about 10-15%, which is pretty significant, but within the realm of possibilities. I’m getting nervous if I’m Mr. Little’s broker however.
4) Mr. Little didn’t share his appraisal the Ummels. (His broker is drinking heavily at this point.)
Long story somewhat less long . . . The Ummels (plaintiffs) are suing because they didn’t get what they felt was appropriate representation from their agent. This is what many consumers expect of Realtors, and books like Freakonomics don’t help.
One of the things we contributors to 3Oceans preach is Transparency in Real Estate. We share the information and tools that we use with our clients, provide data from unbiased sources like Altos Research, and don’t try to do loans and sell houses at the same time.
End of rant, let the comments fly!
Thanks for reading . . .
Tags: Bad-Realtors, Buyer and seller tips, Dirty agent tricks, market downturn, Realtors who give the business a bad name, sneaky realtor tricks, Transparency
Home Buyers on the Peninsula Ignoring the San Francisco Chronicle’s Sage Advice?
June 17, 2007
One of the real estate headlines last week in the San Francisco Chronicle read Would-Be Home Buyers Hesitate. Sufficiently intrigued by the gaping chasm between the headline’s implications and my day-to-day experience on the ground, I read through the article, where I found out:
The Bay Area real estate market has become a giant game of chicken. Just 18 months ago, buyers swarmed open houses waving piles of cash. Now they are staying away in droves, waiting for prices to fall.
Exhibit 1: Recent transactions and number of offers. (These were transactions in which somebody in my office represented either the buyers or the sellers.) Many homes are still attracting multiple offers.
Exhibit 2: Pricing trends in Palo Alto. Looks like a pretty healthy market to me!
Exhibit 3: Colleague and fellow number-cruncher Steve TenBroek, a two decade veteran of business in these parts, says the local market is “tighter and hotter than it’s ever been.” His historical view is that inventory tightens in each subsequent up market, partly due to California’s infamous Proposition 13.
Tags: * Type of Content, Consumer, Industry, Market updates, Palo Alto, Real estate
November 6, 2006
At our regular Monday morning office meeting today, there was still more evidence of a schizophrenic market. Some properties have been languishing on the market for months — Menlo Park’s longest-suffering property is currently at 400 days, and Palo Alto’s is at 270 days — while others are being snapped up quickly, often with multiple offers.
Today the following sales were announced:
1 offer; below list price
5 offers; above list price
1 offer; under list price
2 offers; at list price
1 offer; below list price
1 offer; not sure
10 offers (!); above list price
1 offer; not sure
3 offers; above list price
2 offers; not sure
5 offers; above list price
1 offer; under list price
12 offers (!); above list price
Tags: Burlingame, For buyers, For sellers, Foster City, Market-update, Menlo Park, Mountain View, Palo Alto, Real estate, Redwood Shores, Sunnyvale