Homescopes

Much has been written about how the new loan underwriting standards make it more difficult for buyers to qualify for mortgages.

I have two different buyer clients who are currently being impacted by these new standards.

Both are single professional woman who are looking to buy their first homes.

The first has a sales position where her compensation is both salary and commission based on sales. She has been at her current company for about one and a half years. The lender wants a 2 year history of her commission income before it will count any of it. So this buyer can only use her salary income to qualify. Her commission income is about 50% of her salary income. Clearly the lender’s decision to NOT count her commission income limits her current purchasing power. A year ago, stated income loans were available. This buyer could have just stated her income (salary plus commission) accurately based on a 2 year average and the lender would have used that income amount to qualify.

The second client recently changed companies and the lender will not count the bonus income obtained at the prior company eventhough this buyer will get bonuses at her new company. Her bonuses usually amounted to 10% of her base salary. Again the lender’s decision to NOT count this income limits this buyers purchasing power. A stated income loan would have allowed this buyer to qualify for more.

Understand neither of these buyers were going to lie about their income. They were going to accurately state what their income was for the past 2 years and use that figure on their loan application. No deception would have been contemplated. Both were secure in their ability to earn commission and bonus income as they had in the past in determining what they could afford to pay.

This is a case where fraud and deception on the part of OTHER borrowers and mortgage brokers is limiting these two buyers purchasing power.

Linda Lunsman of Princeton Capital writes:

“I NEVER WORRY ABOUT ACTION, BUT ONLY ABOUT INACTION.” ~ Winston Churchill. These words proved especially true last week, as the big story was the Fed’s lack of action following their recent meeting, or decision to leave the Fed Funds Rate unchanged - but is the Fed’s decision a cause for worry? The financial markets seem to think so. The Fed is in a tough spot with the economy performing sluggishly, the housing market still struggling to stabilize, consumer confidence being low, and food and energy costs going up seemingly every day. They made the decision to hold rates steady for now, but looking forward, what does all this mean for Bonds and home loan rates?

While the Fed made a smart move to cut its benchmark rate back in September to stimulate the economy, the continued string of cuts has considerably weakened the US Dollar against the Euro. And since oil is priced in Dollars, the decline of the Dollar has pushed oil prices to rise, even though consumption in the US is down. Prior to the Fed starting their recent string of cuts in mid-September, oil was trading at a then staggeringly high $73/barrel, and it took $1.35 to buy 1 Euro. And after nine months of Fed rate cuts, the Dollar has weakened to where it takes $1.57 to buy 1 Euro…which has greatly influenced oil prices to top $140/barrel. And because oil is involved in so much of what we purchase, prices have gone up on everything.

The bottom line: A stronger stance against inflation by the Fed - which would mean rate hikes ahead - could help strengthen the Dollar, combat high oil prices, and cause Bonds and home loan rates to improve in turn, as inflation is the arch enemy of both. It will be important to see what the Fed decides to do about the Fed Funds Rate at their next meeting in August, so stay tuned!

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One’s perception of the San Francisco market is a bit deceiving without looking “behind numbers” today.  No one has had to really look “behind the numbers” when there is high demand and low inventory.   One can gauge the market by how quickly properties sell (looking at the DOM - days on market). 

As in any market, if two comparable properties come on the market in a particular neighborhood at the same time and one sells and the other one doesn’t….it is pretty easy to determine that either the marketing, the price, the terms, and/or the condition attracted the buyer(s) to one property vs. the other. 

Without looking beyond the graphs, the averages, and the medians, one is unable to see beyond the numbers at the properties that are selling and selling fast from those that are taking their time.

To understand which market a seller is in and/or buyer is looking in, one needs to separate the days on the market, not by price range but by speed. 

What is out with Home Buyers in 2008?

• Overpriced homes
• Properties that are not cleaned up.
• Homes that have no up-dates in kitchens and bathrooms
• Reports that show major problems
• Showing times that are very limited
• Sellers who don’t understand that the market dictates the price

I am working with several buyers right now and believe me, the market is moving. Properties are still being sold with multiple offers and few days on the market. My advice to sellers: Be smart, study the market, clean and stage and you could be in contract within a short period of time.

When you think about “lifestyle”, do you also think of security?  Or is that something you take for granted?  It is woven into the services we provide for our clients.  You don’t have security when you rent…you already know your home is not yours. 

“Since home in a lot of ways means security for us, taking that away can be highly stressful for people”, according to San Mateo County area Licensed Marriage Family Therapist, Padma Ali, “mainly children.  They are not equipped to handle family stress surrounding a foreclosure.  Parents can play an important role in lessening the impact of losing their home.” 

As a parent, sometimes our own stress can take attention away from our children and we may miss important signs from them.  Padma offers these tips and suggestions if you or someone you know may be facing a move due to financial stress:

Children express stress in different ways. Some signs for parents to note…

1. Acting out at home or in school.
2. If your child is beginning to withdraw socially at home or school.
3. Grades dropping.

A few ways to help are…

1. Talk to your child. Don’t underestimate their intelligence to comprehend complex situations.  They will do better if they are kept in the loop.  Keep their age in consideration while talking to them about complex issues such as finances.
2. Reassure them that they are taken care of and that they don’t need to worry about money or their safety.

3. Get them help with school counselors or therapists to help them cope with the changes.

Our communities here on the San Mateo County Coastside are not seeing similar levels of foreclosure activity that is occurring in other parts of California and the Country.  However, our area is certainly not immune to homeowners facing financial challenges, and we are seeing some short sales and REO sales.  In my experience, I find children want to know that their family will still be together, even if they have to move - for whatever reason.

Related article:

Foreclosures take an emotional toll on many homeowners - USA Today

Come to Pinot Days Grand Festival public tasting at Fort Mason in San Francisco.  The tasting is this Sunday (June 29th, 2008) from 1:00 - 5:00.  The cost is $65.00 and tickets can be purchased at the door.  I recommend arriving about 1/2 hour before the doors open to reduce the amount of time waiting in line.

Once inside the doors, you will be able to taste from over 170 producers of Pinot Noir who will be pouring almost 400 different wines.  Most of the wines will be from California, but wines from Oregon, New Zealand and Burgundy will also be available to taste.

Note: With the variety and shear volume of wine available to taste, this is an event where you could drink too much.  Have a great time, but please drink responsibly!

Market update.  It could be due to a great location with Los Altos Schools or its over-sized lot, but the home located at 1735 Cherrytree Lane in Mountain View (and listed at $1,248,000. by Elaine Klemm of Alain Pinel Realtors) went into contract yesterday with 5 offers.  

As a follow up to the June 14, 2008 post about the Half Moon Bay Coastside single family homes market, here’s a look at what’s going on in the Condo market:

Inventory - It won’t be accurate to take the same format as I used for single family homes.  Due to the very small market it won’t show much:

• May 07 - 9 months of inventory; 1 sale ($620,000)
• January 08 - 11 months; 0 sales
• May 08 - 14 months; 1 sale ($489,000)

Sales did occur in other months; I’ll present the information by condo development.  There are no condominiums in Moss Beach or Montara; there was no activity in El Granada.  Therefore this is only for Half Moon Bay.  Nineteen condo sales occurred from May 1, 2007 to May 31, 2008.

5 in Cypress Cove - average SP $721,600 (3 3br; 2 2br)
3 in Ocean Corners - average SP $543,000 (1 3br; 2 2br)
4 in Amesport Landing - average SP $475,250 (all 2 br)
7 in Pilarcitos Park - average SP $445,000 (1 3br; 6 2br)

As of today, there are 4 pending with an average list price of $443,500.

There are now 8 active condo listings with an average list price of $538,000.

This Altos graph shows the listing trends for the local condo market and why it’s important to know the specifics of the quartile you’re researching before pricing your condo for sale or making a purchase offer.

To learn more about Half Moon Bay area condos, check out this archived post.

CNN reports that the Federal Reserve Board leaves its key short-term interest rate unchanged. By a vote of 9-1, the Fed decided to leave the rate at 2%. The sole dissenting vote was from the Dallas Federal Reserve Bank President, Richard Fischer, who voted for an increase.

It is unclear what this decision means for real estate mortgage rates but my sense is that it may signal mortgage rates are as low as they are going to be in the near future. I believe at this point in time there is a far greater chance mortgage rates will go up rather than down.

Housing supply is defined by how many months would it take to sell all the existing inventory if no additional homes came on the market.

For example, in Walnut Creek we have 328 homes on the Multiple Listing Service as of today.  According to TRENDGRAPHIX, as real estate data company, this would take approximately 4.6 month to sell.

Here’s the interesting news.  TRENDGRAPHIX show that the worst month we had in Walnut Creek with housing supply was September 2007.  Real Estate in Walnut Creek had 8.6 month of inventory. We have absorbed about 50% of our supply in nine months.  There is a very good argument for the Walnut Creek housing market to be in balance.

Of course different price ranges have different statistics, I find this very interesting and hope that families that want to buy in Walnut Creek begin the process.  Sellers should also look at these statistics, as it’s a good time to look at specific data to see if there is a shortage of inventory in their neighborhood and price range.