San Diego Housing Market Has Been Steadily Improving-But Now It Is Slowing Down

Over the last 14 straight months, the San Diego Housing Market was improving. I reported so here on ActiveRain and on my Voice of San Diego Real Estate blog site with glee. So what is happening now? It would seem at first glance that the Federal Tax credit coupled along with state housing credits inspired most of the qualified buyers that were in the market to have already purchased leaving, us with a much smaller Buyer pool. And  that doesn’t look to be increasing any time soon. Could that be a real possibility after having a steady increase in the improving numbers of home prices and sales? A possible cyclical change already?

According to Data Quick reporting, more money was spent last month on housing in Southern California  in in the past 2 years. Home purchases are dropping significantly and with the historically low rates that haven’t been this low since the 1970’s, what could be going on?

We have had home price improvement for home sellers with the median price edging up 13.2 percent in the last year. The mix of homes  from distressed to equity homes sales has improved from what was in the range of over 50% to about 33% currently. Higher home priced sales  make up about 20.8% , which is up over last year , Investor and absentee buyers are currently making up about 19% of the sales. So that leaves up with 30% of the market made up of homes sales in the low priced category ( under $500K ) which is now lower than last year.

I suspect that Buyers are having a more difficult time of qualifying for the mortgages now. The requirements are getting more difficult  to qualify so it may be that many more potential buyers are not eligible to purchase.

Here is another  statistic that  might help explain some of the change we are experiencing. Over the years , typically adjustable rate mortgages make up  anywhere from 20 to 40 percent of the buyer pool at any one time. Today we are down to just a little over 6% of the mortgages  are adjustable. Jumbo loans , even though the interest rates are available under 5%, qualifying requires extra high credit scores, at least 20% down and cash reserves.

The Buyer pool is still shrinking and that could spell some serious pricing problems ahead for sellers as we see the ratio of supply and demand make these dramatic changes. This is likely to add to the number of distressed homeowners entering the inventory market in coming months. It may be early for this statement but I am thinking that the idea that the housing market is going to float all boats and help get us out of the economic downturn might have been just wishful thinking.

The Governor signed into law a senate bill that provides  New Home Buyers with a tax credit

Between March 1, 2009 and March 1, 2010, New Home Buyers can earn a tax credit up to $10,000 on a qualified personal residence. The qualified property an be a single family home or an attached property. There is 100 million in tax credit available so it will be available on the next two years on a first come, first serve basis.

The qualifying rules are as follows:

The Buyer must occupy the New Home for at least 2 consecutive years after the purchase.

The Seller of the new home must certify within one week of the sale that the New Home has never been lived in.

The Buyer must be eligible for the homeowner tax exemption.

Buyer must make application for the tax credit prior to the close of escrow.

The amount of the credit will be the lesser of 5% of the sales price up to $10,000.

The credit will be claimed over three consecutive years and a copy of the Seller Certification must accompany the tax return.

The Franchise Tax Board will be working with Title and Escrow companies to implement the program throughout the state. What’s is especially nice is that the New Home Buyers may also qualify for the Federal $8000 tax credit if they are first time home Buyers.

With our economic system in a tailspin, for the older generation hit the hardest by declining fortunes coupled with the rise of unemployment, property values and retirement investments,there may be yet another way for them to tap into the greater amount of their home equity in these hard times.

For home owners that are age 62 or older and have a good amount of equity, Reverse Mortgages may be their Golden Egg that helps them through the tough times and ensures they can stay in their homes.

While there are scores of Reverse Mortgage offerings out there from  private companies and even some state and local government types, the federally insured Home Equity Conversion Mortgage might be a good place to start in the discovery of the costs and requirements to see if the idea of a Reverse Mortgage is your Golden Egg.

An FHA Reverse Mortgage, was granted a higher loan limit last fall that currently stands at $417,000.

Some of options of the reverse mortgage is that it can give these older home owners various ways to take the loan. It can be an equity line of credit, lump sum payment or a combination of both, all the while they can remain in the home without the burden of making mortgage payments. And the costs and types of loans will most likely vary greatly.

Below is a general overview of the requirements for an FHA approved reverse mortgage, fully guaranteed by the federal government ( Federal Housing Administration, Housing and Urban Development, Department of Veteran affairs).

Requirements:

Must be 62 years of age or older
Property must be your principle residence
Agree to be counseled by Home Equity Mortgage Counselor *
Have enough equity in the property

The Amount of Mortgage is based upon:

Age of youngest borrower ( must be at least 62 years of age )
Either the appraised value or Home Equity Conversion Mortgage Limit ( whichever is less )
Current mortgage interest rates

Financial Qualifications:

There is no income or credit evaluations needed of the borrower (s)
Costs associated with the Reverse Mortgage may be a part of the financing
No payment is required unless residence is sold, residence changes from being the primary residence or borrower passes away

Eligible Property Requirements:

Property must meet the minimum FHA property standards
Must be a single family home or 1-4 unit home with one unit occupied by the borrower as his/her principle residence
If the property is a condominium it must be on the FHA approved list
If the property is a manufactured home, it must meet the minimum FHA standards for manufactured homes

*The purpose for the counseling is to determine if eligibility requirements can be met, what the financial implications and alternatives would be for the reverse mortgage and also what kinds of costs are involved. At that time, the provisions of the mortgage are presented with what circumstances will trigger the mortgage to become due and payable. After the counseling session, the Borrower(s) will be best able to make the determination if the reverse mortgage would be of benefit and ultimately meet their needs.

Spring brings a new vitality and a richness in the day for our new beginnings. The seedlings struggle and push their way through the earth to catch the glimmer and the light of the new sun, transferring that energy into rapid growth that will bear the fruits and the flowers.

We begin those tasks that will bring about another new year of change. As the plants and birds and other animals know, it is not a time of just passiveness. Before babies are born and the flowers and fruit mature to their full beauty, a life producing energy of work has to take place.

We begin to see new light filter into our lives, it is time for work. Time to prepare our homes and our lives for the upcoming summer, clearing away the old and the tired for a spring new freshness. But it doesn’t end there. That is just the beginning. It is also time to clear the old things of winter and bring the new colors forth that are only enhanced by the new brighter light of the sun.

Spring is a time to clear from our consciousness the old and dull thinking and open our minds to the new brightness of the day and the exciting new possibilities of tomorrow. It is time once again to learn new things and new perspectives and to invite a new freshness into our lives. Spring is time for own renewal of our values and joys and the richness of opportunities yet to be realized as the days move forward.

Spring is a time to begin new involvements and begin the work to establish new friendships. Spring is time to experience the new life that is promised. Of the world surrounding us and the world within us as we mature through yet another new spring season.

Spring in San Diego real estate is always fresh with new Promises and bright with new opportunities and possibilities. For the tired and weary of yesterday, the new spring day is a chance to breath the freshness of new life. As our lives come upon yet a new spring beginning, we can each see the Spring ,fresh with it’s new promises.

I think all too often, Buyers and Sellers are most often disappointed when they have no clear end picture in mind

I have had buyers tell me that they would like a 3 bedroom home with 2 car garage, it has to have at least 2 full baths and big yard. And when I ask where in San Diego they would like for me to look for that home, I get a rather large area of numerous communities that they want to consider based on some criteria of which they seem not very clear. What this tells me is that the Buyer has yet to put their desired home in the context of an actual place where such a home might exist. In particular, the budgets that are often relayed as fixed also have not correlation to the locations discussed.

We know for a fact that a home in Mission Hills, Point Loma or La Jolla that fits all the parameters of size and functionality does not have the same price tag as a home of like characteristics in San Diego Metro or in more inland communities. When the Buyers shop Mission Hills and then expect that magically the target home will somehow appear if we look hard enough or make offers low enough, when the budget dictates that we should be looking in other communities where homes typically of that market value exist.

There is a greater than a 50 % chance that this Buyer will not actually be purchasing anytime soon. The challenge of housing costs, limited by a realistic though restrictive budget is very real in any market and the limitations of budget need to be clearly drawn. The best way to be an informed buyer is spend a proper amount of time visiting various communities and understanding better the uniqueness of each area, the types of homes typically found there and the amenities of schools, shopping etc with the framework of that area. The more they see practical examples of homes they would consider in the context of the individual community and realistic budgets, the more likely they will be to actually buy a home there.

Without having the end picture in mind, a complete accurate picture, we are not likely to find the right mix of home, feature , budget and community in one package. I am a Certified Residential Specialist and with a good consultation, I can help you shape that proper end picture and then help you locate it in the right community here in San Diego. It will save you frustration and a lot of time searching. Given a large number of haystacks, in any haystack, though a needle may be there, wouldn’t it seem more useful to find the right haystack first?

My name is William Johnson and I am with RE/MAX Associates.  I would love the opportunity to work with you and help you find that just right home in just the right community.

San Diego Water Supply

Finally San Diego got some rain.  Over 2 inches of it in most places last week.  But don’t let this lull you into thinking that the need for water conservation has somehow ended.  It hasn’t.

The reservoirs are very low, there are going to be cutbacks in the supply of water we purchase, the water rates are going up again and we will not be able to fill the need for water.

So what does all this mean to you the consumer here in San Diego?  It spells the greater possibility of M-A-D-A-T-O-R-Y water restrictions.

For a lot of years running, San Diego, in fact all of California’s population has been exploding.  Developments of every sort are filling up the land.  People have been migrating in large numbers to California.  Meanwhile, we have not added one sustainable drop of water to the supply.

It has to strike you ( sooner if not later ) that with our droughts and no other means for water, at some point there won’t be enough to spread around.  Thinking you might need to shower with bottled water from Costco.  Not going to happen.

There must be ways to cut back on consumption voluntarily or the alternative way, if there is any hope of stretching supplies.  So it’s either we do it voluntarily or it will be mandated.  The former would be preferable to having your water supplies cut off or greatly curtailed.

Here are some ideas to help you -there are a lot of other ways to cut down your water usage.

1. When running water to get to the hot water – don’t let that water go down the drain.  Capture it in buckets for use on your plans for your landscaping.
2. Turn off the water when brushing your teeth.
3. Fix leaking faucets or toilets that continue to run.
4. Take shorter showers.
5. In all flow restrictors on all faucets and showers.
6. Replace the old toilets with new low flow toilets.
7. Cut your yard watering down by one half.
8. Use a car washing service that recycles their water use.
9. Use the dishwasher only when full – same with the clothes washer.
10. Replace a portion on the lawn with drought resistant plants and use mulch around trees and shrubs to keep the moisture from elaborating.

We must all take this seriously if we are going to affect the outcome anytime soon. It is not going to easier by delaying this. We either cut back or they will cut out. You get to choose. I hope you will choose wisely.

The new streamlined  loan modification process is scheduled to begin around the middle of December and they are expected to ultimately prevent hundreds of thousands of foreclosures over time. But during this holiday period, Fannie Mae estimates 10,000 homeowners and Freddie Mac estimates another 6,000 homeowners will be helped by this suspension of foreclosures. This temporary suspension will give Fannie, Freddie and programs like New Hope along with approximately 27 other mortgage services ,time to get the streamlines process guidelines fully worked out and then to quickly begin implementation.

Foreclosure attorneys for both Fannie and Freddie were advised to contact as many homeowners as possible that were scheduled for foreclosure sale between Thanksgiving and Jan9th of this suspension and that no evictions were to take place at all during this period.

The simplified guidelines as we understand them for the modification process will be for those homeowners that are currently occupying their home and that are behind at least 3 months on their mortgage payments and  have not already filed for bankruptcy protections. The other details will be announced when ready.

This action to suspend the foreclosures for the 6 week holiday period will give at least some relief for providing an opportunity to many of these homeowners to qualify for a loan modification. Not to mention  the emotional relief of being able to remain in their homes over the holidays.

In other related news, it was reported here in San Diego county that Foreclosures in October had dropped 37% from September. According to the research team for Data Quick, the state senate bill that was signed into law in July but became effective in September, requires that lenders do more to try and help homeowners stay in their homes.

Like measures have been passed in many areas around the country and regretfully the results have shown that the slowing in the number of foreclosures is temporary. The loan modifications help with lowering the payments but not with the debt and therein is the problem of why these loan modifications only slow down the process. If the home is worth x and the loan is y, when y exceeds x, most of the long term incentive has disappeared.

Unless property values stop the free fall and begin the slow assent to increasing in value, the longer term issue of these foreclosures will most likely remain with us for some time to come.

Kenneth Harney a syndicated columnist for the Washington Post wrote an article that appeared recently in our Union Tribune and condensed all the known information about mortgage money and loan availability for todays Buyers of residential real estate.

The essence of the article was about the lack of shortage of money and the credit available to buy homes. He makes a very strong point that it is because the government has backed these loans and there is much less risk, at least for now.

Now, it is acknowledged that attaining credit today is certainly not as easy as it once was but if you have a good credit score and at least some money to put down, you stand a very good chance of getting your loan request approved.

Here are the Key Highlights of Kenneth Harney’s article.

There is no shortage of money available for home mortgages, no freezing of credit to purchase or refinance a house. Why?  Because the American mortgage market effectively has been federalized – at least for the time being.

Loan terms and credit underwriting standards have been toughened up, but you can still put down 3 percent (3.5 percent after Jan. 1) on an FHA-insured mortgage and 5 percent on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance.

Despite the global financial system’s quakes, mortgage rates not only remain low by historical standards but have actually declined recently.

Maximum loan amounts - through FHA, Fannie Mae and Freddie Mac in high-cost local markets on the West and East coasts ( San Diego is included in this category ) will continue to be $729,750 through December 2008. In January, the high-cost maximum is projected to dip to approximately $625,000.

Home prices – pushed by foreclosures and short sales – have rolled back to 2003 and 2004 levels or lower in many of the former boom market areas.

Buyers are seemingly liking the lower prices as many more are coming off the sidelines and making offers and deals are coming together.  Our National Association of REALTORS reported that the Pending Home Sale index increased  over 7% based on contracts signed in August.

The conclusion is that there is plenty of money available as long as you can qualify for it. If you are in the market to purchase a home, besides the large lenders, there are numerous San Diego local banks and credit unions that are wanting to lend mortgage money from their own portfolios and are competitive on their terms and rates.

The Present – We are all pretty much in tune with the almost daily ideas being suggested by underwriters, mortgage purveyors, Congress and others. Everyone has ideas, testing the waters for that one stroke of brilliance that will act as a magic pill to solve the whole problem, one step at a time, one sweep at a time or even one huge brush stroke and make the problems all disappear.

The Future – Depending on who’s idea(s) win out, the course for the future of the mortgage market will probably be a lot different than it is today. That future could be filled with new opportunities as the skilled learn the new required steps for making it all seamlessly come together. Or it could be an ultra new “hybrid” type of market, a different set of rules for nearly every kind of situation imaginable, difficult to learn and even more so for the mortgage professionals to manage.

Taking a step back, let’s be clear where we were and why the market was so robust that it increased homeownership from a national average of approximately 50% to about 65% over a five or six year period. As the days roll on, that number is declining back though it is doubtful it will ever fall to anywhere near the 50% level again.

The perception during that run up period was that housing prices would continue to escalate forever and was reinforced daily by the statistics of skyrocketing sales and prices to match. With that no longer being our reality today, where are we now on that statistical scale? It has left us with falling home prices, fewer buyers in the market place, fewer home sales, and more uncertainty than in the past 20 years.

By the end of 2007 there were over 2 million foreclosure filings and 400,000 had already lost their homes. Now as bad as that sounds by the end of 2008, that may look like a ‘not so bad’ number comparatively speaking.

The collapsing market for mortgage backed securities has stung Wall Street and the many participating world markets alike. Many of the world’s largest investment banks have been crippled and now show strong resistance that they are not anxious to ever experience anything like this again.

This has brought us to our current problem of lending and the now over tightened guidelines that are making it more difficult every day for us to buy their way out of this mess.

Along the way, the ideas are still popping up in proposals for legislation, proposals for intermediate action plans and somewhere along the way the creation of a new hybrid lending process that will be showing up and likely lending ( no pun intended ) to even more confusion for the awaiting consumers.

So the new question that has been raised is this, shall we have a bailout and fix all this immediately at the taxpayer’s expense? There are those in Congress and candidates for the presidency who most certainly advocate it. There are others that feel that the problem is best solved in the longer term by allowing the systems in place to work through and eventually they feel that most of the problems will dissipate, though slowly.

If our new current majority of lawmakers (not especially well known for creating law that actually solves financial issues ) have their way they want a Bankruptcy law change. This more recent proposal, would allow homeowners to file for bankruptcy to reduce their mortgage to the properties current value and along with that provide for a change in the interest rates. The current administration in Washington does not agree to that kind of a proposal. However; If this is passed in a new administration, it will make for a profound impact on current contract law. If bankruptcy judges are allowed to rewrite mortgage contracts, lenders will likely see this as yet another level of risk in the way of making future loans. Especially if what is agreed to in a contract is longer the guarantee of the terms or the return for the lender ( more especially the investor of the securities that provides for the funding of these loans). Increasing the risks could only lead to higher rates and costs for all consumers.

Will this increased risk of having the terms change cause widespread increases in the interest rates on all mortgage loans? Will the market be able to adjust or will it rebel by changing the old definition of social mobility and began to paint yet another aspect of homeownership as more restricting and in so doing reduce the demand to such an extent as to bring down home values even further.

There likely is no one right answer and certainly no Magic Pill. As a society though, we can work together with insight and vision and eventually with patience this will all be a part of history. Whatever the pain , we must endure, whatever the price we must pay it. But we shouldn’t try to legislate it away nor to tax the problem away. For it will then have only been a temporary solution and this problem will surely revisit us again, and again and again.

What is taking place is that lenders and mortgage investment firms are using the status declining market to charge higher interest rates, higher loan fees and higher requirements for down payments in these markets. In some cases refusing loans for marginal buyers all together. Even the appraisers are factoring in an adjustment to value based solely on the designation of declining market.

These declining markets are not just a few around the US as there are between 800 and 1200 whole zip codes tagged with this designation.

Areas already hit with above average foreclosures, short sale requests or slower than normal market recoveries are now facing yet another new challenge. The declining market risk factor affecting the way the loan and mortgage industry are employing the current Fannie Mae and Freddie Macs automated underwriting system to respond to loans from specific areas are beginning have adverse affects on the housing market. This needs to be called out and corrected before permanent damage is done and whole areas become blighted.

Minority groups and areas with strong concentrations of minorities across the US seem to be the hardest hit and it then becomes the potential for the stigmatizing of whole neighborhoods. It is being strongly suggested that they discontinue the practice of designating whole zip codes because the zip codes are proven to be made up of differing local neighborhood characteristics.

There is another word for this that has not seemed to cross the consciousness of the underwriters and the loan industry. The word is Redlining.

There is going to be a lot more to this story as government oversight surely will begin to look at the evidence of the accumulating damage . In response to these accusations by many that monitor the market areas, it is being pointed out the Fannie Mae and Freddie Mac policies permit lenders to make exceptions of the declining market status. Lenders have the right to make the exceptions but at whose peril? Will they then be buying back these mortgages if the borrowers default? It seems to me that it is too easy to follow the declining market guidelines and let someone else deal with the problem. Sooner or later, I can assure you, someone will. But will it be too late?