Irvine Real Estate Blogger

On February 18, 2009, President Obama announced his Homeowner Affordability and Stability Plan. The plan has two components to it–one offers homeowners who qualify a plan that would refinance mortgages that are greater than the current market value of their home or condo into a more affordable monthly payment thereby reducing the possibility of a future foreclosure.

The second component offers homeowners a way to modify their existing mortages into a housing payment that would enable the borrower to stay in their home/condo and avoid possible mortgage default and/or foreclosure.

Beware of Foreclosure Rescue Scams–Help is Free! Let me preface by saying there are many scams out there that prey on troubled homeowners. There are people who purport to be experts in loan modifications and ask homeowners to pay for their services when you can obtain all the information and help you need for free.

This is one reason why I prefer to pass along the real source of information, so that you, the consumer, can determine after reviewing the eligibility requirements of each of these government sponsored programs whether you are a candidate for either one or the another.

The following web site explains in detail each of the programs–the Home Affordable Refinancing and Home Affordable Modification–eligibility requirements and the information you will need to gather before you contact your mortgage/loan servicer.

Go to: http://www.makinghomeaffordable.gov/

If you would like to read the detailed report released by the U.S. Department of the Treasury on March 4, 2009:

See: http://www.ustreas.gov/press/releases/reports/housing_fact_sheet.pdf

Long before the sub-prime mortgage debacle became a part of our common vernacular, Freddie Mac instituted a campaign entitled, “Don’t Borrow Trouble,” in which specific steps were put forward in order to avoid “borrowing pitfalls.” Education, of course, is the best defense against predatory lending practices. An important initial step in protecting families and their homes is understanding your rights and educating yourself in the home buying process.

If you are considering an Adjustable Rate Loan Program be an informed consumer by asking the following questions:
1. Ask what the initial interest rate will be (your start rate).
2. Ask how often the interest rate will adjust and the dates upon which the interest rate changes will occur.
3. Ask the name of index used to adjust the interest rate (e.g. Libor, COFI, etc.)
4. Ask what the interest rate spread will be or what your interest rate will adjust to when your rate change does occur.
5. Ask how often your interest rate will adjust.
6. Ask what the lifetime cap of the interest rate will be above the initial start rate.
7, Ask how many points you will have to pay (each point translates into a percent of the loan amount for which you are paying) and what your total fees will be.
8. Ask what your APR or Annual Percentage Rate will be (your interest rate plus the total cost of your loan)
9. Ask if there is a pre-payment penalty associated with your loan and what the cost will be (No, you do not want one!)
10. Ask as many questions as you need in order to understand the loan program you are obtaining. You should have received a written Truth-in-Lending Statement outlining the interest rate you were promised, along with all of the charges associated with the loan, at the beginning of the loan process. Don’t sign the loan documents if they do not appear to be correct.

For more information on the subject, click here

In an article in Monday, April 7th’s Forbes.com, written by Matt Woolsey, the author outlines the best cities in the country for home sellers. At first glance it was surprising to find that the top two cities named in the article are in California, considering all the doom and gloom the media has been reporting about in the housing sector: however, San Jose, CA, and San Francisco, CA were named #1 and #2, respectively, for home sellers.
The reasons outlined were as follows:

“San Jose’s tough regulatory measures make it difficult to overbuild. In addition, new home construction dropped 63% last year, while jobs grew by 1.2%. Home vacancies, which were already low at 1.6%, fell to a national bottom at 0.8%, helping make San Jose one of the country’s tightest markets.”

“Farther north, San Francisco’s conforming loan limit jumped from $417,000 to the maximum $729,750, which makes getting credit a simpler affair for many of the city’s home buyers. In 2006, the market felt a softening that pushed vacancy rates up to 2.4%, but a 56% cut in construction has cut vacancy rates in half. The increased access to credit, thanks to the new Fannie Mae and Freddie Mac limits, and the lack of available properties plays to sellers’ interests.”

The top 40 friendly seller cities on the list were analyzed and “ranked by its 2007 unsold vacancy rate, calculated by the U.S. Census American Housing Survey, and how much the market had tightened or loosened when compared with 2006 conditions.”

Next the construction starts were reviewed as tracked by the National Association of Home Builders in order to see if building starts would “compound or alleviate vacancy woes.” In addition, the Bureau of Labor Statistics was reviewed for job creation as a “way to measure the local economy’s ability to absorb or offset housing losses.”

Lastly, the degree to which new conforming loan limits from Freddie Mac and Fannie Mae will improve each market’s lending conditions was factored into the mix. “When Freddie and Fannie get more involved, lenders get the implicit backing of the Federal Government, something that softens the risks that have slowed lending elsewhere, as jumbo, or nonconforming loans, can be expensive losses.”

San Jose and San Francisco came out on top because they fit the profile of a sellers’ market–low inventory rates that were still shrinking, good job creation, a large scale cutback in new home construction and a boost in the credit market from new Fannie and Freddie loan limits.

On the other hand, in an article written on April 8th, in the Los Angeles Times, entitled Southern California Beach House Prices Remaining Afloat, Ronald White outlines the reasons why homes in the beach cities of the South Bay have faired far better than those located in the inland empire counties of Riverside and San Bernardino.

Moreover, Elaine Carlson, in her article entitled, Now You’re Talking…remarks that the areas of Malibu, Palos Verdes, and Newport Beach are doing even better than the 18 beach side zip codes that were included in the study by the Times for their relative affordability.

Fewer sub-prime loans were made in the coastal areas, where the buyers tended to have less trouble qualifying for good fixed-rate loans, said Stuart Gabriel, a finance professor and director of the Ziman Center for Real Estate at UCLA.

“The sub-prime problems are focused on lower-income and lower-credit borrowers who were stretching to afford homes. Those areas are very visibly and geographically concentrated in the interior parts of the state,” Gabriel said.

Again demand for homes in the beach cities are high, while availability of inventory remains low. Those areas of the inland empire that have seen the steepest declines in the price of houses (losses of almost half the value from the highs) are those areas in which there was unbridled building and development, and risky lending to those buyers who were lower-income and lower-credit borrowers who were stretching to afford homes.

On the other hand, “The individuals who had the income and wealth to own in the beach areas have not seen any significant decline in their situations.”

In an April 1st Day article entitled “Market Bottom Officially Reached at 2:34 pm This Afternoon; Impasse Between Buyers And Sellers Finally Resolved,” Kevin Boar, of 3OceansRealEstate.com, blogged about a property in Stockton, CA that had finally sold after going through five real estate agents, several thousand dollars in price reductions and 30 long months on the market, signaling that the absolute bottom in the housing market had indeed been reached at this particular hour on this appointed day, at which time we could all breathe a collective sigh of relief.
While written tongue and cheek, there is a great deal of truthiness to this, if I can quote Steven Colbert’s newspeak word. If the housing market is in the tank, then why are all these buyers pouring through Open Houses recently? Is it just curiosity? Or do that many people simply have nothing better to do with their free time on the weekends than to frequent Open Houses? (A cheap form of entertainment, maybe?) My take on this up tick in Buyer foot traffic is that:

1. Buyers intuitively feel down deep in their gut that the housing market has “bottomed,” or “corrected.” (Truth be told, Buyers all seemingly appear out of nowhere and disappear into nowhere as a group.)
2. Buyers are experiencing housing market withdrawal in what is coined in real estate speak as “pent up buying demand.” (There has been a house buying strike since the mortgage debacle of the summer of 2007, and the fence sitters appear to be getting antsy.)
3. Re-sale housing inventory has shrunk dramatically since last year at this same time. (Sellers who don’t have to sell have taken their homes off the market, and we are not seeing the re-sale inventory increase dramatically for this “springtime” of the year.)
4. New home builders have either opted out of the current market by postponing new building, while, at the same time, cutting existing new home prices to reduce their current inventories quickly.
5. Buyers are becoming increasingly aware of the new favorable lending guidelines, i.e., the temporary increase of the conforming rate loan limit (previously capped at $417,000) up to $729,750 through the end of 2008, while interest rates continue to remain attractively low (30 year fixed rates continue to hover around the 6% mark with good FICO scores (above 720).

So what does it all mean? Well my “gut feeling” tells me that Buyers have their ear to the ground. Buyers intuitively know when a new listing comes on the market, and are in tune with what they consider to be a “good buy/value.” Buyers know when a home is “over priced” or “priced-to-sell.” Buyers know when other Buyers are interested in the same property that they are interested in. Buyers know when a home looks and shows well, and is priced right, because Buyers today are well educated…have done their homework, and then some.

Real estate is, after all, local, and what we’re seeing in the Irvine, CA housing market is an increase in demand as evidenced by the number of houses and condos going into escrow (that is, selling), and a diminished housing supply for this time of year. Both of which should translate into higher homes sales and stabilizing prices.

Sounds like the impasse between Buyers and Sellers may be passe…yesterday’s news. And that’s the truthiness of the housing stalemate…it’s over. And that’s no April Fools’ joke!

I came across an article entitled “Buyers jump into murky housing market,” by Zack Fox, a staff writer for the North County Times. The story is about how home prices in San Diego county’s Oceanside are finally becoming affordable enough for some buyers to “take the plunge,” while others still are playing “the waiting game.” This concern can, of course, be extrapolated to our local market as well, here in Irvine, CA.

The article features a couple of buyers who have been waiting to buy for years, and with median prices falling, the question for them is whether to buy now or to continue their wait. Some real estate agents suggest that prices will not go any lower and first-time buyers should act now. Some economists, on the other hand “laugh at the notion and advise patience.” One buyer’s view is voiced by an Oceanside teacher, Julie Beck, who is not as concerned with whether the real estate market has bottomed out or not, but rather she is “tired of dumping $2,000 a month in rent into a property where she cannot paint the walls.” “I’m not looking at a home for an investment. I’m looking at a home for a home,” said Beck, who said she plans to keep her 4-year-old twin daughters and 8-year-old son in Oceanside schools through graduation. “I won’t be ready to sell for the next 12 years, so it doesn’t matter if prices drop some more.”

Does her sentiment make sense? In our experience it makes perfect sense, if…and this is a big if

1. The buyer has a secure job, that is, no chance of being laid off or relocated in the next few years
2. The buyer plans to stay in the home for at least five to seven years (the normal course of a real estate cycle to come full circle)
3. The buyer has good credit (these days a FICO score above 700 is a must)
4. The buyer has the down payment, income requirements, credit history, job history, and can afford to make a housing payment (Principal, interest, taxes, insurance, and association) does not exceed approximately one-third of the gross monthly income
5. The buyer’s debt to income ratio does not exceed 38% of the gross monthly income (that is the total housing payment in #4 + revolving credit card debt (car payment, student loans, store credit card debt, etc.)
6. The buyer has access to a down payment (either from savings, gift, investments, etc.) of 20% of the purchase price (again, this is the “old school way”)

If you can say yes to the above, then, yes, it makes sense to move off of the fence/rental and into your very own home.