| Do Shrinking Pools Matter? | September 12th, 2007 |
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What follows is another opinion– from Natasha Lovas at Triton Funding in San Francisco. She offers an additional insider’s perspective on what’s going on with buyers right now. It’s also full of good nitty-gritty information on what the new restrictions are for approving buyers: Sorry to say, and this is only my PERSONAL opinion, but I really do disagree with your colleague’s take on the market. Or maybe I don’t really disagree, I am just seeing it from a different perspective. To the extent that the buyers out there now 1) were pre-approved with a stated income loan or 2) barely qualified for a full documentation loan, they will be rudely surprised to find out they no longer qualify in the same price range.Many lenders are now using higher qualification rates (not all, but the majority now) such as the fully amortized payment rather than the interest only payment. On many second mortgages (again, not all, but most), we need to qualify people at the prime rate PLUS 2%, not the interest only start rate.) Many lenders will no longer do stated income unless the borrower is self-employed — they used to do stated income if you were salaried. Cash reserves have gone up on stated loans, from a mere $5,000 or 2 month PITI to 6 months PITI. And rates are higher on jumbo loans, which also affects qualification, especially if the borrower had high ratios to begin with. Looking at the loans I closed in the first half of this year, how many of them could I still pull off today? About half would be my guess. There are many more examples I could give you, but overall, lending has changed in a major way from what it was only 2 months ago. There is currently a lot of denial out there and I also believe that many mortgage brokers don’t even realize how much things have changed, but changed they have. It may take another month or two for these realities to filter down to buyers (and their realtors, many of whom are still oblivious), but I do see the pool of buyers shrinking. Enough to make a difference to prices in SF? I don’t know. BTW, I am saying “I don’t know” a lot lately! Thanks Natasha! BTW, I love all your feedback and will post anything that I think is relevant or of interest. So feel free to send it in. |
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Recently I quoted a fellow Paragon agent who is unphased by the mortgage mess. He doesn’t believe there will be any serious affect on the real estate market in San Francisco. Relative to his 30 years of experience, he says, what we’re experiencing is really only a blip in the market.| More Mortgage Madness and a TIC for Rose Lovers | August 23rd, 2007 |
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Here are some of the things good agents are doing differently now:New pre-approval letters. I wrote about the importance of a solid pre-approval letter in my last “Buzz.” If my buyers don’t have an approval from a San Francisco lending professional with an established reputation, I ask them to get one. I’ve already seen this new practice make a difference—an offer I presented last week was well-received because the pre-approval letter came from a mortgage broker the listing agent knew and trusted. Loan Contingencies. Up to this month, the best offers had no loan contingencies. Now I wouldn’t think of writing up a contract without one. If I were representing a seller and received an offer with no loan contingency, I’d question the buyer’s reliability and sanity, unless was paying all cash. Longer Escrows. When the lending industry was flush with capital it was easy to get loans quickly funded. Now, only a handful of lenders are offering reasonable terms—and they are severely backed up. Not long ago I was writing contracts with two-week escrows. Now my deals have closing dates 35-40 days out from ratification. Close scrutiny of New Homes Contracts. New Home contracts are custom documents written by the Developer’s attorneys and need a close read. I reviewed one for a client last week and found no loan contingency. This is for a project that has dozens of units under contract—we were the first to notice that a buyer could lose their 3% deposit if they didn’t get the loan. Happily, we were able to build a financing contingency into the contract so my clients’ 3% won’t be in this kind of jeopardy. *********************************************************** FUTURE FALL-OUTI think there will be major changes in how New Home developers do business. Their contracts will have to be revised to reflect the current lending climate and the financing incentives they’re offering will be changing. Since first-time buyers with limited resources are a common new home buyer profile, there will be slower sales in this segment of the market and ultimately more room in the prices. I’m hearing a variety of stories about buyers losing deposits in New Home developments because of the loan crisis. I’m sure there are battles over the 3% deposit in the resale market as well, but buyers in new developments are at a greater disadvantage because of how language in a New Home contract is structured. I’m also seeing some unusual Loan Products. There are still good adjustable rate mortgages available—but sometimes the terms are like nothing I’ve seen before. One lender is offering 15-year and 10-year fixed rates with interest-only payments at 6.875%. Another is offering a more traditional 6.25% fixed for five years. Please be aware that as far as I can tell, these loans are only available to buyers who can go ‘full-doc’ with great credit and have at least 20-25% down. Bottom line for Buyers: If you are well-qualified, this is a great time to buy. Less competition and nervous sellers are making it easier to find good deals, particularly in inventory-saturated markets like South Beach and SOMA. Bottom line for Sellers: If you have a property that pushes the ‘hot-buttons’ (right architecture, location and lay-out) you can still anticipate multiple offers. For examples of what’s hot right now, see my next postings which will show examples of properties that recently went into contract above their asking prices. We’re starting with the TIC— If you want to head straight down into mortgage madness, you should skip this part. . . ************************************** I have a line on a NOPA Showplace Victorian TIC. This is not yet on the open market . Here are the stats: · Two-unit building on a fast track to condo-conversion. Other owner-occupant in place.· +/-2,000 square feet · Three-bedrooms/two-baths · Yummy remodel completely down to the studs · State of the art media/family room · Direct access to exquisite south-facing English rose garden. · Listing price in the mid-900s The rose garden makes my heart go pitter-pat each time I see it. Please call if you want more information and I will get you in pronto. |
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Hello My Favorite People! MORTGAGE MADNESSMy last email promised a further update on how the mortgage crisis is affecting the San Francisco market. The subject was top of the list at our Paragon sales meeting last week and we reviewed how we need to tighten up our practices to make sure our clients’ interests are protected.| Mortgage Madness - A View From The Front Lines | August 15th, 2007 |
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So how will this affect the San Francisco real estate market? I hate answering that question because predictionists are wrong at least 50% of the time. At this point all I really want to deliver is news about what’s happening in my little real estate world. For instance, a couple of my Sellers are holding off on listing their homes until we can understand how this development affects the market. If other Sellers are thinking the same way, there could be less than optimum inventory coming on after Labor Day. This would be a drag for the qualified buyers out looking because there is so little available in this slower summer market. On the buying side, I’m blessed to be working with buyers right now who all have at least 20% down and stellar credit scores. However, when reviewing my sales over the past year, I note that 20% of my buyers would have trouble purchasing today. These clients were all below the $1M threshold and looking at new or newer condo buildings in SOMA or South Beach. I imagine that other agents who sell entry level single family homes are also experiencing some fall-out. ******************************************************** For the buyers I’m working with, I’d hoped this development could help them drive good deals on the things they wanted to buy. To gauge what was happening, I paid especially close attention last week to two new listings that I had two different sets of buyers for. For various reasons my buyers chose not to move forward with offers on these properties, but since other similar homes will be coming available, it was important to see how the market was going to respond. One was a West Portal home with two-plus bedrooms, listed for $999,000. The other was a 3BR/2BA sleek contemporary Corona Height flat listed for $995,000. This second listing had come back on the market due to a buyer that was unable to qualify for financing. Both properties had offer dates set for the middle of last week. The West Portal property received 6 offers and the Corona Heights property received 3 offers. The Corona Heights home went for at least the same price it was in escrow for the first time– from what I understand both properties are in contract for something roughly between $1,050,000 and $1,100,000. ******************************************************** When reviewing offers, the listing agents told me they took extra care to scrutinize the Buyer’s pre-approval letters. It sounded like some of the offers seemed weaker than others because of those letters. To strengthen my Buyers’ offers in the future, I’m returning to my practice of recommending they get pre-approved by a bank as well as a mortgage broker. I don’t want the offer they write to be discounted because our pre-approval letter looks iffy or is from a mortgage broker the agent is unfamiliar with. In the interests of all parties, I’m also going to receommend financing contingencies unless they are all-cash deals. ******************************************************* I am hearing anecdotes about cancelled escrows. The agent with a desk next to me at Paragon just had a deal on a four-unit building fall apart. I’m also seeing listings that would have sold quickly sit longer than expected. A good-looking five-room Victorian flat on Clayton Street with a yard and parking has just been reduced from $1,080,000 to $995,000. And a sexy 1500+ square foot 2BR/2BA home on Acadia in the Sunnyside with vaulted ceilings and great views is sitting on the market for $1,080,000. This seemed like a great price two weeks ago. Now I’m not so sure. . . ******************************************************* Paragon’s next sales meeting is this week and news of how new lending rules are affecting the market is at the top of our agenda. I’ve said before that these meetings offer access to a private brain trust of the best and brightest in the industry. Since the lending climate is a fresh development, anecdotal information from the front lines will be the best data I can give you. Look forward to more updates! ****************************************************** In the meantime, please don’t hesitate to call if you want more information on how this is all shaking out. We are getting constant “email blast” updates from the mortgage brokers and lenders which offer still more personal perspectives. I’m more than happy to pass them along to you if you want more details from those ‘in the trenches.’ And I continue to love your so-called ‘stupid real estate questions’—which are more helpful than you could ever know since they keep me wired into your personal experiences as buyers, sellers and owners. I look forward to touching base next week! In the meantime, please check my website, which has been updated with my latest sales! |
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You probably already know about the mortgage snarls that began hitting our industry about two weeks ago. If you want further education (or have been on vacation in a remote, tropical place), there are links to two good articles on the topic at the end of this email. The upshot is that lenders have become much more cautious about who they will lend to. This means that buyers who might have been able to comfortably buy last year using a no-doc or limited doc application are having to pay higher rates. Buyers with less than 20% down are also affected, as are those with less than stellar credit scores.
