Bigger loan limits help 75% of O.C. home inventory
March 24th, 2008, 12:01 am · 21 Comments · posted by Jon Lansner/ocregister.com
Home market watcher Steve Thomas at Re/Max Real Estate Services in Aliso Viejo reports, “Lenders are scrambling in preparation for the new conventional and the FHA loan limits of $729,750, which are just beginning to hit the market. The new loan limits will have a profound impact on demand. At 10% down, the old $417,000 limit only covers 37% of the current active inventory. The new limits now encompass a staggering 75% of the inventory.”
His latest biweekly count of O.C. home inventory finds the number of distressed properties (homes listed by agents as foreclosures or short sales) was 5,221 last week, +164 vs. two weeks earlier or a +3.2% change. As a percent of all listed homes for sale, distressed properties were 33.4% of the market last week vs. 32.8% two weeks earlier.
Since Dec. 27, the number of distressed homes on the market has grown 1,470 while the non-distressed supply is 1,368 lower. Here’s a look at various slices of the O.C. market as of last Thursday: total inventory listings; distressed property listings; and the share distressed listings have of total inventory supply on a percentage basis. …
| Slice | All inventory | Distressed | Share |
|---|---|---|---|
| By price … | |||
| • O.C. $0-$500k | 6,875 | 3,717 | 54% |
| • O.C. $500k-$750k | 4,167 | 1,096 | 26% |
| • O.C. $750k-$1m | 1,750 | 243 | 14% |
| • O.C. $1m-$1.5m | 1,184 | 80 | 7% |
| • O.C. $1.5m-$2m | 654 | 19 | 3% |
| • O.C. $2m-4m | 761 | 10 | 1% |
| • O.C. $4m+ | 253 | 1 | 0% |
| All O.C. | 15,617 | 5,221 | 33% |
| • Attached | 5,902 | 2,222 | 38% |
| • Detached | 9,720 | 2,998 | 31% |
| County high share … | |||
| • Santa Ana | 1,629 | 1,016 | 62% |
| • Lake Forest | 353 | 207 | 59% |
| • Anaheim | 1,262 | 733 | 58% |
| County low share … | |||
| • Laguna Woods | 393 | 6 | 2% |
| • Newport Coast | 182 | 5 | 3% |
| • Corona Del Mar | 163 | 5 | 3% |
March 24th, 2008 at 7:20 am
Here’s the entire article from Steven Thomas - THE most relevant real estate news for Orange County:
“Market Time Report: Demand Up 121% Since January 1st
March 20, 2008
Good Afternoon!
Since the beginning of the year, the market has dramatically improved: demand is up, the active inventory is not growing uncontrollably and expected market time has dropped substantially. Let’s dive right into the numbers for further explanation. At the beginning of the year, demand, a snapshot of the last 30 days of escrow activity, was at 944 escrows. Today, demand has increased by an additional 1,139 escrows to 2,083. The change in demand is like being stuck in bumper to bumper traffic and then suddenly, without explanation, everybody is moving at the speed limit. Demand is the real story here. Even with the liquidity issues, buyers are starting to pour back into the market, especially in the lower ranges where buyers are not affected by the financial crunch. It is still really challenging and more expensive to obtain a loan above the $417,000 conventional limit; BUT, that is changing right NOW. Lenders are scrambling in preparation for the new conventional and the FHA loan limits of $729,750, which are just beginning to hit the market. The new loan limits will have a profound impact on demand. At 10% down, the old $417,000 limit only covers 37% of the current active inventory. The new limits now encompass a staggering 75% of the inventory. And, for those consumers with some credit blemishes and/or a small down payment, the FHA allows 3% down, all of which can be a gift. It is important to clarify that the FHA is NOT subprime and has been around for years. The only reason it was not in vogue before is because the Federal Housing Administration refused to adjust the limit beyond its $367,000 level for high cost areas. At that level, only 23% of the current inventory could be purchased with an FHA loan. It took a crisis for everybody to see the light. A lot of this mess could have been avoided with higher FHA loan limits all along. Needless to say, there will be reverberations in the local housing market, which translates to increased demand.
So, how do the numbers look right now? Demand increased by from 1,893 escrows just two weeks ago to 2,083 today. We have not seen demand like this since the beginning of April in 2007. The active inventory increased in two weeks by 205 to 15,617 homes. Expected market time improved from 8.14 months to 7.50 months. It is still a buyer’s market, just not nearly as deep as the 15.60 month market at the beginning of the year. Current demand at 2,083 escrows is just 112 fewer compared to just one year ago. The inventory last year was at 13,373 homes and market time was at 6.09 months. But, the difference is that last year demand was dropping and both the inventory and market time were rapidly climbing due to the subprime meltdown. On the other hand, this year the market has been improving incrementally every day with increased demand and not as many homeowners placing their homes on the market for the first time. It will not be long before year over year comparisons in demand will be better this year. Bank owned foreclosures and short sales, homeowners that owe more on their home than the current value, now account for 33.4% of the active inventory. Lenders remain in the driver’s seat with a 2.11 month market. For buyers looking for a “deal” in purchasing a foreclosure, be prepared to compete with other buyers. Many foreclosures are being sold for their full prices. I just heard from an associate who wrote two offers for one buyer this week and they lost out on both of them because the buyer was unwilling to pay the full asking price. Statistically, short sales have an expected market time of 12.05 months. HOWEVER, I must warn everybody that this figure is grossly understated. The standard practice for Realtors® out in the field is to keep a home on the market as an active listing even though they have an offer that has been accepted by the seller until they have formal lender approval of the deal. Because the lender must take less than what is owed, short sales are “subject to lender approval.” So, when a buyer climbs into a car and finds a short sale home that they want to write an offer on, chances are that the home already has an accepted offer that is somewhere in the “lender approval” process. This process can take anywhere from a couple of weeks to months. These homes are not placed into the Multiple Listing Service as a Pending Sale because the agent and seller are willing to take a look at additional offers that may be more acceptable to a lender, typically a higher offer price.
What’s the difference between the condominium market and the detached home market? The detached home market continues to fare better than the condominium market with a 7.23 month inventory. For condominiums, there is a 7.98 month inventory, the first time below the eight month mark since April of 2007. 31% of the detached home inventory and 38% of the condominium inventory is either a foreclosure or short sale. 67% of all detached homes below $500,000 are either a foreclosure or short sale. For condominiums, 47% below $250,000 are distressed and 43% between $250,000 and $500,000 are distressed.
Buyers, what to do? According to a CNN Money article titled “Housing: Best Time to Buy in Four Years,” housing has nearly returned to “long-term norms” and that by the end of 2008 “housing markets could be broadly undervalued.” Slowly but surely, more and more headlines and articles are touching upon the fact that values have come down so rapidly that they are creating excellent buying opportunities not seen in years. Increasing demand in Orange County can definitely be attributed to value. The good news is conditions are perfect to purchase: motivated sellers, a lot of inventory, rates are low, new loan programs are available and there are great values out there right now. Buyers need to understand the local conditions and the price range that they are looking at prior to writing their first offer. In more and more areas, certain price ranges and individual homes can and will attract multiple offers and above asking price offers. Understanding the market conditions is fundamental to isolating a home. Everybody is so focused on price and value that changes in interest rates are almost completely ignored. Buyers rarely focus on a difference in interest rates. Buyers can ask for a seller to pay a point of their loan and their monthly mortgage payment drops for the life of the loan. Also, rates will inevitably increase to stave off inflation. Just as Bernanke and the Federal Reserve are doing everything in their power to increase liquidity in the financial markets, they will just as swiftly and methodically increase rates. Although we have all grown accustomed to rates staying so low, like gasoline, we will get used to rates increased to 7% or 8% or more when the time comes. In 2000, conventional rates were 8% and in 1990 they were at 10%. 71% of distressed properties are below $500,000 and 92% are below $750,000.
Sellers, what to do? So far I am pleased that most homeowners have not been fooled into placing their homes on the market with the anticipation that it is the Spring market. Here’s a dose of perspective, given current demand, there are still 13,534 sellers who will not be successful in selling their homes over the course of the next month. With only 2,083 successes over the past month, that leaves the vast majority waiting another month or months. So, if you do not have to sell your home, DON’T. Placing your home on the market takes a ton of patience, a lot of elbow grease, a very good price, and tip top condition. The more upgrades, the better condition and the better the location, the higher a seller’s chances of successfully selling. If a home does not have the upgrades or is in need of work or does not show well, it must be reflected in the price. With the market flooded with so many foreclosures and short sales, a homeowner can compete and achieve a better price by having the best home in the best condition with upgrades that show beautifully. Be prepared on day 90 with the lights on, music playing in the background and the faint smell of cinnamon cookies in the air. You never know when the buyer that falls in love with your home is going to walk through the door.” ( end of report.)
Now doesn’t THAT sound better than NationalBubble’s hourly posts of doom & gloom?
March 24th, 2008 at 8:51 am
Steve Thomas hasn’t a clue. The larger loan limits will only be successful if interest rates come down another 1 to 2%. The lenders are adding on costs to these “Jumbo Conforming” loans to make them just as expensive as jumbo loans have been in past years. The “New” conforming is really the “Old” jumbo. People with 10% down (add another 5% due to OC being in a declining market), must have excellent credit otherwise additional costs are added. This gets us right back into the same old mess we’ve been in for the last 24 months….little down. Thomas says, “the new loan limit will have a profound impact on demand.” Profound impact? How can you afford a $4,000 to $5,000 a month payment and only have 10% saved for a down payment? Good old Thomas, spoken like a true Realtor.
March 24th, 2008 at 9:02 am
Stock market is rallying today on some “emperor’s new cloths” housing data, rates have shot up again, bigger loan limits mean nothing as is…
March 24th, 2008 at 9:43 am
I also was confused by that statement. Does he mean that people who couldn’t afford a $417,001 loan because it was a jumbo will now go out and buy $700,000 houses? It doesn’t make sense. I’d be trying to save extra money right now since many are already calling it a recession, and times are tough.
Who would want to overspend for a house right now?
March 24th, 2008 at 9:46 am
Yeah Big help! Jumbo rates are over 7% today
March 24th, 2008 at 9:48 am
God,,,,,Please save all these RE agents, nothing else,,,
they keep us laughing all the time, from the small one,
like this guy, to their stupid A** Yun guy Econo 100 ,,, Our Code of Ethic………………..
” I BS all the time because, I am used to it, and, I get paid for it” Thank you REmax,,,Every Market is different,, Buy Buy Buy,,,I am making no money,,I need to pay my bills,,,
March 24th, 2008 at 10:03 am
These days, even to qualify for the FHA loan product a borrower has to go full docs. There’s no more stated income stated assets allowed. Who really in Orange County can afford a $600k loan going full docs? Percentage is really low. The mess started with stated income with subprime credit , how does raising the loan limit help when these people who bought homes overstated their incomes. They will not be able to qualify for the FHA loan product going full docs. The loan amount they owe is way too much than what they actually make.They’re basically going to be in the same place where they started from. The new loan limit if anything would only work if the stated programs still existed, which is no longer available.
March 24th, 2008 at 10:23 am
Salvation has arrived!!
All of those poor families with 75k in cash burning a hole in their pocket and with a household income of 300k can finally get the high interest loan on the overpriced home of their dreams!!
thank you, thank you!!
March 24th, 2008 at 10:43 am
The “Conforming Jumbo” program for Fannie and Freddie is practically a non-starter. The guidelines are MUCH more restrictive than the “
March 24th, 2008 at 10:50 am
DigDoug….LOL!!!! Most would need more than $75k to qualify these days!
I see my post got cut off….too bad (since I’m not re-writing it) but the basic thesis is in the first sentance…loan limit increases barely help anybody due to their increased restrictions…almost useless political throwaway in the REAL WORLD…the end!
March 24th, 2008 at 11:09 am
The higher loan limit requires full documentation, no stated income. To get a half way descent rate of 7%, you need to put down 25%. It’s not as easy as he says it is. The appraisals are not as easy as they were before. The home prices will have to retrace back to 2003 levels, at least, to get some activities, We’re at 2004 levels now. There was a 25% jump in 2004 over 2003. So we have ways to go.
March 24th, 2008 at 11:46 am
Raised from 417k to 729k. Who is this going to help?? Not your average joe who couldn’t afford a 300k loan let alone a 700k loan! What a joke!
March 24th, 2008 at 11:52 am
Lenders are scrambling? There are that many people who are just waiting to borrow more than 417k? Is anyone on this message board waiting at the starting line to borrow this much? The lenders are scrambling for you.
March 24th, 2008 at 11:59 am
140k down 700k purchase 4000/month pmt
100k down 500k purchase 3500/month pmt
add your own mtg insurance to the payment, low fico add more
March 24th, 2008 at 2:16 pm
I have to agree the new ‘conforming jumbos’ are pretty much useless until the rates drop another 1-1.5 points. This will probably happen just as they are due to expire in Dec 08.
Who is taking bets on the ‘temporary’ becoming ‘permanent’ on these new levels?
March 24th, 2008 at 2:46 pm
Our gov’t. and our lenders can put new items on the menu (Jumbo conforming $729,950 and lender add on’s), but if people can’t afford to buy these new items, what good are they? Interest rates and prices have dictated the market direction for the last 40 years, not new loan amounts.
March 24th, 2008 at 4:41 pm
Realtors (like Sighburrdood above) - quite trying to pull the “new wool” over our eyes with your “I gotta make a sell phycho-babble.”
Asking prices are still way over-priced. A 50 year old beater in Santa Ana had no right ever selling for 600k, but it did. It was a 200k house when values were in line with reality, and that’s where it is going back to.
March 24th, 2008 at 7:54 pm
Darren had this to theorize about: “Realtors (like Sighburrdood above) - quite trying to pull the “new wool” over our eyes with your “I gotta make a sell phycho-babble.”
I am not a Realtor - I was quoting a Realtor. Unlike people like NationalBubble who lure you onto their website to make a profit, I have NEVER had an agenda in my posts. You don’t want to believe what I post, it’s no skin off my nose, or money in my pocket.
March 24th, 2008 at 8:01 pm
Darren,
Realtors make money regardless of what the price of a home is. The difference in commision between a home selling at say, $500,000 and $400,000 at 3% is $3,000. This isn’t a small number to be sure but what does a Realtor benefit from pimping homes at the higher purchase price if your pool of buyers is amaller. breaking it down for you economically, a Realtor makes MORE $$$ if he/she sells 3 homes at $400,000 than they do selling 2 homes (or in this market 1 at best) at $500,000. Get it?
The “Reality” as you put it is sales prices are ebtter dictated by the income levels of the real housing market. If the median income of the “Home buying” market (not to be confused with the overall median since a third or more of that market will NEVER be able to buy a home and will be “perma-renters”) is say $85-90,000, then the REAL value of a home will be some (x) value above market rents and a multiple of the median income of the “home buying” market for that area. That $600k home you reference in your example has a REAL market value well above the $200k you cite since there is no where in Orange County where rents are A) Not skyrocketing and B) well above the total housing expense less tax benefit of home ownership vs. home rentership! If population were to start to decrease then housing prices would keep falling down to your $200k value but until that happens, prices will not fall to such levels anywhere for a house in Orange County…a condo at a foreclosure auction? Sure! Already have seen that a couple of times for a 1-bedroom…but a house with land? Nope! Not anywhere nor am I likely to see it here!
March 24th, 2008 at 10:02 pm
So far this is only a temporary increase through December 2008. Without assurance that this will be permanent, it would be concerning to buy in jumbo price ranges. This may just setting up another bubble (or prolonged the current one) which could deflate if the increased limits are not continued. What happens if Jan 2009 rolls around and all this gets pulled? This seems like a setup.
March 25th, 2008 at 4:32 pm
Just chiming in on how this article totally ignores the effect of high jumbo rates combined with merciless lender-imposed LTV restrictions on declining market/condo/etc. I just don’t know a whole lot of people with $100K in their pockets who have just been waiting for loan limits to increase so they could drop their 10-15% down (or even more if any kind of attractive rate is desired).
Does it help? Sure. Even if only by evening the playing field for high cost markets like ours. But is it going to release the flood gates and drown us all in a sea of eager homebuyers? Come on!