What Started It Was The Buzz
A weekend topic to connect some dots on the price surge in certain markets compared to the slowdown a few months ago. The first two from the Mercury News in California. January 2015: “San Jose and San Francisco lead the nation in house flipping, according to Trulia, but the best days for making a profit may be over as price gains slow. Glenn Polf of Diversified Ventures Group in San Ramon said his group bought a house in East Oakland at auction but only broke even on the resale. ‘We overpaid. That’s what happens when you don’t get deals for a while. You get a little bit more aggressive. We were more optimistic than we should have been,’ he said.”
“‘The buyers are paying such a premium for houses, it doesn’t make sense for flippers,’ said Alisha Karandikar of CSR Real Estate Services in San Jose. ‘The acquisition costs are so high, that one little tweak in the market and they are going to lose their shirts,’ she said.’”
Late May, 2015. “How high does this ladder stretch? With spring buyers vying for a limited number of properties, the median price for Santa Clara County homes reached yet another all-time high in April. Sticker shock spread throughout the region, with prices for single-family homes jumping from a year ago in all nine counties, according to CoreLogic. ‘Prices are jumping,’ said Kristine Kim-Suh, a Palo Alto-based agent. ‘Some properties are selling for $30,000, $40,000 or $50,000 beyond last month’s comparables, and it’s making buyers that much more aggressive. For example, they know that the comparable is $825,000 and they’re bidding $885,000, they’re so anxious. It’s even surprising the listing agents.’”
“On the Peninsula, ‘nothing has slowed down,’ said Alain Pinel agent Nick Granoski, who recently worked with first-time homebuyers Becky and Brandon Stroy, who had been outbid and worn out since their house-hunting began in December. But by throwing an extra $400,000 on top of the $1,350,000 list price on a Mountain View ranch-style home in the Varsity Park neighborhood, the Stroys were finally winners. ‘There were 17 other offers and ours was sort of just barely high enough to win,’ said Brandon, an attorney. He received news of the successful bid while on his way to work, taking it in with ‘a mixture of joy and relief and surprise — and then terror, I guess.’”
This past week, from the Sun Sentinel in Florida. “Buying a house these days can mean putting up a fight. A surprisingly strong housing market this spring has put more homebuyers in the middle of bidding wars in South Florida, buyers and agents say. Heavy demand helped give the once-reeling market a boost and led to double-digit price increases in Broward and Palm Beach counties. That pace, though, couldn’t continue, and the market cooled in 2014. Now buyer urgency is back, fueled by loosening restrictions on mortgages and young families eager to find something before the next school year starts, agents say.”
WPRI in Rhode Island. “A quick glance at any local real estate broker’s website shows what seems to be plenty of homes to choose from, but agents say there’s less than meets the eye. ‘The buzz is getting out that there’s a shortage of inventory, and that’s the biggest problem right now. There’s just not enough houses,’ said RE/MAX Realtor Tammy Deviley.”
“The low inventory of existing and new homes has Deviley surprised. Weeks ago, she said market conditions were so challenging that sellers had to do a little bit extra to generate interest. ‘I did a market analysis for a potential client two months ago,’ she recalled. ‘And that price of that home was $20,000 less because there were so many homes to compete with.’”
“First-time buyers and those looking to move into larger homes have fueled an uptick in demand. Demand is so strong, in fact, that single offers for one property are now the exception. ‘People talk, and they talk about how they put in an offer on one. Bidding wars are actually starting again, which is something I have not experienced,’ Deviley said. ‘I think what started it was the buzz of people talking about the shortage of inventory.’”
Something just happened that changed these markets. Was it the ‘loosening standards? MarketWatch, “Buying a home has gotten a little bit easier — at least in terms of getting a down payment together — and young people may finally be ready to make a move. The average down payment for single-family homes, condos and townhouses purchased in the first quarter of 2015 was 14.8% of the purchase price, down from 15.2% in the previous quarter and down from 15.5% a year ago, the lowest level since the first quarter of 2012, according to RealtyTrac.”
“The average down payment for loans issued by the Federal Housing Authority — a government agency — originated in the first quarter was 2.9% of the purchase price while the average down payment for conventional loans was 18.4% of the purchase price. ‘Down payment trends in the first quarter indicate that first-time homebuyers are finally starting to come out of the woodwork, albeit gradually,’ says Daren Blomquist, VP at RealtyTrac.”
“New low down payment loans recently introduced by Fannie Mae and Freddie Mac and lower insurance premiums for FHA loans are helping first-time homebuyers, who typically can’t afford large down payments. FHA loans usually have looser terms. The government has been promoting low down-payment loans to woo first-time buyers into the property market. The FHA has offered a 3.5% down-payment loan, and many can be below 3% due to down payment assistance programs.”
“The government-backed lending enterprises Fannie Mae and Freddie Mac recently introduced the 3% down payment loan program, and the U.S. Department of Housing and Urban Development lowered insurance premiums that low down-payment borrowers have to pay, which Blomquist says would save the average house buyer $917 a year.”
“The share of low down payments — with a loan-to-value ratio of 97% or higher, meaning a down payment of 3% or lower — was 27% of all purchase loans in the first quarter of 2015, up from 26% a year ago, and they reached a two-year high.”
Vegas Inc. in Nevada. “Las Vegas homebuyers are making smaller down payments for new purchases, says a new report, a possible sign of easier mortgage lending in what had been ground zero for America’s real estate bust. Southern Nevadans made an average down payment of 13.3 percent of the home’s purchase price in the first quarter this year. That’s down from 14.9 percent a year earlier, according to RealtyTrac. In dollars, the average down payment last quarter was $36,326, down from $43,712.”
“In theory, stronger credit scores could also result in smaller down payments. But that seems unlikely in Southern Nevada, as the state’s residents have some of the worst personal finances in the country. Nevada, with the bulk of its population in Clark County, is racked by some of the highest rates of lousy consumer credit, bankruptcies, foreclosures, underemployment, mortgage delinquencies and uninsured residents, according to the nonprofit Corporation for Enterprise Development.”
From Banking Exchange. “The employment picture is brightening, real estate is on solid footing, and business activity is humming along in San Diego, providing bankers in the market abundant drivers of loan growth and myriad reasons for optimism. Competition is intense, bankers and observers note, resulting in pricing pressure. But they add that, with loan demand mounting, growth opportunities remain ample when looking out to the remainder of 2015.”
“An SNL analysis found that Silvergate Bank increased its first-quarter loans by nearly 40% from a year earlier. Several other San Diego-area banks generated robust double-digit growth in the same period, including San Diego Private Bank, Bank of Southern California NA, and Seacoast Commerce Bank. Among eight San Diego-area-based commercial banks, median first-quarter loan growth from a year earlier topped 27%, according to the analysis of regulatory filings.”
“Low long-term interest rates helped create a ‘mini boom’ in residential mortgage refinancing early this year, he said. Now, with the summer home-shopping season on deck, Silvergate CEO Alan Lane is looking for a rise in home purchases. The bank also is buying nonqualified mortgage loans from correspondents, adding to its loan totals. ‘That’s been a nice little niche for us,’ Lane said.”
“The strength of the market has proven a lure for more lenders, Lane said, fueling competition. That, in combination with already low short-term interest rates, is putting downward pressure on prices, affecting loan profitability. That helps explain why loan yields are declining in San Diego despite the healthy loan demand. ‘It is intense,’ Lane said of competition in both the commercial and residential lending spaces. ‘It’s about as intense as I’ve ever seen it.’”
“Lane said that while competition is clearly affecting yields in Southern California, he said he has not witnessed irrational moves on credit standards or on the structure of loans. He has not seen any competitor introduce no-documentation loans or products of that nature that helped deepen the last credit crisis. Lenders, he said, are instead competing primarily on pricing. ‘We’re not losing a lot of loans because people are starting to do stupid things,’ Lane said. ‘And that’s good, because that would be the sign of the next downturn.’”
