Real estate, perfected.

Short Sales Are Virtually Non-Existent!

After the Great Recession (a.k.a. the real market crash in 2008), short sales ruled the market. People were upside-down on their mortgages and couldn’t sell then pay off their loans. With banks holding off on releasing REOs and thousands of short sales later, it seems like standard sales (sold by people who have positive equity in their property) are becoming more common.

We noticed that practically every new listing being released on the market today is a standard sale. So we wanted to research exactly what percentage of properties on the market are standard sales, short sales or REO’s. What we found was even more surprising than expected. As of April 26, 2013 at approximately 11:00am, there were 889 active residential listings in the San Fernando Valley. Of that sum, 768 were standard sales (that’s 86.38%!); only 55 were short sales! (6.19%); 38 were REOs (4.27%); 10 probate listings (1.12%); and 18 others (2.02%).

In order to get an idea of how dramatic this change really is, we browsed the history of closed properties between April 1 and May 1, 2012. These were our results:

  • Total – 815 closed sales
  • Standard – 439 (53.87%)
  • Short sale – 192 (23.56%)
  • REO – 160 (19.62%)
  • Probate – 8 (0.98%)
  • Other – 16 (1.96%)

Within one year, short sales dropped from 24% of the market to a miniscule 6%, and REOs from 20% to 4%!

With property values in California climbing faster than ever, many properties that were once upside-down now have equity. The ratio of standard sales in the San Fernando Valley market has increased dramatically!

15-year mortgage rate Vs. 30-year mortgage rate

There is no shortage of decisions to be made when applying for a new mortgage loan. Consumers have to select a lender and then decide between a fixed or an adjustable rate, and then make the biggest decision of all, 30 year or 15 year loan.

A 30-year mortgage financing loan has always been the most popular for consumers purchasing a house, but as interest rates remain at record low levels, consumers are slowly turning to 15-year loans because of how affordable they have grown since 2010.

Statistics from the Mortgage Bankers Association show that a 15-year loan accounted for 23 percent of refinancing applications in November of last year. This is up 51 percent from  year earlier. For the whole year, 15-year mortgages made up 35 percent of all refinance loans. In 2007, 15-year mortgage loans made up for only 8.5 percent of the refinance market.

Rates are becoming extremely affordable for a 15-year loan, so more consumers do not mind the higher monthly payment because of amount that they are saving in the long run. Consumers are saving themselves in the tens of the thousands in interest over the life of the loan vs. the life of a 30-year loan.

The chart below illustrates the savings generated from obtaining a 15-year mortgage vs  the traditional 30-year one. On a median priced home of $366,930, a homeowner could save up to $117,000. Figure 1 breaks down payment and interest schedule for the two types of loans.

The saving is the result of the historically low rates, which are also lower for 15-year loans. While the mortgage rates are not going to stay this low, as Frank Nothaft, chief economist at Freddie Mac, said “a 15-year fixed is three-quarters of a percentage point even lower….You can lock that in and never have to worry about refinancing again.”

There are advantages in selecting either a 15-year mortgage or a 30-year mortgage. The main advantages for selecting a 15-year loan are that: consumers pay off mortgage faster, save money in interest and build equity much faster. While these are great advantages, more Americans find using a traditional 30-year loan gives them the advantages of: having a lower monthly payment and having extra cash to increase their savings.

FHA Fix?

House

The Federal Housing Administration has reported being in trouble for some time now. In order to get them back on track, they have made a few adjustments.

Borrowers who are applying for the 30 year fix and putting down 5% or more will now be subject to an annual premium of 1.3% of the outstanding balance. This is a 0.1% increase over the previous 1.2%.

Those with jumbo loans ($625,000 or more) will have their premiums increased 5 basis points. The maximum amount financed will also be 95% now.

Insurance premiums will not fall off now as they did previously when the loan-to-value (LTV) ratio hit 78%. This applies to any borrowers putting 10% down or less.

There were also some tighter underwriting guidelines put in place (which make absolute sense). They require manual underwriting for any potential borrower with a less than 620 FICO score and above 43% debt-to-income (DTI) ratio.

Limitations on the amount upfront payments retirees can take through reverse mortgages have also been put in play.

All of these changes seem reasonable considering that FHA is subsidized by taxpayers’ money. FHA loans have become somewhat high-risk for the lenders which should have never happened. We will just have to see if this helps them climb out of their hole.

*We are not a lending institution, nor a mortgage broker. This is simply an industry update.  For the complete details or to see how this can affect your loan, contact your lender.

Attention home buyers!

If you have been trying to decide whether to live up north, or down south; hopefully this helps.

Based on the research of the California Association of Realtors, the average prices of entry level single family homes are as follows:

Los Angeles Metro Area homes go for $266,980 which make your full mortgage payment including taxes and insurance come out to about $1,280. In order to get this loan, your annual income needs to be in approximately $38,480.

San Francisco Bay Area homes go for $482,830 which make your full mortgage payment including taxes and insurance come out to about $2,320. In order to get this loan, your annual income needs to be in approximately $69,600.

Inland Empire homes go for $164,820 which make your full mortgage payment including taxes and insurance come out to about $790. In order to get this loan, your annual income needs to be in approximately $23,760.

Now, keep in mind that these numbers are averages; AND these numbers are for single family homes (houses). Generally, condominiums (condos) are cheaper and so that should make the numbers lower (condos have monthly HOA dues though). As always, you should consult with a professional if you have any questions!

There you have it folks!