Bay Area Local | Bay Area Real Estate Finance

Why Today’s Case-Shiller Data don’t Jibe with the Recent Housing Market Buzz

'WWC Fall Family Fest' photo (c) 2005, Stevan Sheets - license: http://creativecommons.org/licenses/by/2.0/ — Bay Area Housing Markets are bouncing.

Because it’s old data.

For the last two months, there have been a slew of market reports about a hard bounce in the Bay Area housing markets. Reports of multiple offers, homes gone pending practically before being listed, and selling for well over the asking price have been popping up here, and in other markets as well. San Francisco real estate: it’s “so hot right now“.

So when you read today’s headline about Case-Shiller coming in with “new post-crisis lows“, it can be rather confusing. Just when you’re about convinced that the market is getting better, Case-Shiller throws a big soggy wet blanket on the party.

You have to read carefully. Although the articles usually point it out, they identify the issue with Case-Shiller’s lag as just so matter-of-factly. Today’s report runs up through the end of March or Q1 2012. That means the news is already two months old. And it’s been about 2 months that the market has been going pre-bubble bananas.

So in short, you can wait a month or two to see what the next few reports have to say (last Tuesday of every month), or you can get caught up in the current buzz. May be a scary proposition after the last 5 years, but if you were looking to buy in say, Jenner, CA (population 136), then waiting has already been pretty costly. Year over Year prices up 218%.

Are you trying to get your game plan for buying a home together? start by getting a free live rate quote

How is Real Estate Like Hansel from Zoolander?

Bay Area Real Estate is hot — Bay Area Real Estate - so hot right now

A quick game of connect-the-dots will paint a picture of a Bay Area Real Estate market that is “so hot right now“. I guess anything positive feels hot relative to 4.5 years of a market that’s been deader than disco. But there has been a swift change in the mood of the market in the past several weeks – call it a couple months. It is time to pay attention.

From key housing market analysts calling the bottom, to anecdotal stories of home sellers receiving multiple offers, all of the sudden we’re partying like it’s nineteen-ninety-two-thousand-and-five. This is no longer the housing market of the Great Recession. Let’s take a stroll around the local web:

On BayAreaRealEstateTrends:
Oakland’s Jay Wiedwald takes a data dive into Oakland and Piedmont home sales, separating the activity above and below $500k. “The shock of the price crash is wearing off of both sellers and buyers”

On BlogByTheBay:
George Crowe introduces the “Absorption Rate” for Marin properties below $1 Million “The absorption rate for Marin homes under a million dollars was over 90% for March”

On BayAreaRealEstateTrends:
Greg Fielding provides an April snapshot for Real Estate along the 680 corridor, with inventory data by town. “The Market is on Fire”

On CalculatedRiskBlog:
A broader view based on national real estate data. “Inventory declines 21% year over year”

On Patch(Piedmont):
A smaller data set, but up 50%? This is not a starter home market, either. “Home sales in Piedmont during April were up 50 percent over March 2012”

It has Been Feeling Like a Market Bottom for a Few Months Now

I’ve been contemplating the idea of a market bottom for a few months. My last post here was all the way back during the end of NFL season, when I suggested taking a lesson from Tebow’s faith.

Shortly after, on one of my other writing posts, I recalled a 1980 essay from bond market magnate Bill Gross referred to as The Plankton Theory of Housing. It explores the health of the housing markets by looking at food chain dynamics, and whether it’s a good thing for the market when investors gobble up the low end inventory.

And, if you follow me on twitter, where I’m good for 5 links a day related to the Bay Area, Housing Markets, and/or Real Estate Finance, I’ve been pointing out every time a noted analyst has called the bottom. There has been a recent flurry of such calls, and many of this post’s links have been broadcast there already.

Time to Get Moving?

If you’ve been waiting for the bottom, and now you’re ready to jump into this market, it will help to start budgeting your monthly housing payment. Submit your info on the upper right to get a live rate quote.

Conforming Loan Limits Update – And a Surprise from FHA?

FHA loan limits by a nose! - or, $104,250 over Conforming loan limits

UPDATE 11/18/11: The FHA loan limits have been raised through 2013. High cost counties – including all in the Bay Area will see a maximum FHA loan amount of $729,750 once again.

The latest chatter on conforming loan limit increases has taken a surprising turn. On October 1 of this year, the conforming loan limits peeled back from a ceiling of 729,750 to 625,500. A month prior, FHA loan limits were rolled back to the same level.

Since that time, there have been a few efforts in congress to get the former limits reinstated, and extended through the end of 2013. These efforts have focused mainly on the conforming loans backed by Fannie Mae and Freddie Mac, and expectations of any changes in FHA have been less discussed.

Now, FHA loan limits look to be leading the pack on the way back up through 2013. Conforming loan limit extensions have lost support… again.

The housing market is not viewed as being stable enough to withstand any removal of support, even if the impact was expected to be minor. This is the basic premise driving the debates and legislative efforts.

The impact of recently lowering the loan limits has been concentrated in counties where the median real estate prices are highest, such as Alameda, San Francisco, and Contra Costa. So we’ve been watching closely to see if the higher limits would come back.

Timing sure is a funny thing. While the effort to bring these limits back gained support from the Congress, so did a measure to block bonuses to executives of the two giant mortgage corporations, which are currently under US conservatorship.

So we’ve got a swelling anti-banker, anti-executive, anti-establishment movement in Occupy Wall Street and a general view that people in the “high cost” counties, where higher conforming loan limits would have an impact, are closer to the 1% than they are to the 99%. The so-called “bailing out” the rich folks is not a popular view at the moment.

Fannie Mae and Freddie Mac back funding for roughly half of all home financing transactions nationwide. For now, it appears their “conforming” loan limits will remain in place at 625,500.

The extension of FHA loan limits to 729,750 through the end of 2013 looks to be well-supported, and could be finalized in a matter of days.

More Chatter on Reinstating High Balance Conforming Loan Limits to $729,750

San Francisco real estate — San Francisco and other Bay Area counties would "light up" with joy if conforming loan limits were raised back to $729,750 photo: Andreas Gronski

Allowing the conforming loan limits to roll back from 729,750 to 625,500 (max determined by county) did nothing to help the Bay Area Real Estate market in the short run. We reacted to the official studies and reviewed the impact zone a few months ago.

It wasn’t proactively lowered; it was a temporary expansion that came during stimulus efforts, and which was allowed to expire. Since the change, there have been a number of efforts to get the limits raised back up through 2013. Congress is currently ~~fighting over~~ discussing it once again, and the verdict is due any day.

In the meantime, the once frigid jumbo market has seen improved conditions, as evidenced by generally expanding product availability and loosening guidelines. So if the conforming limit is not bumped back up, borrowers who are ‘jumbo’ with 625,501 and larger loan scenarios may find that the guidelines have now included them once again.

Might be time to review your situation… Drop a note below, and let’s take a look.

How HARP Phase II (aka HARP 2.0) Will Help

The revamped HARP program was announced on Monday as expected. Some of the expected changes from the original HARP program were met, others were not.

The new key features include:

No maximum Loan To Value. Theoretically, you could owe 400k on a property valued at 40k and you could be eligible.
Elimination of Reps and Warranties which lowers risks for participating lenders

Features that don’t help:

Lower adverse pricing adjustments for shorter term loans – incentive to refinance into a 15 year term
Loan must date back to May 2009 or earlier, HARP remains a one-time use program

Some of the reasons why HARP failed to live up to expectations are being addressed here. LTV was a big one. Even though the program allowed LTV up to 125%, loans above 105% were scarcely provided by lenders. Quite often, it required the “same servicing lender” to originate the HARP loan, which was a problem when a majority of servicing lenders had quit originating loans entirely in the wake of the Mortgage Meltdown.

The Reps and Warranties issue should also help lenders jump in to participate in this program. Program guidelines can be laid out with the government’s design, but that doesn’t force (theoretically) free market participants (banks) to participate. They’ll do it if they believe they can make money with it.

Estimates are floating around that speculate anywhere from 1.9 Million to 3.9 Million homeowners could benefit from HARP II. It will help.

Lender program details will begin to emerge in mid-November. In the meantime, the majority of homeowners are unaware of whether they have Fannie Mae or Freddie Mac loans; do the research now.

Fannie Mae loan look-up tool

Freddie Mac loan look-up tool

Make sure you enter the information exactly as it reads on your mortgage statement. The forms are sensitive to “St.” vs “Street” etc. If your loan is backed by either one, make note of it. If you’d like me to contact you when more details emerge, fill in a few details in the form below.

Can I Refinance my Mortgage if I’m Underwater and I’ve Never been Late on a Payment?

These days, no single question comes up more frequently than this. An “underwater” home is one where the outstanding mortgage debt exceeds the appraised value of the real estate. Being underwater is a common situation 4 years into the mortgage meltdown. On average, the cities of Las Vegas and Orlando are underwater.

An announcement is expected today about a revamped refinancing plan that would open mortgage refinancing access to an estimated 3 to 4 million underwater homeowners.

As the Great Recession wages on, rates have hit historical lows. But the refinance party has been an exclusive one; a huge segment of American homeowners are unqualified to re-borrow the debt they already have because of the loss in value of their homes – even when doing so would bring tremendous savings, thus putting them in a safer, more affordable situation. It’s quite a common trap.

There have several stimulus package programs aimed at helping struggling homeowners over the past 4 years. Too many to keep track of. Actually, I take that back. At Propublica, they have been keeping track of not only the various programs, but also the impact each has had. This list is all Obama-era, and lest you think I’m subtly criticizing the our fearless leader here, there were failed efforts under Bush as well, such as: Hope For Homeowners.

Home Affordable Refinance Plan 2.0?

Of all the plans enacted thus far, Home Affordable Refinance Plan (HARP) has been the most impactful. The HARP program reached in to the underwater sector making any borrower who has a Freddie Mac or Fannie Mae insured loan eligible up to 125% of their home’s value.

In their model, underwater homeowners could benefit from a program that opens access to refinancing for borrowers who are current on their mortgages, but unable to access current rates due to equity or income qualification hurdles.

HARP was estimated to open up refinancing options for 3 to 4 million homeowners. Since it emerged in early 2009, a little more than 800k people have successfully refinanced under HARP. The plan has largely been considered a disappointment, but it has penetrated the distressed homeowner market further than any other plan. In recent weeks, speculation has been building about a renewed effort with HARP that would address some of the reasons why it has not been more effective.

Likely HARP Plan Tweaks

A recent study from the Congressional Budget Office speculated about the costs and benefits of revising HARP. The revamped plan is expected to carry some or all of the following adjustments:

remove the Loan-to-Value caps (presently at 125%)
reduce if not remove the loan pricing adjustments that currently make high LTV HARP loans carry a substantial rate premium relative to the broader market
soften or eliminate income underwriting guidelines
eliminate appraisals
allow repeat HARP transactions, as opposed to one-time access

The basis for eligibility gets reduced to:

Freddie Mac or Fannie Mae insured loan
Current on payments

At this point, if you’re deep underwater, and still making the payments, have you not essentially made the case that A) you have the ability to pay your mortgage and B) you are willing to pay your mortgage?

The tenets of mortgage underwriting are all based on evaluating willingness and ability to repay the debt. How much more simple could it be? Plus, if underwarter homeowners were able to access rates in the low 4% range, it stands to reason they’d be much less inclined to let go of that home. When you’re stuck at 6.5% or you have a rate that is adjusting and you fear the future increases, then you have the makings of a strategic defaulter.

Allowing refinancing based on payment history is an extreme concept in this underwriting environment, but it is a back door solution to address a massive amount of negative momentum that continues to poison the housing market. If it works.

There are still several reasons why it may continue to be a headline that sounds a lot better than the story itself. This plan will be full of criticism, critique, and cries. There are unintended side-effects in the making. The philosophical debate between proponents of free markets and of government intervention will be full of sparks. And with an election season approaching, the political pandering and soapbox superhero nonsense will be enough to make my skin crawl.

But, if this program unlocks refinancing for the millions of homeowners who have been boxed out of the market for the past few years, there will be widespread stimulus in the form of $100, $200, $300, even $500 per month in savings. It will be well worth paying attention to.

What do I do Next?

I can help you find out if your loan is backed by Fannie Mae or Freddie Mac. Contact me if you’d like me to check into it for you, and to help you figure out if the new HARP program will be able to help.

Conforming Loan Limits – Expiring Or Extending?

'Obey, conform, consume' photo (c) 2004, Z_dead - license: http://creativecommons.org/licenses/by/2.0/ — tongue-in-cheek image here. while this artist questions conformity in society, as a mortgage borrower, conforming is a good thing.

Conforming loan limits are set for a change in just two weeks. This will impact Alameda County, San Francisco, Contra Costa, Marin and pretty much the entire Bay Area. If you’re in the conforming loan limit impact range, and have not done anything about it yet, it’s too late. There’s no way you’re going to start a loan today and close it inside of two weeks. As it stands, closing a loan on October 1 or later, above 625,500 will put you in the non-conforming (or “Jumbo”) sector. Terms are different, and there are several advantages to being a conforming borrower.

But Wait – There’s Something Brewing…

As the economic data in the US continues to roll in, the hopes of a rebounding economy are fading in favor of “double-dip” recession forecasts. There’s still a looming threat of financial crisis contagion from Greece and the rest of Europe, and the domestic data just doesn’t have much to offer in the way of inspiration. Unemployment, GDP, Housing Statistics, Consumer Sentiment, etc.

And just as the tide is shifting, the political arena is gearing up for campaign season. It matters not what we think is right or wrong in terms of removing government support from the housing market by downsizing Fannie Mae, Freddie Mac and HUD (FHA Lending) in favor of private markets. At this time of year politicians seeking reelection will act with short term interests in mind. None of them want’s to be perceived as lacking sympathy for the struggling American, pulling the plug on stimulus era housing/lending legislature that served to prop up a decimated marketplace.

What Are The Chances For A Conforming Loan Limit Extension?

HUD has already scaled back down to the lower limits. You cannot get an FHA loan above 625,500 any longer. They maintain support for the expiration of the higher limits, and are on record as saying that they would like to see the FHA market share roll back a little in favor of private lending.

In the Fannie/Freddie world, a bill was introduced in Congress back in July, which would extend the limits for two more years. Last week, a bipartisan group including 37 lawmakers urged the issue.

Don’t Count On It

If an extension is granted, we’re likely to learn about it at the last second, or maybe even after the current levels expire. And whether an extension is good for another year, or two, or three, all the investors and lenders have already cut off locks, and re-engineered their processing software. It may take some time before the product is offered again. You just can’t count on it until it happens.

When the impact studies came out on these expirations, I questioned the bottom line assessments that the markets could handle these changes without much incident. In the marketplace today, I am seeing an increased level of appraisal issues – where the value of the home has declined beyond expectations. The rising tide of negative overall sentiment in the economy isn’t helping the appraisers see with an optimistic lens, I guess. Allowing loan limits to expire only exacerbates this problem, and puts more homeowners into the mortgage ‘hurt locker’ – trapped in outdated financing and unable to access current market terms. I do not think this shaky market is ready to bootstrap itself into a vibrant, private marketplace.

I’ve got my fingers crossed…

Lego-Style Apartment Gives Domestic Transformer A Run For Its Money

If you saw last week’s installment of the Creative Real Estate series, I have little doubt you were short of amazed. The owner, who was an architect in Hong Kong, had devised a 24 room configuration for his 330 square foot apartment (I know!!!).

Now, from Spain, we’re introduced to Christian Schallert, who has pulled it off with a 248 square foot home. His approach is not dissimilar, in that there’s a basic cube with highly customizable, versatile, and movable parts that can be configured in dozens of different ways. It’s referred to here as a lego house. You just have to see it – this is spectacular ingenuity.

I think I like last week’s Domestic Transformer better. I find it a little more amazing. But, I’d rather live in Spain than Hong Kong, so … hmmm… dilemmas. I’d love to know if anybody in the Bay Area has done something this creative with a small living space. What’s your take? Which one do you like better?

Domestic Transformer – The Most Incredibly Flexible Living Space Ever?

This has to be the most incredible example of efficient use of living space of all time.

I lived on the outskirts of San Francisco’s Chinatown for about 6 years, and I did pick up an appreciation for some that neighborhood’s ability to effectively utilize space and resources in general. But this Hong Kong architect has taken the idea to an awesome extreme. If I said 330 square feet, and 24 rooms, does that make you kind of wonder?

You’ll simply need to watch this (4 minute) video. It’s our latest in the Creative Real Estate series.

The oddest part about it is that it appears that Chang has a significant amount of the space allocated for shelves containing what I believe are CDs. I have to think that he could rip those artifacts onto a hard drive and consolidate the collection to something about the size of two or three CD cases.

Those are some tight quarters – do you think you could handle that kind of living arrangement?

“Half-There” Earth Home Featured In WSJ Luxury Real Estate

I’ve been to East Hampton, NY, and it’s quite a different world from here in the Bay Area, but this property struck me as something you’d be more likely to find here in the Bay Area than on the east coast. At the very least, it would fit in well enough. Here’s the latest in our Creative Real Estate series:

As a matter of fact, if you could find a place to build something like this, it would fit anywhere. Simply because one of the primary attributes is that the home blends into its surroundings discreetly.

A few years ago, I was approached about financing what was called an “Earth Home” here in the Bay Area. It was under development in the East Bay, and the owner was looking to secure a loan post-construction. In that case, a little more extreme than this one, the home was almost entirely subterranean, with windows essentially facing in one direction, like someone had cut a wedge into a hillside and shoved a house in there. The design was amazing, but it was really an outside the box approach. (Reminds me of what was probably my favorite ever scene from the series Lost…)

If you’ve ever been involved in trying to obtain creative mortgage financing for a quirky or unique home, you might recall that one of the frequent trip-ups is when there are a lack of ‘comparable’ properties for the appraiser to develop a sense of relative value. But I digress…. take a look at this feature on the East Hampton home pictured above from WSJ Online, and be sure to watch the video inserted into the page.

Ever seen an earth home in the Bay Area? Could you live in one? Ever tried to finance one? Share your thoughts below!