LOAN SURVEY SHOWS MANY BORROWERS STILL UNSURE OF QUALIFYING

A recent study by analyst firm IPSOS revealed that borrowers still have 2 strong misnomers in the area of loan qualification; how large a down payment in necessary, and what your FICO scores must be to qualify.  Happily, this column is happy to spread the truth.  More than 36% surveyed still believed a 20% down payment was necessary.  Nothing could be further from the truth.  Many people qualify at 10%, but in fact, March of this year saw 29% of all loan qualifications with a 3% down payment (FHA products mainly).  The survey on FICO scores revealed that 45% believed you must have a score over 780.  The truth about FICO scores, which can be a little like a black hole, is that FHA requires 688 and conventional, generally speaking, comes in at 757.  It always saves you time and headache to speak to a lender before you look for a home, ensuring that you are looking in your correct price range.  Another interesting note is that interest-only mortgages are making a slight comeback. United Wholesale Mortgage plans, according to an article in the OC Register,  "to expand access to the mortgages to borrowers beyond the wealthiest Americans who use so-called jumbo loans.  Interest-only mortgages carry higher risks because they can leave homeowners facing a jump in their bills down the road."  Additionally, these loans can leave homeowners upside down when there is an unexpected downshift in the market as witnessed by the Great Recession.  But the lender promises to properly vet the qualifiers for this type of mortgage.  It does have its attractions for homeowners who have liquidity in other areas of their finances.  On a $300,000 loan, the monthly output is $1,31 versus $1,326.  However, note that these loans can climb as much as 2% annually and 5% total--causing payments to jump to $1,838 after 10 years.  Clearly this is a product that may have use for a well qualified borrower who KNOWS they will be exiting the property in less than 3 years, for example, and who feels the market appreciation will be positive during that timeframe.

FINALLY...O.C. REAL ESTATE TAX VALUE UP 6.3%

The surge is actually slightly less than last year.  But it is an interesting statistic because it reflects the strength in the market because remember, thanks to Prop 13, taxes may only increase 2% per year.  But it reflects strength because that surge is due in part to reassessments as a result of sales, and properties that have had massive improvements, such as  property flip have, remodels, add on property improvements, all of which result from a stronger market and economy.  There is never a bad time to invest in real estate, particularly your primary residence, as history continues to prove... but right now, may be the best time in years.  

THE NUMBERS ARE IN FOR 2014--PRICES WERE UP, VOLUME DOWN--BUT DON'T EXPRECT THAT TREND TO CONTINUE IN 2015

The New Year, that is 2015, has started with a much bigger bang than 2014 did.  In fact, it started to pick up at the end of 2014.  The total number of sales for November, 2014 (condos, single-family resale and new homes) totaled 15,643 for all of So Cal. (This includes Ventura, LA, OC, San Bernardino, Riverside, and San Diego.)  That number jumped an astonishing amount to 19,205 for December 2014, a 22.8% jump.  So you can imagine how anemic  the numbers were all year as the total for Orange County for 2014 was 33,844, down 8.2% from 2013's total.  That number was for all homes as stated above.  The median price, meanwhile, hit $585,000 and that was up 9.3% from 2013.  This completed two back to back years of fairly rapid appreciation gains, and experts rightly predicted a heavy slowdown, which actually started last winter, with appreciation steadily dropping all last year.  There was a total of 20,496 single-family resale, 9,166 condos sold and 4,182 new homes.  This year already is showing strong signs of volume recovery as interest rates promise to stay down...for now.  But many buyers are getting the message loud and clear from the Fed, that rates will probably rise sometime this summer.  This is a strong motivating factor for "fence sitters", who are waiting for that perfect time to buy.  The perfect time to buy is when you are financially and emotionally motivated, don't worry about the market,  but in particular, inventory is expected to strengthen this spring as more and more sellers are able and willing to sell, having enjoyed two strong years of equity growth.  You can expect to see our strongest "move up" market in over 7 years as people who want to do something, as well as those who have to do something, all enter the market.

FOREIGN BUYING POWER FOR HOMES HITS INTERESTING HICCUP

Most of us have read about or if you were selling a higher end home, may have experienced, the foreign nationals who have been snapping up properties in the US, particularly in So Cal, especially the OC.  Now listing inventory of the higher priced homes are starting to pile up as these buyers grapple with the stronger dollar.  It is a conundrum.  On the one hand, their money doesn't go nearly as far.  On the other hand, compared to many foreign currencies, the dollar is the safest haven and hedge against inflation.  Even said, listing agents might be compelled to obtain price reductions to move their high end properties.  Be patient and be realistic are the watch words for this market.  Even with this being the case, these off shore buyers will still bring competition to the high end.

AFFORDABILITY--A GLOBAL CHALLENGE

So read the headline of a recent OC Register article.  But there was a great chart from Demographia that listed the top 10 cities with the least affordable homes, in terms of the ration of an area's median home price to local median household incomes, from a study of 86 cities.  The good news is that greater OC isn't on the list, the bad news LA is, but the good news is that at least it's #10.  The cities you ask?: 1) Hong Kong  2) Vancouver, BC  3) Sydney  4) San Francisco  4) tied- San Jose  6) Melbourne  7) London  8) San Diego  9) Auckland, New Zealand  10) Los Angeles

WHAT WERE THE ACTUAL NUMBERS FOR OC?

The last complete month is December2014 and the numbers are: Total sales - 2,880, which is down 6.8% for the same month of 2013; The median price for all homes was - $591,000 which rose a mere 3.7% (much more sustainable and will lead to a healthier market for 2015); The total number of resale homes was 1,726, both price hikes and volume nearly flat at less than 1% for both; Condos sold a total of 744 and the price was $390,000 volume down 4.2% and prices up 4.8%.

HOMEOWNERS'RISING EQUITY SHOULD CAUSE MARKET TO STABILIZE

Rising equity will always have a stabilizing effect, because it allows all segments and price ranges in the market to make independent decisions regarding their home, which ultimately cause more interaction between price ranges and people move up or down in size and price according to their need of growing family, empty nesters, and retirement.  Equity is a very liberating quality in homeowner economics.  And although credit standards tightened immensely after the recession, there are now emerging more loan programs, the resurgence of some old programs and some revamps even in government lending such as the lowering of the FHA mortgage insurance by almost half a point.  On a median priced home, that can be over $200 a month or even more.  That increases a buyers, "buying power", tremendously.  All who are looking to buy should speak with a lender to find out exactly how much you qualify for...buyers may be surprised by their purchasing powers.  Sellers are also in a great position.  At last it would seem we may be trending to a totally equitable market.  It has been sometime.  Surely the results will be an encouraging factor in our economy for the year ahead.