Traditionally when you buy a house using a loan you get pre-approved by your banker or mortgage broker up front, based on some preliminary information about your financial profile, like credit scores, income and assets, and existing debt. Then once you get in contract on a home the lender underwrites the loan during the loan contingency period, typically a 10-17 day window after the offer is accepted. During that time the underwriter verifies employment and income, receives and reviews the appraisal, and gets other information and paperwork he needs so the bank can issue a firm approval. Once that approval is given then you can remove the contingency and proceed with the sale. But that waiting period puts you at a disadvantage when up against a cash buyer in a multiple offer situation.
In extremely competitive markets like Marin County and San Francisco we’re seeing a new trend. In an effort to compete with cash buyers some home purchasers are getting full credit approval in advance, where their mortgage banker actually sends their file through underwriting up front, so the loan contingency can be shorter or even in some cases waived altogether. With cash buyers often coming out on top in multiple offer situations it’s natural for those using financing to look for ways to be more competitive, so this may become more and more common as the hot market continues.
This more aggressive approach to financing brings up a couple of important questions. Is this method riskier than the traditional way of doing it, where a buyer has a contingency period during which she has an out if the financing doesn’t come together? And at some point will this become the new model for buyers getting loans? To this point this has been somewhat under the radar but the word is getting out, as the New York Times recently discussed the trend in a piece titled A New Weapon for Bidding Wars.
Also, even if you have no loan contingency, offers with financing are traditionally written with an appraisal contingency. If the property appraises for less than the purchase price the buyer can cancel the contract. Buyers have the option of waiving that contingency, but the bank will only lend based on the appraised value. So buyers who are at the limit of the loan to value ratio (for example 80% in a typical situation) have to bring more down payment money to make the loan happen. But some buyers who have enough money down, or the flexibility to increase their down payment if needed, are going in with no loan or appraisal contingencies, and thus being basically the same as an all cash offer. That’s a huge advantage and we hear from one mortgage banker we work with a lot that the majority of the deals he’s doing lately in San Francisco are structured this way, and it’s becoming more common in Marin as well.
It’s an interesting twist and the way things are going in this super competitive market it could become the new normal for many buyers. Considering you could forfeit your deposit if you make an offer with no contingencies and for some reason are unable to get financing, it’s not an approach to be taken lightly, and you need to be fully aware of all the risks before considering it. But if you’re writing offers in this crazy market it’s important to know that it’s happening, whether or not it’s an approach that would make sense for you.
Kathleen Hilken from Coldwell Banker just brought on this new listing in San Anselmo and it’s one out favorites of the week. It’s a house that will fit what a lot of San Anselmo buyers are looking for, with charm, a nice yard, a good layout, great schools nearby, and in a neighborhood that everyone loves. Good homes have been scarce in the Morningside area of late (and San Anselmo in general), so at $1,049,000 it should get a lot of interest.
We're sorry, but we couldn't find MLS # 21404841 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
It’s not really news that prices are high in the Bay Area, but check out this column in SFGate to compare what you need to make to buy a home here with the situation in other cities around the country. These income figures are based on the median price for a home in the metro areas as a whole and don’t take into account taxes, insurance, and other costs (or down payment), but are still useful in looking at relative affordability between cities. Maybe not a list you really want to be at the top of, but the demand for homes in Marin and other areas around SF is off the charts.
At least for now, they have just about completely dried up. We talked about this back in 2012 when they had slowed to a trickle, and that trend has continued. In December 2010 there were 31 new short sale listings in Marin, but last month that number was down to 4. There were a total of 10 active short sale listings, compared to the 234 on the market back in December 2010. Not that we should need distress sales to have any inventory in Marin, but this is certainly part of the story when looking for answers about this extended period of super low levels, as Janis Mara was doing in her recent IJ article.
In this chart the green bars show total short sale inventory, while new short sale listings coming on each month are represented by the blue line. It makes sense that they are going away as prices rise enough so that owners are no longer underwater on their mortgages.
The Consumer Finance Protection Bureau’s new rules for underwriting mortgages will start next week, and they will mean some buyers who qualified for a loan before will not meet the requirements under the new standards, especially those who were close to the debt-to-income ratio cutoff or those considering an adjustable rate loan. There will be lenders offering loans outside of the new guidelines, so we’ll have to see how it all shakes out, but this would be a good time to check in with your mortgage banker or loan broker if you were pre-approved last year.
You can also find more info at the CFPB website.
Stephen brought on a great new property this week. It’s a 3/2 Victorian home zoned for mixed use, plus a 2/1 apartment above the 3-car garage in back. The main house has period charm, including clawfoot tubs and beautiful wood details, and the location is amazing for those wanting to be near downtown. Open both Saturday and Sunday this weekend, 1-4. Asking price is $1,050,000.
It’s sounding like the government shutdown thing could mess with the housing market the longer it goes on. Here’s an article from the IJ, quoting a couple of the loan people we work with a lot. Let’s hope they get it together and get the government running again, and also avoid defaulting on the debt ceiling, which by all accounts would be a disaster. But in the meantime, a good idea to discuss potential delays with your mortgage person if you’re getting into contract on a home during all of this.
There’s been a lot of talk lately about the effect of rising interest rates on the market, including this article from SFGate. While it’s not hard to imagine that 6% mortgages and the corresponding reduction in affordability would have an impact on the demand for Marin’s high priced homes, that would still be a relatively decent rate by historical standards. And we’re far from that at this point anyway–just was quoted 4.375% for a jumbo 30 year fixed today from our in house Wells Fargo affiliate. Of course that assumes a 780 FICO, but that is still a very low rate. Going to be an interesting fall!
The numbers for July are in and there are no big surprises. Housing inventory in Marin remained very low–almost unchanged from June–and there are still lots of homes being sold. We have been feeling anecdotally that things have felt less crazy as we’ve gotten into July and August, and though it is still very common for there to be multiple offers on desirable properties, the number of offers in competitive situations seems in many cases to be smaller than at the height a few months ago.
Of course, with the real estate market being pretty dependably cyclical, we would expect things to slow down a bit this time of year, as people take vacations and are focused on other things, and then we see a little bump in activity in the fall with the slowest time coming over the holidays.
Much of the inventory that’s not selling quickly is in the higher price ranges, so supply and demand are still very out of line for entry and mid level homes. The picture looks more encouraging for buyers over the last couple of months when you look at all price levels combined as in the chart above, but less so when you take higher end listings out of the stats. Here it is for properties under $1.5 million. Notice how the total number of available listings (the light green bar) was much closer to the number of homes closing in July (the dark green bar).
If you have questions about what’s happening in the Marin market or would like stats tailored to your segment or area, please don’t hesitate to drop me a line at firstname.lastname@example.org.
We’re back to blogging after a hiatus due to technical difficulties, and thought we should look at the stats for Marin. When we last posted there had been an uptick in new listings–more in one month than we’d seen in a couple of years–and we were interested in seeing if that was just a seasonal thing or a sign of a trend that might help the low inventory problem. So far it looks like it was just a good April for new listings, as that did not continue for May and June (the blue line in the chart below).
Months supply of inventory was up just slightly in June to 1.6, which is still incredibly low.